Malaysia SSO

Market Report
2017
New Opportunities Define Malaysia’s Service Proposition

As technology and data deliver more value, the Shared

Services model can do ‘more’ while the traditional BPO
option is in danger of becoming redundant

Malaysia’s popularity for shared services and service delivery

work continues to be driven by its skilled, multilingual
workforce, its competitive gateway-to-Asia cost base, and
government support and incentives. With new technology
automation promising a ramp-up of value add services,
however, the value proposition is worth recalculating

Economic Overview: A Silver Lining

One concern the Malaysian economy has right now is the softening in growth
rates of its two major trade partners, China and Japan. In addition, with the US
trade policy regarding Malaysia uncertain under the new administration, and the
rejection of the TPP, the future is looking somewhat murkier than it did a few
years ago. Some estimates indicate that up to a third of Malaysia’s total trade
value may be vulnerable, and with the Federal Reserve seeming to lean towards
higher interest rates, the ringgit’s further fall against the dollar is probably on
the cards. Of course, the silver lining for foreign based multinationals, particularly
those dollar-denominated, is that the costs of operating in Malaysia (as measured
in dollars) will continue to fall.

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In the face of – perhaps because of – this challenging background, the Malaysian
government is continuing its commitment to propelling the country towards a
high income economy based on innovation, creativity, and high-value sources of
growth, and is intensifying its efforts to attract financial services, and ICT industries.
As set out in the 11th Malaysia plan [2016-2020] the services sector is the primary
driver of economic growth and the strategies formulated serve to improve the
competitiveness and resilience of this sector and promote the migration into high-
value knowledge intensive services activities.

This strategy is paying off with investment in services delivery

centres, particularly that driven by foreign direct investment,
continuing their upwards trend
(see Figure 1).

Figure 1: Private Investment in Services Sector/Malaysia

Investment Data (Services Sector)

Approved Private Investments in Services Sector, January - September 2016 & 2015
Domestic
Potential Foreign Investment Total Investment
Summary Number Investment
Employment (RM million) (RM million)
(RM million)
Services Sub- Jan-Sept Jan-Sept Jan-Sept Jan-Sept Jan-Sept
2015 2015 2015 2015 2015
Sector 2016 2016 2016 2016 2016
Global
171 224 1323 4217 2067 4362.1 5112.9 3860.2 7179.9 8222.2
Establishments
Support
173 251 2479 2605 3078.4 2978.8 911.1 702 3989.5 3680.8
Services
Hotel &
72 118 4441 7242 2434 4932.6 674.1 480 3108.1 5412.6
Tourism
Financial
33 48 56 140 14142.6 14142.6 2568.4 1228.8 10860.6 15371.4
Services
Source: Malaysian Investment Development Authority

Incentives
The most notable incentives offered by the Malaysian government are tax
incentives for companies investing in the services sector under the “Pioneer
Status” and the “Investment Tax Allowance.” Eligibility for both is based on certain
priorities, including the level of value-added, technology used. Eligible activities
and products are termed “promoted activities” or “promoted products”. In
addition, tax incentives, both direct and indirect, are provided for in the Promotion
of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act
1972, Excise Act 1976 and Free Zones Act 1990 – all of which include approved
services sectors as well as R&D, training and environmental protection activities.

These incentives are working.

New multinationals are still investing in greenfield

SSOs and established shared services continue to
invest in expansion. See, for example, Roche’s planned
investment of RM 110 million over the next two years

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into its Malaysian global shared services centre, Roche Services (Asia Pacific),
catering to the APAC region. Set up last year to provide finance, procurement, and
IT services to 15 Roche affiliates across the globe, Roche’s CFO and information
officer, Dr. Alan Hippe, was quoted as saying Malaysia was chosen after “diligent
analysis” to tap into the lucrative workforce. The centre is expected to create 260
job opportunities.

To date, there are more than 350 foreign and multinational companies that have
set up shared services centre in Malaysia, according to MDEC. Malaysia’s Second
Minister of international trade and industry, Datuk Seri Ong Ka Chuan confirmed
that foreign investment by the middle of 2016 had already reached nearly 80%
of the total foreign investment of 2015 – “with 66 proposed projects comprising
regional establishments in shared services still in the pipeline.1”

One of the great attractions continues to be Malaysia’s multicultural and multi-

ethnic society as illustrated by its three major groups: Malay, Chinese, and Indian
(see also Figure 2). Companies like Michael Page continue to see strong demand
for shared services jobs across Malaysia, still predominantly in traditional skills
around processing but also, as was apparent during a recent online search, for
languages like Japanese, Thai, Italian, and Korean. Specific skills like process
improvement, and data analytics are also in demand.

On SSON’s jobs page, which pulls in current job ads from across the globe, the top
100 shared services jobs in Malaysia included positions for both domestic as well
as international organisations, seeking process-, compliance-, record-to-report-,
strategic and indirect procurement-, database-, HR-, compensation- and benefits
specialists, as well as heads of global shared services [for example, recently, for
the UN Development Program].

Figure 2: Number of Active Shared Services Job Ads/APAC

Top 5 Countries
(Number of Active*
Shared Services Job Ads)

1289
India

1110
China

535
Philippines

346
Malaysia

273
Australia
* Active Shared Services Job Ads are those that have been posted in the last 30 days.

Source: SSON Analytics

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According to Hayes recruiting group, the top 10 global talent trends right now
include shared services centres, IT security, big data, HR services, and an ever
younger talent pool, which poses challenges in driving engagement.2

Another advantage is Malaysia’s relatively low risk rating in a region that is

otherwise fraught with political instability, weather and currency risk (see Figure 3).

Figure 3: Risk Exposure Across APAC

Cities with Cities with

most SSCs highest risk
(Number of SSCs) (Risk Index)

173 6
Metro Manila Yokohama,
(NCR),
Philippines Japan
Wellington,
New Zealand
131
Shanghai,
China 5
Tianjin,
China
127 Bandung,
Kuala Lumpur, Indonesia
Malaysia
Nagoya, Japan

121 Tokyo, Japan

Sydney, Osaka, Japan
Australia

Manila,
Philippines
120 Hanoi,
Singapore,
Singapore Vietnam

Source: SSON Analytics

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 GBS – a Central Strategy
Malaysia’s national ICT initiative [MSC Malaysia] has recognised GBS as an essential
tool in accelerating efficient service delivery – and a key growth strategy for the
country. GBS is also a focus point in Malaysia’s economic transformation plan,
and MDEC is a driving force to enhance the capability, capacity, and credibility to
develop a world-class GBS hub, for the following core industry verticals:
Banking financial services and insurance
Information and communication technology
Pharmaceutical and health
Logistics and transportation
Energy, chemical and resources
Fast-moving consumer goods

Given that the majority of Malaysian service delivery centres are supporting
regional services, the shift towards GBS is certainly a move in the right direction
(see Figure 4).

Figure 4: Geographies Serviced by Malaysian Centres

Malaysia is a regional hub with more centres servicing APAC market (34.1%) than Domestic only
(13%). Notably, 12% service global customers. Large range of languages in centres is a key factor.

What customer geographies are Delivery Centres in Malaysia servicing?

What languages do they offer?

Customer Geographies

ASIA PACIFIC

ASEAN

DOMESTIC

GLOBAL

MIDDLE EAST

EUROPE

US

AFRICA

LATIN AMERICA

0 5 10 15 20 25 30 35 40

Languages Offered
ENGLISH

MANDARIN

BAHASA

JAPANESE

KOREAN

OTHERS

THAI

CANTONESE

VIETNAMESE

TAGALOG

0 5 10 15 20 25 30 35 40

Notes
Other langusges include German, Italian, Spanish, French, Urdu, Hindi, Tamil, Khmer, Sinhalese, Bengali & Hokkien.

Source: SSON Analytics

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 In addition, MDEC has recognised global appetite for knowledge services by
encouraging these skillsets at universities, and supporting captives as well as BPOs
in this area. However, it’s not just about big centres and big players. Under the Entry
Point Projects 2 Program, the government is promoting incentives and initiatives
to allow smaller local players to flourish as well, injecting additional flexibility into
the marketplace.

MSC’s support of Global Business Services includes the recognition of Pioneer

status that allows 100% tax exemption for up to 10 years, and encompasses 25
designated areas where multinationals can set up operations. It’s already served to
attract names such as Shell, NTT, and DHL.

India
A Shakeup Philippines

And yet … over the past two years the Malaysian SSO market has experienced
something of a shakeup. Shell and BP, two leading brands, significantly reduced
their Malaysian-based shared services to shift activities to India and the Philippines.
Whether the driver was cost, attrition, or simply internal reorganisation, the
impact was unnerving for a government intent to shore up Malaysia’s SSO market.
On the other hand, and perhaps attracted by the continuing decline of the
Malaysian currency against the dollar, there have also been some fairly big name
new entrants including BHP Billiton.

The release of shared services talent from Shell and BP (added to the impact of a
number of banks reducing their staff over the past two years), has meant that the
jobs market is right now more liquid than ever – though perhaps not with the kinds
of people SSCs are necessarily hiring. Nevertheless, companies looking for good
talent, especially educated talent that is good at interpreting information, have
easy pickings right now.

But that can also be a problem, explains Ross Mackay, Managing Director, DHL
Asia Pacific Shared Services. DHL’s Multifunctional Shared Services Centre was
set up in KL more than 10 years ago and today employs around 700 FTEs, serving
150 countries. “We call ourselves the world’s most international Shared Services
Centre” jokes Mackay, “since we start at 4.30am and cover all the way up to
midnight, serving countries from Fiji to Iceland.”

“Recruiting overqualified staff for process work becomes part of the attrition
problem. With so much shared services work these days being process-based
we don’t need to recruit accounting graduates who would be looking for
additional accreditation and relevant experience for their career.
Recruiting these kinds of people will lead to unwanted challenges as
they leave to seek better career choices.”

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If you cannot offer people a strong career path they won’t stay with you no matter
how much you pay them, explains Mackay. “There are plenty of examples of high-
paying shared services centres losing their valuable employees over their inability
to provide longer-term careers. At DHL our focus is on providing long term career
opportunities and this has enabled us to bring our attrition rate down to half of
what it was in 2012.”

By way of example, he cites the fact that one of his senior project managers started
in desktop support and now runs global projects involving Finance and Sales teams
around the world. Another current team member started as a billing analyst on
the order-to-cash team and is now part of the senior management team. In fact,
over 75% of DHL’s promotions above entry-level are internal says Mackay. “We
rarely need to recruit externally above entry grade unless there is an exceptional
external candidate”.

Mackay also takes exception to the idea that hiring external brings in “experience”
that is worth paying more for than promoting someone internally. “The only
experience you are paying for is someone else’s,” he explains. “If you’re looking
for a process expert you probably already have that person sitting on your team.
They know your systems better than anyone else. And what they don’t know is
something you can probably train them on.”

Mohd Nizam Abdul Rahim, Head of Information Technology Services, at Sime

Darby Global Services Centre, would agree. With the GSC now in its eighth year,
Abdul Rahim heads the 120 strong IT services group within the multi-functional
centre [it includes Finance, HR and IT]. Citing strong connections with universities
for recruitment, and lucrative career pathing, he is rightfully proud of the relatively
low 10% attrition rate.

The fact that the corporate brand is naturally so strong in Malaysia is a big help,
he concedes. “There are many benefits to being part of a large conglomerate like
ours. It’s not about paying the highest salary but it’s about the total remuneration
package and benefits. We are very serious about offering career paths to our
staff. This includes the option of moving into the business units or transferring
across towers. For example, Finance staff are encouraged to move to the IT tower
because IT is no longer purely about development: “Today, in IT, we need industry
knowledge of the kind acquired in Finance services. Likewise, we encourage the
movement of staff from IT into the business to assist with operations. Given our
emphasis on partnering, this can only result in a win-win,” he explains.

Abdul Rahim points to his own career as a perfect example: “I’m a chartered
accountant who is now leading the IT team for Malaysia’s largest conglomerate.”

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New Opportunities
Part of what makes a job like Abdul Rahim’s so exciting is that the role of IT has
changed so much. This is due to two trends that are making themselves felt across
Malaysian services centres right now, which promise a shift in conventional delivery
models: Companies are starting to invest in analytics and robotics capabilities.

The government itself has also recognised these opportunities as they offer the
ability to compete more effectively against India or the Philippines. “Analytics is
generally not a cost play, but a knowledge play,” explains Mackay. “And that is
where Malaysia can flex its capability.”

Robotics will have a significant impact on local operations, particularly where

transactional work is concerned – which makes up nearly 2/3 of the work across
Malaysia’s centres at present (see Figure 5).

Figure 5: Process Analysis in Malaysian Centres

What are the type of processes in Delivery Centres in Malaysia?

High-Value Processes
Centres with
Treasury
Centres with
Transactional
R&D
Transactional
& High Value:
Analytics
Only: 62.9%
31.8%
Human Capital Management (HCM)
Business & Market Research
Legal

Centres with
High Value On
5.3%

Source: SSON Analytics

As the understanding of robotics increases across the market, organisations are

recognising the ability to leverage automation to scale up or reduce FTEs without
necessarily considering traditional BPO as an option. In fact, Abdul Rahim go so
far as to describe robotics as a “kind of outsourcing solution” – meaning, the
work is taken away from staff. As such, practitioners like Mackay see difficult times
for business process outsourcers. And given the large representation of BPOs in
Malaysia, this could have a significant impact (see Figure 6).

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 Figure 6: Malaysia’s SSO and BPO Market

In 2015, Malaysia has slighty more Captive SSCs (53.4%) than Outsourced Delivery Centres
(46.6%). Notably, both Captive & Outsourced Centres have increased consistently since 2000.

Evolution of all Delivery Centres in Malaysia from 2000-2015

OUTSOURCED
CENTRES CAPTIVE SSCs
46.8% 53.2%

Percentage of YOY Growth in OUTSOURCED CENTRES in

2014: 2.50%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Copyright© 2016 by Data Analytics Research and Technology Institute Pte Ltd. All rights reserved.

Source: SSON Analytics

“We certainly see fewer companies interested in outsourcing these days, at least in
terms of new deals being signed. Of course you still have contracts being renewed
or refreshed but in terms of actual new contracts signed, there is far less interest as
companies recognise the opportunity RPA offers to reduce cost and headcount in
their own organisations. And where Malaysia traditionally couldn’t compete with
India’s enormous service campuses, robotics is promoting its competitive edge.”

“I think the future of shared services delivery will be significantly impacted by

automation – it probably offers a sweeter pill than doing outsourced transformation,”
says Mackay.

The key issue as Mackay sees it is that despite all the progress, shared services
are still fairly “young” in terms of their impact on a process. “The industry
has effectively moved a process from A to B and standardised it, but very few
organisations to date have actually redesigned it from the ground up,” he says.
“And that is where robotics may offer a step change opportunity,” he adds, as in
theory, robotics would allow you to design a process from scratch, “as long as you
have the stomach for managing the change.”

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 Abdul Rahim sees exciting opportunities for Malaysian shared services that are
ready to leverage data analytics. First, however, a change in mindset is required.
“In the past we were used to reacting to an issue. Today, analytics gives us the
opportunity to be more proactive especially because more and more work is
being automated. The more we understand the business the more we can take
the initiative to analyse data and propose solutions. We have set up a solutions
delivery team specifically for this purpose,” he says.

“Part of what we are driving toward is the ability to do more work with fewer staff
– two years ago the IT services team consisted of 150 employees. Today it is 120
– and yet we do more work,” explains Abdul Rahim.

The Future
Across the world, concepts like Cognitive, Artificial Intelligence (AI), and of course
Robotics are driving a lot of excitement in service delivery centres. Many of
automation’s biggest proponents promise a future driven by a cockpit, not people.
That’s a future Mackay does not necessarily share, however. “For one, language
will always be an issue. Just consider that Google translate cannot deal well with
Japanese – how feasible is it, therefore, to automate processes in Japanese,
Korean, and Taiwanese? Here we offer support in 14 languages and we could ramp
this up if needed. Robotics would struggle to keep up.”

And that, finally, may remain Malaysia’s strongest attraction: As markets become
more integrated, business runs 24/7, and cultural differences disappear…
It’s nevertheless the proximity to the operation, the ability to build customer
relationships, and the ease of communication in a local language that will maintain
the continuity of services in 2017.

“You cannot optimise easily from afar,” is how Mackay

puts it. “You need to be close to the business and the
operations for analytics and automation to be most
effective. You already have experts in house – so why
move them anywhere else.”

CN
JP KR
EN

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 Summary
Despite the economic slowdown, APAC remains a key platform for multinational
businesses. As such, cost effective, value-adding service delivery is becoming only
more important. And while in theory the model that has been driving low-cost
service centres around the world may be under pressure, in practice, especially in a
region with as many languages as APAC, the ability to offer local language support
and understand regional cultures will maintain relations – and therefore Malaysia’s
place – for the foreseeable future.

Notes:
1. http://www.thestar.com.my/business/business-news/2016/10/26/roche-to-invest-rm110mil-to-expand-shared-service-centre-in-malaysia/
2. http://www.hays.com.my/press-releases/HAYS_311881

See also SSON Analytics’ report:

Malaysian Market Deep-Dive: Captive & Outsourced Delivery Centres (2000 - 2015)

Main Conference: 16 – 17 May 2017

Pre-Conference Workshops: 15 May 2017
Post-Conference Site Tours: 18 May 2017
Venue: Kuala Lumpur, Malaysia

Moving Your Shared Services Up the Value Chain to

Transform to a Strategic Business Partner
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to Kuala Lumpur. We will be gathering the most respected industry leaders to
showcase and exchange best practice on how you can take your shared services
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