Malaysia’s ICT Revolution in the Footsteps of the Samurai
Business Management

Malaysia’s ICT Revolution in the Footsteps of the Samurai

When I flew over to visit Intel’s enormous $4bn Penang facility on the west coast of Malaysia almost exactly a year ago I was surprised at what I saw. Not just the sheer scale of the place – which is the chip giant’s largest plant outside the US with 6,000 workers – but of the surrounding area. Drive from the airport to the old colonial centre of Georgetown and you’ll spot factories belonging to AMD, Renesas, Seagate, Western Digital, Bosch, Siemens and many more household names.

Intel might be one of the so-called “Seven Samurai” firms which kick-started Malaysia’s tech revolution back in the early 1970s, but it’s certainly not alone now. The question is whether the government’s plans to propel the country through a new stage of ICT development will have the desired effect.

Fast-Forward from 1972

On that Malaysia trip we were shown an old photo of former Intel boss Andy Grove. Standing on a dirt track surrounded by rice fields, his car stuck in molasses-like mud on the way to the under-construction Penang Free Trade Zone, it’s a far cry from the hi-tech industrial park you’ll see today. Much of that is down to the efforts of the government, which first attracted foreign tech firms to the peninsula and has been working to push the country up the ICT value chain ever since.

It’s not had a bad start – only Taiwan has the same 40-odd year legacy as an Asian technology hub. Since then, the government has established the Multimedia Super Corridor (MSC) – a hi-tech investment zone running from Kuala Lumpur airport into the capital – and wants to turn Malaysia, a country of 29 million people, into a “digital economy” by 2020. The goal of the Digital Malaysia project is to expand beyond that core manufacturing base towards a “service-and-solutions” driven economy, according to Ng Wan Peng, COO of the agency in charge, Malaysia’s Multimedia Development Corporation (MDeC).

This will require the creation of 160,000 “high-value jobs”; increasing Malaysia’s ICT contribution from 9.8% to 17% of GDP; providing an additional 1% SME contribution to GDP; and creating an additional $2,164 of “digital income” per annum for 350,000 citizens, she told me.

Outsourcing FTW

Aside from manufacturing, the MDeC is focusing on four other key areas: ICT services, eCommerce, ICT trade and “Content and Media”. However, Peng was most keen to talk about ICT services, which already contribute half of the country’s digital economy revenue worth RM34.1bn (US$10.7bn) in 2010. The government wants to grow the sector to RM136.1bn ($42bn) by 2020, and expand the number of employees to 461,000, or around 42% of those working in the five key ICT areas.

“We’re driving various initiatives to meet these aggressive targets. For example, the MSC Malaysia Cloud Computing Initiative which aims to accelerate cloud adoption and a Big Data taskforce which examines the sizable opportunity we believe Big Data presents,” she told me. “We’re also encouraging foreign and domestic investment in driving Knowledge Process Outsourcing, particularly in shared services.”

The most recent Gartner report on the country’s offshore services credentials was cautiously optimistic, rating it “well positioned for a range of small to midsize offshore deals”. It said Malaysia should be considered as an “alternative or complement” to India, China and the Philippines and especially for IT infrastructure, application and business process services and logistics.

Ups and downs

Peng was keen to stress the country’s political and social stability, large English-speaking population and “world-class infrastructure” to potential foreign investors. She added that a government “Bill of Guarantees” allows MSC Malaysia-status companies a 10-year income tax holiday or investment tax allowance for up to five years, freedom of ownership, strong cybersecurity laws, no internet censorship and no restrictions on visas for foreign knowledge workers.

“Just as importantly, Malaysia has passed a number of new laws which protect intellectual property and promote freedom of thought and expression,” she added. “As a result, Malaysia offers investors a young, educated and productive workforce at a competitive cost for the region.”

Despite this optimism, the country has certainly witnessed its share of social unrest of late, and the political opposition has even claimed that there were deliberate attempts to disrupt its last election campaign via widespread website blocking and DDoS attacks.

Pranabesh Nath, ICT associated director at research firm Frost & Sullivan APAC, added that “inadequate technology infrastructure, lack of sufficient talent, a small domestic market, and not enough knowledge jobs” would hold the country back. Gartner agrees, arguing in 2013 that English-speaking skills were diminishing and that there was a growing shortage of middle and senior managers in key ICT roles.

The latter is a concern echoed by Peng, who explained the government is “encouraging educational institutions to adapt their curricula and put more emphasis on practical industry experience”. The government is apparently also pushing schools to “institutionalise the idea of ICT as an invaluable working tool” in a bid to head off a growing digital divide.

Chickens and eggs

So what else keeps Peng awake at night?

“With a traditionally cautious culture, most Malaysian venture capitalists find tech startups too risky an investment,” she revealed. “Malaysian VCs tend to look at tech companies in a rather old-school way – profit and revenue multiples, rather than potential. We hope to see a change in local VC attitudes towards startups as more Malaysian entrepreneurs prove themselves on a global stage.”

For the time being though, a major focus remains on attracting foreign investment. There are 700-plus foreign-owned companies with MSC status, with the largest number (around 33%) from the UK, followed by the Netherlands (19%) and Germany (14%).

The key to Malaysia’s success in the future will be how well it manages to progress local companies to knowledge-based businesses while still benefitting from this foreign investment, Forrester analyst Clement Teo told me. 

“It's a chicken-and-egg situation. They need to attract FDI to stimulate growth in employment, the local economy and knowledge transfer, but it appears that this could have come at the cost of growing local companies as vendors/suppliers to businesses,” he argued.

That said, the country’s IT spending is forecast to grow an impressive 11% in 2014 to reach RM67.9bn ($21bn), Gartner told me. Whether that’s enough to propel Malaysia into the big leagues as a major Asian tech hub remains to be seen, but it’s not a bad place to start.

 

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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Phil Muncaster

Phil Muncaster has been writing about technology since joining IT Week as a reporter in 2005. After leaving his post as news editor of online site V3 in 2012, Phil spent over two years covering the Asian tech scene from his base in Hong Kong. Now back in London, he always has one eye on what's happening out East.

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