Is outsourcing to Malaysia a viable option?

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Outsourcing to Malaysia has many benefits, thanks to its thriving services industry.

The Malaysian outsourcing industry serves many Fortune 1000 clients in various business verticals, including information technology (IT), logistics, and energy. 

And the country is making its presence felt in the highly competitive Asia Pacific region, which boasts global outsourcing hotspots such as India, China, and the Philippines.

In this article, we’ll share why and what you should be outsourcing to Malaysia and back it up with some key stats and trends.

This article contains:

(Please click on the below links to jump to a relevant section)

• Top 5 Benefits of Outsourcing to Malaysia
• How Does Malaysia Fare as an Outsourcing Destination?
• What Can You Outsource to Malaysia?
• 3 Quick Tips for Outsourcing to Malaysia

Let’s get started.

Top 5 benefits of outsourcing to Malaysia

Over the years, top multinational companies, such as IBM, Apple, HSBC, Shell, etc., have chosen to outsource to Malaysia. It’s because of some key advantages that give the country’s outsourcing industry an edge over other Southeast Asian countries.

Let’s explore the key benefits of outsourcing to Malaysia:

1. Higher cost savings

Businesses primarily outsource to save up on operating costs and maximize profit margins.

Malaysian cities have a relatively lower cost of living and lower employee income than most US and European cities. 

As per Salary Explorer, the average annual salary in Malaysia is USD 19,004 (according to the exchange rate in September 2021), compared to USD 94,700 in the USA. This means that the US or Europe-based employer can save up significantly on the cost incurred on salaries, logistics, and other business functions.

Whether you are a startup planning to scale or a thriving business, outsourcing your business processes to Malaysia could save you a ton of money.

2. Skilled talent

Outsourcing success depends on the quality of the local talent pool. Fortunately, Malaysia has no shortage of highly talented professionals across domains like IT, electronics, finance, etc.

The surge in Malaysia’s technical workforce began when big electronic companies like Intel, AMD, etc., started operating in Malaysia during the 1970-80s. It created a huge demand for skilled technical workers, mainly for semiconductor manufacturing plants. 

Then in the 2000s, the country witnessed a rise in IT outsourcing, widening its growing talent pool. 

Over the years, subsequent governments have introduced many educational reforms to upskill the workforce to meet global standards.

As a result, today’s Malaysian workforce comprises professionals with high-value technical proficiencies, prompting businesses to invest more in the country.

3. English proficiency

Besides technical expertise, multinationals usually look for local talent with good English proficiency for their global operations.

The current (2021) and the previous Malaysian governments have taken several measures to improve English proficiency among the students.

For example, the Malaysian education ministry has launched a ten-year plan (2015-2025) called English Language Education Reform. It aims to improve English teaching and learning, starting from the preschool and primary school levels.

These efforts are showing results as Malaysia is currently placed 3rd on the English proficiency Index (2020) among the APAC (Asia Pacific) countries, behind only Singapore and the Philippines.

4. Business-friendly policies

Despite concerns regarding political stability, Malaysia has become a competent outsourcing market through digital innovation and focused government support.

The pro-business policies of the Malaysian government have played a vital role in the country’s growth as an outsourcing hub.

Here are few initiatives that have strengthened the outsourcing industry and increased foreign investments:

A. The National ICT Association of Malaysia (PIKOM)

PIKOM is an association of the information and communication technology (ICT) industry with over 1000 member companies in 2021. It was established in 1986 to offer assistance to small and mid-sized outsourcing companies in the ICT sector.

However, PIKOM also welcomes a non-ICT local company and an ICT-related foreign company to join as an associate and overseas member, respectively.

The association provides a platform for its members to connect, collaborate, learn, and share ideas to boost the sector further. It organizes exhibitions and trade fairs where local outsourcing service providers can promote themselves in the regional and overseas markets. 

PIKOM started a venture investments initiative in 2018 to help companies scale with VC (Venture Capital) funding and business mentoring.

PIKOM also has active programs on human capital development, research, export promotion, etc., that accelerate the country’s outsourcing efforts.

B. The Malaysia Digital Economy Corporation (MDEC)

A government initiative under the Ministry of Communications and Multimedia, MDEC, was started in 1996 to bring about digital transformation.

The program empowers digitally-powered businesses by driving investments in the sector. It also helps Malaysian citizens embrace technology and learn digital skills.

Multimedia Super Corridor or MSC Malaysia is another initiative to nurture small and medium enterprises (SME). An ICT-related business with MSC status enjoys many benefits, including world-class technological infrastructure and financial incentives.

C. Outsourcing Malaysia (OM)

A PIKOM chapter, Outsourcing Malaysia is an initiative of the Global Business Services (GBS) industry. Its primary focus is strengthening Malaysia’s shared services industry and making it a hub for high-value services.

5. Digital infrastructure

Many forward-looking national programs have helped Malaysia increase its digital prowess over the years. 

For example, forming special zones such as cybercity, cybercentre, and technology parks, which group similar sectors to achieve faster growth. 

Cyberjaya, close to the capital city of Kuala Lumpur, is one such example of a high-tech city that’s often hailed as the Silicon Valley of Malaysia.

These industrial zones have the infrastructure required to leverage advanced technologies like artificial intelligence (AI), big data analytics, etc., and drive social and economic growth.

E-commerce initiatives such as the Digital Free Trade Zone (DFTZ) connect Malaysian SMEs with buyers and sellers worldwide.

To protect individuals and businesses, Malaysia has strong laws on cybersecurity and IP protection. The country’s IP laws are some of the strongest in Southeast Asia.

How does Malaysia fare as an outsourcing destination?

Let’s see how Malaysia performs on various business, economic, and outsourcing parameters:

• Malaysia ranks at three on the AT Kearney’s 2021 Global Services Location Index (GLSI), ahead of countries like the USA and the UK. GLSI is a ranking for shared services and IT outsourcing destinations, released once every two years.
• In 2020, Malaysia was placed 12th out of 190 economies on the Ease of Doing Business index.
• Malaysia ranks at 25 on the IMD World Competitiveness Index (2020), ahead of its Asian competitors like India, the Philippines, and Thailand. The index ranks countries based on their competency to achieve long-term value creation.
• On the 2020 global connectivity index, Malaysia ranks at 34 (out of 79 countries). The index measures the progress of the digital economy of a country. 

What can you outsource to Malaysia?

A large share of the Malaysian outsourcing industry is spread across three domains:

• Business process outsourcing (BPO).
• Information Technology outsourcing (ITO).
• Knowledge process outsourcing (KPO). 

These outsourcing domains may cater to a wide range of business verticals like IT, oil and gas, logistics, banking, financial services and insurance (BFSI), etc.

Let’s take a look at some of the most common processes and services outsourced to Malaysia:

1. Business and knowledge processes

According to International Data Corporation, the BPO industry in Malaysia is likely to cross USD 1.4 billion by the end of 2021. 

Regional and foreign BPO and KPO service providers benefit from the country’s strategic location and world-class digital infrastructure, making it a preferred outsourcing hub.

These companies may include third-party vendors as well as captive centers of large companies. They provide tailored solutions for back and front office operations, freeing the company resources for core business functions. 

Some of these client-facing and back-office operations include:

• Customer service.
• HR management.
• Payroll service.
• Financial and accounting services and consulting.
• Data management.
• Web design and content creation.
• Research and development.
• Business reporting, etc.

Some of the top companies offering BPO and KPO services in Malaysia include:

• KPMG: With eight offices and a staff of over 2200, KPMG Malaysia offers accounting, payroll processing, and HR services to its clients.
• TDCX: Started in 1995, TDCX takes up operations related to customer service, e-commerce, sales, etc., on behalf of their clients.
• Daythree Business Services: Daythree is a leading business service provider in Malaysia, offering a wide range of services like contact center management, revenue generation, business automation, intelligence, etc.

2. Information technology

Similar to The BPO sector, information technology outsourcing (ITO) in Malaysia is distributed among the captive operations of big IT companies and local third-party service providers.

Some of the IT-related services that these companies offer include:

• Software development.
• Application maintenance.
• IT consulting.
• Cloud transformation.
• Infrastructure management: data center management, network, and data security, etc.
• Technical support.

Some major ITO providers in Malaysia include:

• Avenga: Operating from their center in Kuala Lumpur, Avenga is a global IT company that can manage IT operations, design software solutions, and offer IT consulting services to their clients.
• Suria Labs: Founded in 2015, this Kuala Lumpur based company offers services like web and UX design, software development and maintenance, etc.
• Original Intelligence Sdn Bhd: Formed in 2002, OI serves a wide range of clients and offers services like mobile application development, IT project management, system consultancy, etc.

3. Energy and logistics

The energy and logistics sector is a significant contributor to the Malaysian economy. 

Global energy companies like Shell, Exxon Mobil, and Caltex have been operating in Malaysia for many years now. These companies usually outsource their customer service and IT operations to Malaysia.

However, with a substantial workforce and domain expertise, many energy and logistics service providers in Malaysia offer domain-specific outsourcing services such as:

• Inventory management.
• Repair and maintenance.
• Risk assessment.
• Drill rig assembly.
• Plant design and equipment engineering, etc.

Popular outsourcing service providers in the energy and logistics sectors include:

• Altus Oil & Gas Malaysia Sdn Bhd: A Singapore-based logistics company that offers marine solutions, rig maintenance, and oilfield support services to its clients.
• Hablem Oil & Gas Sdn Bhd: Hablem offers extensive engineering solutions for oil and gas operations.
• Wah Seong Trading Co Sdn Bhd: A mid-sized Malaysian enterprise, Wah Seong provides engineering services in the energy sector.

3 quick tips for outsourcing to Malaysia

Here are three solid tips to help you get the maximum benefits when outsourcing to Malaysia:

1. Do a thorough research

It’s crucial to be well-prepared when outsourcing your business operation to an external company in a different country.

Doing thorough research will help you:

• Choose an ideal outsourcing partner for your business.
• Identify any hidden costs and create an accurate outsourcing budget.
• Benefit from various incentives that the Malaysian government offers to an outsourcing business.
• Stay ahead of risk factors that are usually associated with outsourcing to Malaysia, such as political instability.
• Understand the country’s business, employment, and tax laws to protect the interest of your company and clients in case of a legal dispute. 

2. Choose an outsourcing vendor carefully

The first step in choosing an outsourcing partner is to analyze your current and future business goals. 

If you plan on scaling your business in the near future, you must ensure the vendor is experienced enough to handle large-scale operations.

When evaluating proposals from the vendors, companies often make the mistake of just looking at the price. 

You must look beyond the lowest or the highest-priced bid and seek a vendor that offers a balance of value and quality. Examine the vendor’s track record and make sure it’s consistent with your business goals.

It’s crucial to check where the vendor is operating from and the pros and cons of that location. Ideally, the vendor should be located in a zone that’s designated by the Malaysian government for your industry type. It helps reduce the cost of operation.

You must also consider doing a background check on your vendor with the help of a background screening service.

Other important factors to consider before partnering with a vendor are cybersecurity and automation. 

3. Opt for milestone-based payments

When outsourcing, you don’t have the same level of control over the project timeline and quality as with an in-house team. It’s a waste of time and effort if the outcome is unsatisfactory after a long project cycle.

An effective way to ensure that an outsourced project meets quality standards and is delivered on time is to create milestones and tie the vendor’s payment to each milestone.

You can review the project status and quality of work at each checkpoint and pay the vendor for a completed milestone.

A great way to ensure that all your projects are completed on time is to use advanced time tracking and productivity monitoring tools.

For example, Time Doctor is a productivity management tool that you can use to track your team’s productivity as well as your project time.

Key takeaways

Outsourcing your routine back and front office operations like payroll, customer service, and maintenance can help you focus on business growth. And Malaysia ticks the right boxes if you are eyeing a cost-effective and competent outsourcing destination in Asia.

Use the information in this article to gauge if Malaysia meets your outsourcing needs or to ensure success when subcontracting projects in the country.