Outsourcing Malaysia (OM), a chapter of Pikom, the National ICT Association, recently announced that it is extending its purview to better represent local and foreign shared services and outsourcing companies.
OM’s membership is currently made of local companies, with 90% in outsourcing and just 10% in shared services.
Its chairman David Wong said, “Shared services companies comprise close to 30% of the entire outsourcing market in Malaysia.
“Over the years, more than 300 foreign and multinational shared services companies have set up their regional and global centres here, generating billions of ringgit in investments and thousands of employment opportunities.”
OM believes that its move to include more shared services companies will also benefit existing members through knowledge-sharing and partnerships.
Wong said in OM’s numerous dialogues with shared services companies and the support of Multimedia Development Corporation Sdn Bhd (MDeC), it was clear that there was a need for both sides to work together to ensure the continuous growth of the industry.
“OM, therefore, will be embarking on new efforts to drive greater collaboration between local and foreign players in both shared services and outsourcing,” Wong said.
Both shared services and outsourcing companies share common issues and opportunities such as lack of skilled talent, talent development, competition from other countries, ease of doing business and infrastructure and operating cost.
“This year, we will establish a talent council consisting of all major shared services and outsourcing companies to oversee the challenges faced in talent-sourcing, development of skills and efforts to promote outsourcing as a career by helping to facilitate the placement of talent directly from universities into outsourcing companies,” added Wong.
With increasing global competition, Wong said OM needed to look at the bigger picture to lend its support to the whole ecosystem of the outsourcing industry by creating the optimal arena for local outsourcing players to converge their efforts via mergers and partnerships.
Although there are fewer shared services companies, they are generally larger corporations with bigger numbers of employees to service business operations across borders into international markets.
“In 2012, about 70% of Malaysia’s outsourcing revenue still came from international deals, and out of this, 90% was generated by shared service companies, emphasising the significant role of shared services in the outsourcing sector,” he said.
Initially, shared services entities were set up in Malaysia by global financial institutions to support their non-core regional business operations in a centralised location in order to be more cost-efficient in managing common business processes, such as IT, infrastructure management, procurement, human resources, payroll, customer support and more.
As this model matured, these entities, comprising primarily contact centres and back office operators, began to offer their business process outsourcing services to other businesses besides their parent company.
“Because shared services supply the underlying need for companies to outsource non-core yet critical business functions, the growth of the shared services market share in the outsourcing sector is inevitable and will continue to be strong in the future,” said Wong.
The outsourcing sector consists of three areas — Business Process Outsourcing (BPO), Information Technology Outsourcing (ITO) and Knowledge Process Outsourcing (KPO).
BPO and ITO dominate the industry.
In Malaysia, BPO has shown the highest growth in the last few years — growing from 39% in 2009, to 48% in 2012.
And within BPO, shared services providers make up 6% of the market share, employing more than 13,000 people.
“In the next few years, BPO will emerge as the fastest growing area for outsourcing in Malaysia with a 25% growth rate,” he said.
ITO, on the other hand, accounts for 45% of the industry market share, with shared services players providing ITO, declining to 40% in 2012 (down from 48% in 2009).
“There is definitely a growing investor interest in Malaysia’s shared services market and we need to enhance our ability to adapt to the way business is being done globally through strategic partnerships,” said Wong.
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