IT Services in Malaysia in a State of Transition, (Executive Summary) Executive Summary

Transcription

1 IT Services in Malaysia in a State of Transition, (Executive Summary) Executive Summary Publication Date: 12 December 2003

2 Authors Jacqueline Heng Rolf Jester Jim Longwood Twiggy Lo This document has been published to the following Marketplace codes: ITSV-WW-EX-0393 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 IT Services in Malaysia in a State of Transition, (Executive Summary) To many looking in from the outside, Malaysia doesn't appear to be growing into the regional hub that it has been positioning itself to be during the past 10 years. However, within the market, signposts of economic changes are gradually showing. To say that local Malaysian companies are currently in a state of flux during this transition period is to understate the situation. The renewed drive of Tun Dr Mahathir (former Prime Minister of Malaysia) pushing the Multimedia-Super Corridor (MSC) initiatives and attracting multinationals to set up large centers in the community has prompted local businesses to re-think what they have been doing during the past 20 years. However, one should not think that Gartner Dataquest is advocating there will be a complete revolution taking place in Malaysia within a short time, on the contrary, although things are changing. Certain signposts are showing the transition will take a little longer as there is lack of confidence in certain areas that there will be proper execution of projects and policies. The primary objectives of Gartner Dataquest are as follows: Examine the trends that are shaping the IT services marketplace in Malaysia Provide a supply-side (vendor and service provider) research overview and analysis related to the IT services market in Malaysia Discuss technologies, cultural, political, economic and environmental factors impacting the IT services market Provide a convenient summary of market size and forecast data for the major segments of the IT services market and forecast its growth by service category Identify the key market opportunities for IT service providers attempting to broaden and deepen their penetration of the market Examine the major challenges and opportunities of vendors trying to competeinthismarket Provide a listing of recent contracts won, in what areas, and contract values Gartner Dataquest also provides both quantitative and qualitative analysis summarizing: Thecurrentsizeofthesemarketplaces The growth of these marketplaces from 2001 through 2007 Methodology and Study Objectives Gartner Dataquest's analysis of the Malaysian market for IT services is based on primary and secondary sources of data such as the following: Gartner Dataquest conducts intensive face-to-face vendor research, which includes more than 350 interviews across Asia/Pacific. In Malaysia, Gartner Dataquest interviewed 19 vendors in all areas of IT Services. The purpose of the research is to gain a better understand of performance in 2002 through 2003 and provide an outlook for 2004 for drivers, inhibitors, challenges, opportunities, service offerings and revenue in Malaysia. Gartner Dataquest designed a survey that was used across Asia/Pacific to ensure consistency in data gathering. Government data or trade association data Relevant economic data 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 IT Services in Malaysia in a State of Transition, (Executive Summary) Articles in general and trade press Dataquest-developed information from various other IT focused global, regional and local research programs Asthemarketsizeisanassessmentofthepreviousyear'sperformance,vendor and supply-side data is a key input, including revenue information by service line and vendor prime and subcontracting activity. User and demand-side data is used to identify general spending patterns, current and future proportions of budgets allocated for services segments, and purchasing perceptions for service offerings. User and demand research includes user wants and needs customer surveys. Gartner Dataquest believes that its estimates are the most accurate and meaningful available. Despite the care taken in gathering, analyzing, and categorizing the data, careful attention must be paid to the definitions. Various companies, government agencies and trade associations may use slightly different definitions of product categories, or they may include different companies in their summaries. These differences should be kept in mind when making comparisons between data and numbers provided by Gartner Dataquest and those provided by other research organizations. The vendors interviewed in Malaysia include the following: International Business Machine Hewlett-Packard Hei Tech Padu Berhad Mesiniaga Berhad CSA Automated Systems HRMBC Vanda Group Datacraft Schlumberger Sema Jardine OneSolution Unisys vsource Oracle EDS Multimedia Development Corporation, MSC Silverlake Sapura Telecommunications Magnus Logica

5 IT Services in Malaysia in a State of Transition, (Executive Summary) 3 Key Findings Key findings are as follows: In 2002, the Malaysian IT Services market accounted for 3.5 percent of the total Asia/Pacific IT Services market, and its share will be about 3.2 percent by In 2002, the total market was valued at $1 billion. In 2002, spending was driven by the Malaysian government's spending on technology hardware within the educational institutions via the Smart Schools initiatives, the Telehealth program to link nationwide medical care facilities, digital divide IT initiatives via the MSC flagship applications and revived interest in setting up large-scale data centers, software development centers and call centers in CyberJaya. Malaysia is positioning itself as an alternative to India as an offshore and software development hub in the region. Outsourcing is 'hot' in Malaysia, driven by the government and global deals where Malaysia provides offshore support. There is an expectation in the marketplace that government spending will shrink by 2004 through 2005 and this inevitably will drive outsourcing. Malaysian businesses are changing. With more multinational competition entering the marketplace, local businesses must embrace new business models to survive and learn to adopt global competitive standards. In addition, it is anticipated that the government procurement process will be liberalized. The traditional family-run conglomerates that dominate the marketplace are finding benefits from re-aligning business units and embracing the concept of shared services through a centralized model. Malaysian businesses will be early adopters of business process. The drivers in the marketplace are pushing service providers to market the value chain of business process instead of just selling technology. Some larger enterprises are adopting full single-source outsourcing, while smaller enterprises are insourced or are selective sourcing. Gartner Dataquest Recommendations Recommendations to Service Providers Gartner Dataquest makes the following recommendations to service providers: Service providers should consider taking up the role of a services aggregator to companies. With integration and shared services being 'key' factors in the many conglomerates and government bodies, different technology systems will exist within the organization. Most of these companies will consider outsourcing the management of these systems and processes. System integrators should partner with business process outsourcing (BPO) service providers to set up offerings. With the push to offer BPO in the region, this will present opportunities where the system integrator will provide shared services and human resources will provide the set up. Consultants and outsourcing service providers should take advantage of the interest in outsourcing by taking the role of an educator to transfer knowledge.

6 4 IT Services in Malaysia in a State of Transition, (Executive Summary) Service providers should assist their clients into the transition from an IT organization to a business process organization by establishing better sourcing governance, IT governance and better-managed human resources transition. Large enterprise resource planning (ERP) providers should consider flexible pricing models in selling to BPO ESPs. If Malaysia aggressively adopts BPO, ERP providers will not be needed to be purchased directly by end users. Recommendations to Multinational Service Providers Gartner Dataquest makes the following recommendations to multinational service providers: Multinationals should leverage their MSC status not just for the tax benefits but for opportunities to connect to government and major enterprises and to utilize the infrastructure in the area. The objective to the MSC is to leverage the presence of the multinationals to transfer skill-sets to the locals, hence, it would be advantageous if programs to the community are created to support the local community. Multinationals should partner with local service providers where it is appropriate. This will provide access to the local market and will later expand access to the Middle East, where Malaysian businesses are well established. Multinationals should leverage the Cyberjaya facilities as a services hub. Very few places in the world offer such low-cost facilities and resources with good networking and infrastructures. Multinationals should consider setting up local subsidiaries. This will help them overcome the perception of a them being a preferred local service provider. Multinationals should consider selling the concept of the Office of the CIO model to governments, conglomerates and large local companies. Malaysian companies are slowly embracing and developing sourcing strategies. The Office of the CIO model will help businesses manage and drive companies to move from a decentralized model with individual business units or a loosely federated model with select sharing of services, to a centralized model. Recommendations to Local Service Providers Gartner Dataquest makes the following recommendations to local service providers: Local service providers should set themselves up as a clear differentiator if they have multinational knowledge and expertise. Local businesses are usually supportive of local service providers that are experienced like multinationals in terms of advice, exposure and, in some cases, service offerings. In addition, this local provider understands the local business environment and the way businesses are conducted in Malaysia. Moreover, local service providers are not restricted by the usual red tape, time constraints, global costs and worldwide approvals that usually apply to multinationals.

7 IT Services in Malaysia in a State of Transition, (Executive Summary) 5 Local service providers should be not be conservative and should be open to considering different business models to leveraging foreign relationships. Local service providers that have successfully provided a "win win" partnership with a foreign partner or have accumulated foreign expertise are CSA Malaysia, EPIC-I and HRMBC. CSA Malaysia is partially owned by Computer Sciences Corporation (CSC). It is a win-win partnership where the local service provider is able to leverage the global offerings, knowledge and client base of the foreign partner. EPIC-I, with the EDS model, allows the local service provider to leverage the multinational as a foreign supplier. The HRMBC model is where both local and multinational knowledge is cumulated and leveraged, especially regarding global practices and processes. Local service providers should seek MSC status. One of the objectives of the MSC is to provide a transfer of knowledge to the local service providers from the multinationals via national projects. Local service providers should prepare for more open purchasing within the government by Local service providers should sell the concept of business process instead of IT outsourcing in Malaysia. The concept of selling IT dilutes the importance of services as customers look at paying for technology and expect services to be bundled or part of a nonpayable value-added service. Whereas the idea of sellingbusinessprocessisavaluechain,businessprocessencompassesa large spectrum of services, therefore providing more opportunities to sell in the future. Local service providers should be aware of reasons for failure to outsourcing for both IT and business process and learn from the rest of the world. Malaysia is riding the outsourcing hype right now and will reach the peak of inflated expectations stage. As much as they desire to provide outsourcing services, local service providers should be aware of the pitfalls. In a typical Gartner Dataquest hype cycle curve, there will be a trough of disillusionment after the hype. This is where customers lose faith in outsourcing because of the number of failures brought about by poor implementations and quick fixes. At the end, the curve will move up on the slope of enlightenment and finally settle to the plateau of productivity, where businesses survive by providing services that meet users' expectations. Local service providers should leverage their expertise and expand into suitablemarketssuchasthemiddleeastandnotintoestablisheditservices markets unless it is in a niche space. Many multinationals do not have the advantages Malaysian companies have in terms of conducting business in the Middle East. This is because of Malaysia's political, religious and social ties with the Middle East. Recommendations to Government Gartner Dataquest makes the following recommendations to government: The government should enforce the Bills of Guarantees. This is very important to foreign MSC-status companies to sustain foreign investment and confidence to sell software in the economy, especially when the government intends to position Malaysia as a software development hub in the region. Intellectual property rights and privacy laws are imperative to software development companies ThegovernmentshouldrealizethebenefitstoanMSC-statuscompanyare thetypeofbusinessconditionsthatabusinessneedstoprosperandthis should not be treated as special conditions.

8 6 IT Services in Malaysia in a State of Transition, (Executive Summary) The government should consider the implications of its services tax, which includesoutsourcing,becausethisisaninhibitortoserviceprovidersselling external services. The government should consider taking the lead to drive the outsourcing market by externally outsourcing parts of its functions. This will be a positive reflection on the government because the value of the spending will be kept within the economy. For the full report, see "IT Services in Malaysia in a State of Transition, ," ITSC-AP-FR-0131.