Convergys Corporation announced a definitive agreement under which Convergys will acquire New Zealand-based Datacom’s contact center operations in Kuala Lumpur, Malaysia, and Manila, Philippines.

Datacom and Convergys expect to close the transaction as soon as practicable. The acquisition will be accretive to Convergys’ 2013 earnings.

Datacom will add 15 Asian languages to Convergys’ language capabilities and approximately 1,000 employees, working in three Southeast Asia contact centers, to Convergys’s global operations. The integration of the two organizations is expected to take between six and nine months.

“The addition of Datacom’s contact center operations is in line with our acquisition strategy, allowing us to expand our language capabilities and global footprint. It enables us to forge new relationships with the prominent technology companies that Datacom now represents, and provides additional opportunities for growth,” said Andrea Ayers, Convergys President and CEO. “We remain disciplined in our pursuit of growth opportunities that add value for clients and shareholders.”

Jonathan Ladd, Datacom Group CEO said, “Datacom has built a world-class multi-site, multilingual Asia BPO business servicing a suite of long-term blue chip clients. We’re proud to sell this asset to Convergys, in full confidence that our contact center staff will be joining a strong organization that is solely focused on providing exceptional services to a world-class portfolio of customers and will support outstanding growth opportunities for our staff.”

It’s been a busy couple of weeks since our last edition.

There has been quite a bit of movement in the Australian market with Sensis and giant insurer QBE both announcing plans to move some of their business units to Asia. Even at a smaller level we have noticed a considerable uptick in outsourcing activity. In addition to the above major announcements,  TeleTech  also announced that it had won a  500 seat deal which it is believed will be serviced from the Philippines.

The research conducted by The Sauce in conjunction with IBM and Fuji Xerox last year indicated that there will be a 20% growth in the Australian market and this is being borne out by what we are seeing currently by way of outsourcing activity.

You can read about the stories below.

Late last week I dashed to Malaysia to attend a workshop that was being conducted by the Malaysian Development Corporation in conjunction with our business partner, Outsource Magazine. (Word Labs Malaysia) I have to say I was impressed with the approach taken by the Malaysian Development Corporation to coalesce its BPO players behind a common and united front. The industry in Malaysia is growing nicely and I draw your attention to the story below by Bernard Sia.

Sritharan Vellasamy & Martin Conboy in Malaysia on 1st March 2013

With our Malaysian partners we have developed a much-needed platform to make the international outsourcing marketplace more efficient. We haven’t officially launched the site, although we are getting a lot of visitors as the market on both sides of the buy-sell equation looks for ways to connect with each other.

We will of course be detailing the site in the very near future and if you want a sneak peek please visit www.theoutsourcing-guide.com

One of the really exciting areas that we will develop for the platform is a country location corner that will allow specific geographies to showcase their offerings to a global market. If you would like to know more and find out how the Outsourcing Guide can help your business please do drop us a line at  mconboy@thesauce.net.au   or Sritharan Vellasamy sri@wordlabs.com.my

By Martin Conboy

According to the study T2 market Pulse Survey that while businesses in APAC are optimistic about business growth in 2013, 55 percent of APAC Businesses don’t anticipate increasing their workforce

The majority of APAC businesses predict growth in the next 12 months, however interestingly many do not plan to increase their workforce numbers to support intended growth according to The Talent2 APAC Market Pulse 3 Study.

In the last few years there has been a mandate within Australian corporations to reduce internal operating costs and refocus on core business activities. Many companies are responding to this by outsourcing non-core business processes to third party providers.

The report finds a strong sense of optimism amongst the majority of APAC businesses, with 61% predicting growth for the next 12 months, and only 5 percent predicting decline. In Australia, the research shows that whilst more than half of businesses are forecasting economic growth in the next 12 months, only 40 percent expect to increase employee numbers.

This discrepancy could threaten to place great pressure on some companies and their employees and it is expected that as growth occurs without an increase in human resources, APAC businesses will turn to contractors. Businesses in APAC are however already using some growth strategies such as reducing headcount and investment in mature markets (36 percent) and increasing back-office services through shared service delivery (33 percent).

It is worth noting that Australia does not have a ‘people shortage’ problem, what we have is a ‘skills shortage’ problem. The mining and construction boom, mainly in Western Australia and Queensland, has acted like a giant vacuum cleaner, sucking up all available labour resources to fuel the insatiable demand of this sector. Not only do we have a skills shortage problem but our young people also have an adversity to working in the service industry. So even if there was no mining boom gobbling up available workers, we still cannot get people to work in call centres and local outsourcing shops.

Expansion is both a key driver and a significant benefit. In the Australian BPO study 2012 conducted by the Sauce and supported by IBM and Fuji Xerox, one factor emerged as the clear front-runner and that was global expansion. 40 percent of organisations considered access to skilled manpower as important

One possible explanation for companies looking for growth and reducing headcount is that they may not necessarily be able to identify the particular skills that they need in a fast changing market, and made thus turn to other methods to attract the required skills. These days growth does not always equate with increased FTE headcount.

The T2 research reveals that 66 percent of organisations across APAC currently employ contractors, a figure that is potentially set to grow as unemployment figures rise and job seekers accept contract positions.

Currently in Australia, with an unemployment rate of 5.1 percentage, it’s very hard for companies to find suitable staff to man their customer facing divisions. Consequently, if they want their phones answered, they may move to an outsourced solution, to access skills. This will be a major driver going forward. On the flip side, we have a community that demands that companies meet the highest standards of customer service.

Whilst awareness of the skills and benefits contractors can offer organisations is high, the research finds there are also challenges. 65 per cent of Australian businesses believe contracted workers increase workforce flexibility and scalability to support economic conditions and 37 percent feel contractors offer improved business performance by better matching specialist resources to company projects.

“It may become increasingly necessary for businesses across APAC to consider the flexibility of a contracted workforce in an oscillating economic climate, rather than resorting to cuts to full- time employees as a reactive profitability measure,” said Caleb Baker, Managing Director, RPO & Managed Services Asia Pacific, and Talent2.

“When unemployment rates rise, the demand for contractors also rises as people who were traditionally used to full time roles begin considering part time or contractor roles. It’s clear that whilst businesses are aware of the benefits a contractor workforce can offer, there are perceived barriers to adoption for businesses to overcome in order to consider employing contractors. These barriers can be easily addressed by working with expert providers who can offer ease of management and better visibility of contracted employees,” concluded Baker.

DigitalNewsAsia.com wrote a scathing editorial on Outsourcing Malaysia (OM); an organizational chapter of Malaysia’s National ICT Association (a.k.a. PIKOM when abbreviated in the Malay language); claiming unrealistic plans in growing the industry towards RM7.1 billion by December 2015.

1 US Dollar ~ RM 3.10 (as of 3^rd of March 2013)

To add; the news portal also claims a lack of clarity in defining Malaysia’s unique selling proposition and too broad a swath in drawing attention towards growing Malaysian Outsourcers through healthcare and supply chain services.

Although it pains me to say this; considering my employer Mesiniaga is a supporter of OM; I do reverberate the frustration of the author Karamjit Singh.  Not so much with OM, but how little do large markets like US, Europe, Asia Pacific and Australasia know about Malaysia’s potential due to obscure unique selling propositions.

First and foremost, Malaysia is probably one of the luckiest places on the planet; with the islands of Indonesia and Philippines shielding the nation from torrential monsoons; as well as suffering none of the tectonic and volcanic activities that plague the neighbouring countries; but enough with the obvious geographical meanderings.

We are a nation of multilinguists due to our central geographical location; with the Straits of Melaka funnelling trading ships between East and West. This resulted in traders from Arabia, India and China opting to make Malaysia their home throughout early history; not to mention a legal system based on English Common Law as well as a heavily influenced English education system having being previously a Crown Colony. Admirably, we are one of few nations that gained our independence from British rule in 1957 through a series of civilized negotiations versus massive upheavals and uprising. Malaysians are thus formally educated in the Malay language and English and may also be educated in Mandarin, Tamil and even Arabic should they began their early education with vernacular or Islamist schools. With the rise of China and India as global champions and existence of economic hubs in the Middle East; Malaysia should be the strategic staging point to export services to those regions.

Personally I laud the Malaysian government’s foresight and efforts in catalysing the nation into a modern state via IT with the (Multimedia Super Corridor) MSC initiative that began in 1996. MSC provides grants through massive tax incentives and a Bill of Guarantees to MSC status companies and are open to national firms as well as foreign organizations. Besides MSC, there are also several economic development corridors, most notable being the Iskandar region; north of Singapore but three times as large; that also has tax incentives and protection for foreign firms investing in Malaysia. Within the plans of Iskandar are world class infrastructure, bandwidth and transportation system that includes a bullet train between Singapore and Kuala Lumpur via Iskandar by 2020.

Now that we’ve covered geographical, governmental and structural support systems (education, policy and infrastructure) it is time that we focus on Malaysian IT champions. One might say that this list is horrendously biased because some of the companies quoted are not public listed (revenue numbers not available). In my defence, I quote these names because I have personally either used their products, worked with them, or have analysed their performance prior. Needless to say the list is not a complete one and just because the company is not mentioned, does not mean that they are bad nor are these the only good companies.

Here’s a hint, you can do some background financial and directorship check on non-listed Malaysian companies through the Companies Commission of Malaysia online website.

The list!

The poster child of Outsourcing in Malaysia happens to be SCICOM (MSC) Berhad having ranked 79 in IAOP’s (International Association of Outsourcing Professional) 2011 Global Ranking of Top 100 global providers. SCICOM provides Business Process Outsourcing, IT as well as services across 42 languages and even more countries.

Within the Financial Services space, my hat goes off to the Silverlake Group; which supplies Core Banking and related IT systems for banks. Silverlake’s customers include regional banks in Indonesia, Singapore, Brunei and the Philippines. N2N Connect also deserves a mention as it provides online share trading solutions both in Malaysia and regionally. Why? Because they manage to almost corner the market in Malaysia within a short 10 years span.

For some sadistic reason I love Cuscapi Berhad with their great story of retail point of sales systems and back end financial systems to boot. Considering how cut throat the retail sector is; it takes a highly lean IT company to stay profitable while meeting customer demands.

IRIS Corporation Berhad is one of many strange Malaysian occurrences where the stock prices do not follow the company’s performance despite a bumper 2012 year. IRIS provides smart card solutions that include the national identification card in use by all Malaysians. IRIS has since expanded its business to Asia Pacific, Middle East and Europe; helping countries to deploy their own national identity systems or smart card based solutions.

CSF Group; a Data Centre builder, chose to interestingly list in the London Stock Exchange instead of Malaysia. While their share prices have been pummelled since listing; the strategy of developing and executing data centre deals like a real estate investment trust coupled with the day to day revenue stream of leasing data centre space have resulted in handsome financial growths. Their capabilities as a builder have also seen them delivering data centres across the region.

Finally, I would like to mention my employer Mesiniaga Berhad; a long time stalwart of the Malaysian IT systems integration scene, currently in the midst of reinventing itself through the vision of the Managing Director, Fathil Sulaiman. Since the beginning of his tenure in 2008, revenue and profitability have steadily grown quarter by quarter.

But why a system integrator (SI) and where exactly is the SI’s unique value proposition? I believe that unlike sectorial plays; system integrators have a tougher but rewarding asset; the know-how and credibility to deliver large scale and complex IT implementations successfully. System integrators also play a one-two punch in teaming with the primary intellectual property owner; be it the banking; retail or stock broking software providers that leverage on the SI’s know-how to marry the solution with the end customer’s ecosystem.

For international firms coming into Malaysia; there’s nothing like a dependable brand that can carry your business vision within Malaysian shores.

Closing Remarks

If you haven’t noticed, the companies chosen offer services targeted towards a sectorial vertical and I believe that this is essential for the IT firm to stay business relevant in the long run. Secondly, I have avoided captive organizations as information tends to be obfuscated by the parent’s business performance data.

More importantly, Malaysia do possess the relevant technical skills and organizations to make it an outsourcing Mecca for the region.

To end, I would like to digress by enticing international readers with the fact that Malaysia has three of the top 10 largest malls in the world; suffice to say the nation’s capital is an intense megapolis and a shopper’s paradise; what better way to end than to introduce Malaysia’s capital Kuala Lumpur via Rob Whitworth’s time lapse photography.

bernard.sia@mesiniaga.com.my

By Bernard Sia

The rather controversial sensationalist title will hopefully create sufficient traction in readership, but before you pass judgment that this will be another negativity riddled diatribe; I promise you that I shall provide the answers to the problem statement alongside the issues, so here goes.

1) The CIO does not exist or sits 3 to 4 levels below the CEO, sometimes even below the CFO. Ultimately, the unit exists as a cost centre. Pretty much a death knell to any business unit, I’ve also heard of statements that IT should be used like “utility” and it’s a “commodity” – double ouch! Talk about watering down any semblance of pride that the CIO could have. He’s no better than the cleaner’s boss – that’s commodity for you.

It also means that the KPIs are skewed towards punishing mistakes versus celebrating “value” that IT brings to the company.

The solution:

Making the CIO pit boss will not change anything. Ultimately, you need dynamism, boldness and the aptitude to make IT relevant to the business. Being top dog means you get to call the shots, but if you’re shooting blanks you’ll be down the totem pole before you could say fore.

Get to know the business, learn debit from credit and understand how business impact analysis is not meant to figure out Recovery Time Objective; but Business Loss/Value Outcomes (BLO).

2) There’s no means (or political will) to measure BUSINESS VALUE from IT
You’ve heard it, seen it and some of you have experienced it, the Enterprise Architecture folks have probably spent the last 2 years producing box filled diagrams with multipoint arrows and squiggly shaped outcomes that must abide by some “Principle”.

But in all honesty, nobody took the time to “measure” absolute dollar value returns from IT. I snuck in “political will” because in reality Malaysians are a shy bunch. We don’t like to call attention to ourselves, and most of all, we do not like to declare success until success is achieved. Part superstition (“my wife needs to be 3 months pregnant before I tell the world”) part playing it safe (“I might get fired if I over promise, best aim low shoot high”).

But ultimately, with power comes great responsibility. The CIO needs to put down figures “before” the IT investment, and show numbers “after” the investment. It does not take rocket science to work out productivity improvements versus hardware and software spent.

The biggest farce I’ve heard from IT thus far is -> “I’m not finance, I do not know how to count” versus the biggest farce I’ve heard from finance “I’m not IT, I do not understand IT… so I can’t count it”

The Solution:

Mr. CEO, you know what to do; it’s about time you find replacements for both the CFO and the CIO. You’re paying big bucks for folks to run your business, not rule the playground like a bunch of kids.

3) There’s no means (or political will) period

Heard this argument enough … “IT is not our core business”. OK. I hear you.
But when I ask them “What IS your core business?”, you’ll soon realize that there’s 5 different answers from 5 different board of directors and C level executives.

When the business is schizophrenic you can bet your bottom dollar that IT will be locked up in a mental institute soon enough.

The Solution:

Read the definition of IT -> “Information” Technology!

Business thrives on information, and decisions are made based on accurate and timely information processing. Stop spending money on data centre expansion and LAN upgrades and start focusing on the kinds of data that you need in order for you to sieve them into information; cogitate those rough nuggets and turn them into intelligence, better yet; knowledge for business consumption. All the underlying infrastructure upgrades are a by product -> NOT THE END GOAL.

If you need tacit knowledge, convert them into videos and scenario roll play sessions, if you need real time data; plunk in visualization tools with real time sensors and hire decent programmers to put the vision together.

In summary, CIOs and CTOs need to be in the driving seat -> provided that they know what to do; more importantly, stop treating them like cost centres or like the proverbial saying – you are what you’re expected to be. Secondly, businesses need to “get real” with IT, when money is spent, return is expected, stop counting pennies and focus on business value. Lastly, the business needs to get their acts together, yes; easier said than done but there has to be an overarching leadership to drive the objectives through.

Sacred cows are meant to be slaughtered. They make good steak.

Bernard Sia; PMP

Head of Strategy at Mesiniaga Alliances

By Bernard Sia

Editors note: – Iskandar Malaysia formerly known as Iskandar Development Region and South Johor Economic Region is the main southern development corridor in Johor, Malaysia. The Iskandar Malaysia was established on 30 July 2006. The project is administered by Iskandar Regional Development Authority (IRDA) and was named after the late Sultan of Johor, Almarhum Sultan Iskandar. The special economic zone of Iskandar Malaysia grew out of a 2005 government requested feasibility study by the Khazanah Nasional which found that the development of such a zone would be economically, socially and developmentally beneficial.

After spending some time with folks from Iskandar Region, Malaysia’s effort to create a booming and global Southern region through a planned city development; my thoughts ruminate around how exactly one catalyses a parcel of land into a great city. More importantly, what role does the outsourcer play in realizing this vision?

Rummaging through the annals of history, city states seem to arrive rather serendipitously, and once created perpetuates almost indefinitely unless there’s a cataclysmic natural event which decimates the entire population.  Even war couldn’t smite the likes of London and Paris. So why the allusion to serendipity; primarily because it all began rather logically but then magically takes a life of its own within a short course of 20 to 30 years after several hundred years of relative organic growth.

To begin, the primordial city was chosen due to the wealth of the land. Usually where the river meets the ocean and massive alluvial lands for farming and domesticating animals exists or to some extent mining towns. Population grew and they develop ever refined niches of value throughout the chain of raw materials from production to consumption; continuously turn natural resources into goods and secondary supplementary/augmentative activities that allow the producers and consumers to exist in relative comfort.

If one would zoom out and see the big picture, we are nothing more but ants attracted to sugar; sugar being available natural resources for sustenance. I call this the Genesis period. Life was simple and the dots which connect the value chain of respective land dwellers are close together. A tanner lives beside an animal farm and he’s a stone throw away from the market because logistics and infrastructure were rudimentary.

The second evolution of the city is the trading ports; a natural extension considering as the city grows, goods need to be sourced from farther away as local resources slowly depletes, as well as the benefits of comparative advantage mooted by David Ricardo in 1817. Interestingly, trading ports have a notorious nature of flourishing as an outcome of the black market and crime; goods were seized en-route or simply went missing during offloading. So it becomes a natural order for businesses to setup shops that ply these goods and factories as close as possible to the ports as black market items sold many fold more expensive than legalize goods.

Within the 20th century, we see governments across many nations attempt city building on steroids; artificially sprouting mushrooms of steel and concrete with words like “hubs” plied, typically surrounding manufacturing, financial services, education and entertainment. These “artificial” cities have a certain set pattern of growth and stagnation. More importantly, the “ant” in us, seeks out monetary wealth, the sugar of today.

Interestingly I ask myself, can a city generate wealth without natural resources? So here’s what I’ve observed from these city building endeavors

a) Manufacturing

The hallmark of the industrialization and humbly, one of the most crucial pillar of nation building for any country; is the ability to harness natural resources and refine them into goods that fulfills needs and desires.  Policies like tax breaks for more advanced foreign companies can catalyse the initial growth, but it does not necessarily create value for the populace other than salaries and services to support factory workers, managers and the factory itself. The flow of money is obvious but comes in droplets compared to torrents of wealth should you own the intellectual property of the product. Primarily because foreign companies repatriates the bulk of profits back home. Every nation hits a manufacturing ceiling once natural resources runs out and salaries increased to the point where it is no longer economical for the manufacturing center to function.

b) Gambling and Entertainment

Names like Monaca, Macau and Las Vegas comes to mind, and recently we could also add Singapore into the category.  A certain level of romanticism is latched onto these cities, and we all love the back-story of how it came to be. Ultimately though; despite its seedy origins people arrive time and again because of the lure of gambling payouts.  With a country like Malaysia, where the image of an Islamic state is crucial for political survival, it has little choice but to focus towards the family spectrum with the likes of Legoland and other theme parks in the works. Quaint, but does it directly tug your soul’s yearning for money generation potential – likely not. Would it be the primary wealth generator for the city – likely not again?

You may be arguing that Disney generates USD11 billion in their parks globally (2011); but the fact of the matter is, Malaysia does not own the Disney brand so we’re back at repatriating profits.

c) Purpose built Government Centers

Grandiosity comes to mind, huge swaths of lands and artificial lakes carved out with the hope that beauty shall make bureaucracy more palatable – I digress. Herein lies the rub with government centers; they only grow as fast as the country’s ability to collect taxes. The city will largely be manned by government workers and the ministries are also fuelled by government budgets so we will not see explosive growth, but rather half empty government buildings waiting to be “repurposed” once the budget hits a deficit too large to politicize away.

d) Financial Centers

Financial centers are strange creatures to me, especially the whole idea of plunking a bunch of bankers in one location and voila you have a financial center. Global financial centers like Amsterdam began as an offshoot of trading. You need bank guarantees, loans, trading notes and insurance i.e. means to “facilitate” monetary and business transaction for traders – simple.

So sans the organic way of supplying services for traders (which must exist first), you’re left with exchanges that trade financial products and centers which “generate capital” for local and foreign businesses as well as investors. For example bourses and countries with trade surpluses tend to have low cost of funds for international financing (Although today, it’s more likely monetary policies that artificially lowers the cost of funds e.g. Japan).

Financial centers require a strong legal system to solemnize contracts, reduced or zero government taxation to move money in and out of country as well as a bonus, an exchange to allow trading of financial products with hopefully low rates of transaction. Sadly, the way governments outbid each other is not unique, once you get rid of taxes, governments are left with relaxing regulatory controls as well as allowing for some level of transactional opacity.

This in turn creates room for “financial innovation”; i.e. financial products that can be illegal in one country but clearly acceptable at the location of trade. Post Global Depression 2008, it’s an approach that most regulators will cringe on.

Having said that, not all forms of financial innovation are bad, Malaysia for example has one of the largest placement of Sukuk or Islamic bonds; and offer services for generating capital that are permissible through Syariah (Islamic law), appealing to investors from the Middle East. Alas, the question arises again, is this enough to catalyse a great city?

To summarize and break down the thought process, a great city is a series of cascading outcomes; you cannot proverbially place the cart in front of the horse.

A city lives off consistent sources of massive wealth that not only sustains its denizens but compounds growth. It is only as strong and vibrant as its largest income generator.

Once that is established, people will come, more importantly; entrepreneurs -> business owners that create and catalyses even more value through the initial source of wealth.

To assist no. 2; there needs to be proven and consistent rule of law, easy means of funding and establishing the business as well as the ability to connect business owners with customers -> Productivity from Day 0

Abundance of economically viable “people resource” with the skills to execute the business

Cheap if not free telecommunications to rapidly accelerate the flow of business

To a smaller extent, some might say negligible, a low cost base for establishing the business foot print -> logistics, electricity and rental costs etc.

Element no. 1 is humbly the hardest to envision, create and nurture. The same old strategic thinking cap applies; what’s the differentiator of one city hub versus the next? What’s the barrier to entry? Etc.

You may be wondering about the Outsourcer by now, well; outsourcing at its core augments one or more pieces of a business. Simply, the outsourcer’s value is derived from being cheaper and better or enhances business value (brings better ROI) compared to having the entrepreneur build the function from scratch.

We’ve also established that each city needs to have the means to generate sustained wealth, be it new or old. So by extension the outsourcer’s best bet at being successful, is the ability to augment the business that feeds off as well as generate the main arterial source of income.

I’d like to think of it as being the cybernetic implant augmenting the “arm” of the business.

In developing cities overnight, ala Iskandar Malaysia, Dubai, Pudong in China, the plan often begins with extensive capital investment on office space and public infrastructure. That is all well and good but the point that is missing is the secret sauce -> the miracle making cities great are entrepreneurs!

The individual who saw the opportunity to open a tannery beside the cattle farm; and the banker who discovers the populace’s latent innovative potential and unleash it through venture capitalism.

The entrepreneur connects the dots of value within the city, the entrepreneur then innovates to produce products and services that not only make these connections stronger but also uncovers arbitrage to profit from. Every instance where business value is generated, it gets ploughed back into the city and the city grows!

The outsourcer must become a business cybernetic scientist that makes the entrepreneur better; hence, the outsourcer’s destiny is intertwined with that of the entrepreneur.

In order for a plot of land to leap the chasm of backwater subsistence and transform itself into great city-state therefore requires great entrepreneurs and great entrepreneurs require even better outsourcers.

Bernard Sia  – Head of Strategy

Mesiniaga Alliances Sdn Bhd

By Bernard Sia

IT Outsourcing is an exciting business in Malaysia, captive IT outsourcing organizations like Felda-Prodata, iPerintis, iCIMB and VADS collectively generates well over half a billion US dollars in revenue. As far as global multinationals are concerned, we have the major stalwarts likes IBM, HP, CSC, Dell, SAP and T-Systems offering their wares to financial services as well as the oil and gas sector; the top two most lucrative sectors within the Malaysia Economy.

According to the Malaysian government’s Enterprise Transformation Program (ETP), IT Services and Outsourcing contributes 37% of GNI or RM7.215 billion in 2009 with a projected growth of 6.8% yearly, bringing the estimates to about RM9 billion by 2012 (approx. USD3 billion).

Although many foreign vendors and IT Outsourcing suppliers are keen on getting into the Malaysia market, a number of hidden costs need to be accounted for in order to make a respectable margin and I’ll be sharing with the readers some of my experiences within the last 10 years.

The scenario in discussion is a straight up open or by invitation only tender of competitive bids; and large government link organizations such as PETRONAS (a Global Fortune 500 company) and Maybank (Malaysia’s No. 1 bank) are extremely supportive of open competitive bids to attain the best IT services at the best price – a laudable approach that all Malaysian companies should follow.

The devil for the vendors however, lies in the details.

The following are the typical cost components associated with participating and executing an IT Outsourcing contract in Malaysia. The scenario applies for large enterprises as well as government link organizations. There seems to be a lack of new paradigm when applying these cost components; so unfortunately for the IT industry, customers have adopted paradigms from the property/construction industry.

My personal debate is that a number of these cost elements are irrelevant, but unfortunately non-negotiable from where the customer stands.

1. Buying the Tender Document (Not refundable)
   The nominal sum is anywhere from RM100 to RM5,000 (USD30 to USD1600 or sometimes more). The rational is that the customer had to spend resources preparing for the tender specifications.
2. Preparing, Printing and Shipping the Tender Proposal Document.
   Tender documents tend to be divided into 2 parts, Technical and Commercial. These needs to be sealed separately and mixing the details together can disqualify the bidder. The catch is; most of the time customers made it mandatory for physical paper printed form, and yes, in multiple copies. The most painful tender that I’ve heard of, required 21 copies in total; while my personal experience averages about three to seven copies of each document or 14 documents in total. So we’re talking about massive administrative work within a very short time frame!
3. Bid Bond (A banker’s guarantee – Refundable after the tender has been awarded)
   Cited as a reason to filter companies that do not have the financial strength to carry through the project – it can be substantial. The amount varies, from a flat fee of say USD25,000 or 1%-3% of the project budget. Here’s a hint, I use it as an indicator of the budget because of the percentage through experience. The larger the banker’s guarantee required, the larger the budget; but do use your own discretion and proceed with caution, lest you overprice your bid.The challenge to vendors is the lengthy tender period from RFP (Request for Proposal) to actual award, typically anywhere from three to nine months; sometimes to even a year. Substantial investment interests could have been earned from the bond and I’ve been into several tenders where multinational vendors have vented their frustration during negotiations because of the bond.
4. Performance Bond (A banker’s guarantee upon award – Refundable after the outsourcing contract scope has been performed)
   This is treated like a piggy bank that customers can dip their hands into to penalize vendors should they underperform. The trend that I am exposed to is a 5% figure of the overall contract cost but this can vary. Again, this places strain on cash flow as you need to pony up at the beginning of the engagement.
5. Service tax of 6%
   This may seem obvious, but during negotiations, the customers in Malaysia have a tendency to compel the vendor to reduce the bid price to negate the 6%. The only rationale that I can think off is a negotiation technique to immediately shave something off the top.
6. Escrow Services
   These are payments a 3^rd party provider that maintains a product’s source code in the event the vendor goes bust. Relevant only to bespoke software development scenarios, and not prevalent as yet, but I’ve been in situations where the customer insisted on it for software projects.
7. Premiums from Insurance
   Again, the construction industry paradigm is heavily adopted here, particularly requests for Public Liability Insurance, a need that is irrelevant if the software is intended for internal use only. So the risk of the “public” users being “hurt” by the software is extremely rare. There is however, a growing trend of requesting for Professional Indemnity Insurance, covering liabilities equivalent to the outsourcing project value or more. The premium unfortunately, can be prohibitive depending on the size of the project and varies with insurance brokers. Do speak to your respective brokers as they may not even insure the scope if it is too vague.
8. Risk of not getting paid when contracting through a 3^rd party
   The question is whether you as a vendor should “prime” the contract. On one hand you expose yourself to all the risk as the primary contract participant; however, you could also fall prey to situations where the prime does not pay you as a subcontractor, citing customers not paying as a reason to renege.Although this may be true, you are legally entitled to go after the primary contractor; sadly, if the situation gets really bad, the primary vendor can file for bankruptcy. So it is highly important that you pick your friends carefully within Malaysian shores. A good bet would be notable public listed IT firms that have a good track record.
9. Margins at risk
   a.    Accepted Liabilities
   Depending on the customer, this can be a negotiation point. Some have chosen to disqualify vendors that choose not to comply with the terms of liabilities. The advice is to qualify first and negotiate the terms later once you’ve successfully been shortlisted. Values vary from 50% to 200% of the outsourcing project price should you fail to deliver the project.
   b.    Penalties for lateness, delivery completeness, service level breach
   These are usually a daily prescribed rate, which can be anything from 0.5% of the project cost per day or a flat rate of several thousand ringgit. The challenge here is negotiating for a ceiling and a penalty figure that makes sense for the customer. A service level breach is more straightforward, dip below the guarantee, and you will be accorded penalty points, which can be translated to monetary terms or more free services in man-days.

To end, while the list may not be conclusive this represents the major hidden costs that needs to be accounted for.

As a vendor we like to argue that contracting terms should not be punitive, and relationships are built upon trust, but the realities of Malaysian IT Outsourcing can lead to vendor cost overruns for those who are not prepared. Sales would divert the risk to the delivery team for the sake of meeting numbers, but suffice to say the business will not last long when it bleeds from winning a pyrrhic IT Outsourcing Contract.

I would advise Malaysian customers to review some of the terms, as it unnecessarily heightens the risk of failure from a vendor cash flow standpoint; secondly, it also forces the vendor to pass the risk back to the customer through higher prices. Especially areas that can be irrelevant to the contract scope, secondly; do ensure close collaboration between the procurement, legal and the IT department responsible for the contract; more often than not there exists contradictory KPIs which results in having to retender the scope again – a huge time waster for everyone involved.

So I wish everyone good luck on your respective IT Outsourcing endeavours, Caveat Emptor e Caveat Venditor!
Bernard Sia is the Head of Strategy at Mesiniaga Alliances in Kuala Lumpur, Malaysia and can be contacted at Bernard.Sia@mesiniaga.com.my

By Martin Conboy

There is no doubt that the Malaysian tourism sector has benefited massively from the brilliant tourism campaign “Malaysian – Truly Asian”. Sometimes the brilliance of an advertising campaign is its inherent simplicity as the entire tourism sector has united behind the marketing message.

On the other hand the ICT- BPO sector has struggled to coalesce behind a single united branding message that the sector can rally behind.

Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Under current Prime Minister Najib, Malaysia is attempting to grow its economy by attracting investments in Islamic finance, high technology industries, biotechnology, and ICT-BPO services. The population is 28 million of which 12 million make up the countries workforce.

As a former British colony it’s hard not to see the British colonial influence, which is mixed with a fusion of Islamic modernism. The mix is spectacular and impressive and a credit to the vision of the country’s leadership. Moreover, with its multicultural mix of Indian Chinese and native Malays, the country is able to boast a peaceful and harmonious existence.

During the 22-year term of Prime Minister Mahathir, Malaysia was successful in diversifying its economy from dependence on exports of raw materials to the development of manufacturing, services, and tourism. The current government has continued these pro-business policies.

As an oil and gas exporter, Malaysia has profited from higher world energy prices, the oil and gas sector supplies more than 40% of government revenue. The central bank maintains healthy foreign exchange reserves, and a well-developed regulatory regime has limited Malaysia’s exposure to riskier financial instruments and the global financial crisis.

In order to attract increased investment, the current government has raised possible revisions to the special economic and social preferences accorded to ethnic Malays under the New Economic Policy of 1970, but he has encountered significant opposition, especially from Malay nationalists and other vested interests.

According to The Malaysian Minister of Human Resources Dr. S. Subramaniam the ICT-BPO sector is growing at 8% per annum and is the second fastest sector in the economy. There are about 200 foreign owned companies and sixty local companies in the sector. The country boasts over 200 contact centres.

Looking specifically at the BPO sector according to ValueNotes an Indian based BPO analyst firm about 15 percent are captives in the Shared Services space and of the balance only about 20% are servicing the international market. The sector is skewed towards the ITO sector with about half of the businesses represented in that area and 35 per cent in pure BPO. The sector is seriously under weight in KPO service offerings with less than 5 per cent of companies offering KPO services. Moreover it has not leveraged its tech savvy Gen Y population and looked to position itself and a get a slice of the fast growing social media BPO segment.

Malaysia has one great asset that no other Asian country shares and that is its multi cultural population. Its fortuitous geographic position combined with its multi cultural makeup has put it in a position to exploit its assets by positioning its self as a connection into Asia. It makes sense when one thinks about European and US companies looking to get a toe hold in China and the expanding SE Asian economies as the economics of the world shift progressively eastwards.

I see the ICT –BPO sector coming together under a marketing slogan like “ Malaysia – Your Asian Connection”

Clearly Malaysia needs to look at collaboration with other countries specifically around language skills and that brings into play the fast growing South American players and niche players like Mauritius. More over Malaysia is constrained in that it cannot scale its BPO business quickly and will need to consider sharing BPO opportunities with other economies if it wants play on the world stage.

By Kathleen A. Martin

GLOBAL CONSULTANCY firm Tholons, Inc. has cited talent pools as a major challenge to the Southeast Asian countries’ business process outsourcing (BPO) industry but said it foresees niche specializations of the sector to continue to grow.

This, as 12 cities from the Southeast Asian region, including five from the Philippines, made it to Tholons’ Top 100 outsourcing destinations.

The five Philippine cities are Manila (4th), Cebu (9th), Davao (69th), Sta. Rosa (86th), and Iloilo (92nd).

“Addressing talent pool shortages will be the most critical issue in the Southeast Asian region’s IT (information and technology)-BPO industry as a whole. These should be immediately addressed to further drive the growth of the services outsourcing industry,” the firm said in its 2012 Tholons Top 100 Outsourcing Destinations: Southeast Asia executive summary released yesterday.

“This is especially significant as widespread cost-cutting measures brought upon by the recession in the US and UK markets are being pursued, which in turn, are driving up the demand for outsourcing,” the document read.

Tholons said BPO firms are experiencing difficulty in hiring and retaining “capable employees,” thus, resulting in higher attrition rates and an increase in hiring and retention costs.

“[Such] has resulted in greater initiatives by service providers to train fresh graduates or reskill lateral hires themselves, an exercise becoming increasingly common albeit more costly,” Tholons said.

Already, Tholons noted an initiative for skills development currently being undertaken in Manila is needed to increase the country’s talent supply.

“The Technical Education and Skills Development Authority (TESDA) of the Philippines, for example, has been continuously providing Finishing Courses for Call Center Agents targeted to near-hires in the Contact Support space,” the document read.

Despite the region’s foreseen supply problems, Tholons said niche specializations offered are expected to grow.

“Tholons sees that the region’s current niche specializations will continue to grow and pave the way for the development of higher-value services in Southeast Asia,” the document read.

Tholons said that in 2011, Southeast Asian countries have been steadily building their own outsourcing identities.

The Philippines has continued to be the premier contact support services destination, while Singapore and Malaysia have become financial and accounting outsourcing and back-office process outsourcing pillars, Tholons said.

Vietnam and Indonesia, meanwhile, have established themselves as strong providers of IT services, Tholons said.

“As confidence and maturity builds, process and delivery innovation will thrive as well. Tholons sees this as necessitating Southeast Asia’s smooth transition up the services value chain,” the document read.

The local BPO sector is expected to have booked $11 billion in revenues in 2011, then to grow by at least 20% from this number by yearend, the Business Processing Association of the Philippines previously said.

By 2016, the sector is expected to deliver $25 billion in revenues, after recording $9 billion in revenues in 2010. —

Source: BWorld Online

By Edwin Yapp, ZDNet Asia

Summary
Efforts to move up value chain and become knowledge process outsourcing hub not yielding results as Malaysia’s outsourcing services providers still seen as only “generic”, with little emphasis on niche specialization.

Malaysia is long ranked the third-most preferred global destination for shared services and outsourcing (SSO), but its efforts to move up the value chain to become a preferred knowledge process outsourcing (KPO) hub remains a challenge.

Citing IDC’s Global Delivery Index study, Sudev Bangah, the research firm’s Asia-Pacific senior research manager, noted that Malaysia is fairly well positioned among its counterparts in the region as one of the choice locations for global services delivery.

“Malaysia’s strategic location, trade-economic ties, the easy setup of businesses via MSC Malaysia, and the expedition on the acquisition of foreign knowledge workers have aided Malaysia in gaining prominence as being a choice shared-services location in the region,” Bangah told ZDNet Asia.

Woon Tai Hai, executive director of advisory and management consulting at KPMG, concurred, noting that the country’s multi-lingual capability, diverse culture, cheap labor cost, and relatively safe environment free from natural disasters, also add to its foothold as the third-most preferred SSO destination.

“However, scaling to the next level such as a KPO hub will require more than the above factors,” Woon said in an e-mail interview. “The attractiveness of any location from a KPO perspective is closely related to the quality and quantity of highly skilled workforce available.”

However, Bobby Varanasi, CEO of Matryzel Consulting, was more critical of Malaysia’s SSO ranking, noting that these figures–released by various research firms–were becoming less important and less reflective of reality on the ground. Matryzel is a strategic and outsourcing consultancy based in Malaysia.
The country’s oft-cited No. 3 ranking is quite meaningless from an industry standpoint, Varanasi told ZDNet Asia. The consultant explained: “All it does is assure the marketplace that it is one country–among many–where sourcing activities are being aggressively promoted.”

Instead, Varanasi suggested that Malaysia would do well to look beyond the rhetoric and place emphasis on what matters the most for the industry–delivery capabilities and vertical centricity.

“Too much marketing may get sufficient attention in the shorter-term, but hides the more important components that enable attracting sustainable investments,” he noted.

Tackling the challenges 
Bangah noted that while the Malaysian government and independent associations had invested a lot of effort to raise the game of local outsourcing services providers, several aspects of competition, expertise and specialization still need to be addressed and are keeping the country’s KPO ambition at bay.

The IDC analyst pointed out that Malaysian organizations currently are still seen as only “generic” outsourcing players, with very little emphasis on niche specialization or expertise to support specific verticals.

Bangah added that the outsourcing market now is relatively borderless, with competition keenly fought among services providers rather than between nations.

“Based on our discussions with service providers and end-users in Malaysia, the key differentiating factors between service providers include proximity, service level agreements (SLAs), business models, cost, technology and specialization,” he explained.

He added that there had been discussions in the past few years around business analytics, equity research outsourcing, higher value financial-related services, IT and business consulting, and engineering process outsourcing as potential areas for KPO-related services. “However, at no point was there a significant drive toward skilling or re-skilling individuals within business process outsourcing (BPO) services providers to achieve this,” he noted.

KPMG’s Woon believes Malaysia certainly is in a good position to scale up from a value point of view, rather than challenge the might of India and China, as it already has a fairly matured outsourcing industry.

With this experience, he said, Malaysia would benefit from a shorter learning curve when entering the KPO space. But to do so, the country needs to have a readily available pool of highly skilled and relatively affordable talent, he said.

“KPO is about ‘intellectual arbitrage’, unlike BPO which very much emphasizes ‘cost arbitrage’,” he explained.

In addition, Woon noted that there must be a change in mindset in the industry, such as its willingness to outsource critical areas including “core” activities to a third-party.

Besides these factors, he pointed out that intellectual property protection and data privacy management are other important elements in the KPO sector, and require proper enforcement of law governing such activities.

Local capabilities still “mediocre” 
Despite the potential Malaysia has had over the years to become a preferred destination, Varanasi believes local SSO players have “cocooned themselves into believing their services are excellent”. “But the marketplace knows they are at best mediocre and unsustainable,” said the Matryzel executive.

Noting that a client will outsource to a service provider that has proven capabilities to deliver in accordance with global best practices, Varanasi believes Malaysian service providers sorely lack these competencies.

“The fundamental point to understand is this: clients will engage a provider for their innate capabilities to deliver, not because they are located in a beautiful location,” he said. “We need to understand that an enabling environment is not sufficient, and people competencies and forward-looking leadership are crucial.”

He added that it was not important what terms–be it BPO or KPO–are used to describe Malaysia’s SSO industry as it was more important to focus on specific verticals and craft services, at the back and mid-ends, to create front-end value for clients.

“BPO or KPO are meaningless terms in the marketplace today,” he said. “Malaysian companies need to focus on the business value for the client and not their own margins, as the latter follows the former.

“They need to understand the business and industry, craft services and solutions that address their clients’ pain-points. Value will automatically follow, and so will revenues and margins,” Varanasi said.

Edwin Yapp is a freelance writer based in Malaysia.

Source: ZDNet Asia

By Peter Boyle

“It is definitely not on for Australia to outsource their refugee problem to Malaysia – and for Malaysia to agree to it,” the Socialist Party of Malaysia (PSM) Member of Parliament Dr Jeyakumar Devaraj told Green Left Weekly at the PSM’s 13th Congress held in this town, which is the population centre of his electorate.

“Australia is sending refugees to a country that hasn’t ratified the refugee convention.
“In Malaysia there is no recognition of refugees as a separate class of immigrants. They are lumped together with other foreign workers without work permits.

“Refugees have a bad time in Malaysia. Even those who have the UNHCR card are still lumped together with foreign workers without permits. They cannot work legally but of course they have to work. When they work for companies and they get cheated they can’t go to the authorities and say I got cheated because it is illegal for them to work. They can get caught for working without a permit.

“Their children can’t go to schools. For health care they have to pay first-class rates.
“So if Australia wants to do this sort of thing then it has to put all this into order,” Jeyakumar concluded.

The PSM and the Socialist Alliance in Australia have issued a joint statement making the following demands on the Australian and Malaysian governments:

• The governments of Malaysia and Australia must stop their exchange of asylum seekers and refugees.

•

• The Australian government must accept all asylum seekers who arrive in Australia by boat and not send them to other countries which are not parties to the 1951 UN Refugee Convention.

•

• The Australian government must abandon its mandatory detention of asylum seekers arriving by boat, its attempt to reestablish an offshore detention centre in Papua New Guinea and its attempt to do a deal with Thailand and other countries along the same lines as the deal with Malaysia.

•

• Malaysia must sign and ratify the 1951 UN Convention Relating to the Status of Refugees and the 1967 Protocol Relating to the Status of Refugees, and protect the rights of all asylum seekers and refugees in Malaysia.

Source: Green Left

By Husna Yusop

Malaysia’s appeal in offering Knowledge Process Outsourcing (KPO) services is on par, if not better than the KPO market leader India, Malaysia’s Deputy Prime Minister Tan Sri Muhyiddin Yassin said.

This is because Malaysia has a competitive labour cost, a relatively high proportion of university graduates and a multicultural workforce that is fluent in multiple languages including English.

“Furthermore, Malaysian cost and quality of telecommunications infrastructure is set to improve tremendously with the government driven broadband initiatives.

“The key success factor to Malaysia’s nascent KPO sector, above all, is to demonstrate the depth and quality of Malaysian talent pool in areas beyond IT, especially engineering R&D (research and development) and back office work in industries such as finance services,” he said.

Muhyiddin said this in his keynote address at the launch of Advanced Micro Devices Global Services (M) Sdn Bhd (AMD) Global Services Malaysia, Cyberjaya Centre.

“In the long run, Malaysia’s talent pool should be able to perform tasks such as market research, business data analytics, competitive intelligence and R&D.

“Malaysia’s KPO potential can be crystallised further by attracting companies beyond IT sectors, such as financial services and transportation and logistics, among others,” he added.

Source: The Sun Daily