Getting it right: The sector has a good foundation and is working toward new advances

Technological development has long been a priority for Malaysia, and it remains so. The country’s efforts are both big, such as Cyberjaya and the Multimedia Super Corridor (MSC), and small, with entrepreneurs pulling together funds from friends and family to build websites and apps. The work has paid off to a certain degree. The country was ranked 33rd on the 2014 Global Innovation Index (GII), putting it ahead of most other upper middle-income countries in the survey. However, much remains to be done. The country needs to continue its shift away from hardware and more toward services. It has to address financing gaps that leave some good ideas lacking in funds, and must encourage risk taking on the technological side so it can achieve significant advances and become a global leader.

The Right Support

Malaysia’s IT sector has been officially promoted and supported for some time. The Malaysian Investment Development Authority, founded in 1967, is very much focused on making the country a high-tech hub. The National ICT Association of Malaysia (PIKOM) was founded in 1986. Malaysia’s Promotion of Investment Act 1986 was amended in 1997 and offers a wide range of incentives and support through MSC Malaysia, including grants, tax breaks and duty-free imports of relevant equipment. The Malaysian Association of Creativity and Innovation was founded in 2007 to support a culture of innovation through workshops, seminars and training programmes. PIKOM’s Outsourcing Malaysia assists companies in developing outsourcing businesses and opportunities.

The country’s laws are highly supportive of technology. These include: the Digital Signature Act 1997, the Communications and Multimedia Commission Act 1998, the Telemedicine Act 1997, the Electronic Commerce Act 2006 and the Electronic Government Activities Act 2007. In 1999 the Malaysian Communications and Multimedia Commission (MCMC) was established. The country currently has 26 cybercities and cybercentres, which work on the concept of clusters, whereby companies utilising the same technologies are located near each other in order to promote innovation. Malaysia also has other advantages not directly related to technology, including the language skills of its population and the high standard of living.

By The Numbers

According to data from PIKOM’s “ICT Strategic Review 2013/14”, the sector has been growing steadily for at least a decade. In 2000 total ICT services value-added was RM11.77bn ($3.67bn) and 3.3% of GDP. In 2013 that number had grown to RM61.7bn ($19.25bn), or 6.7% of GDP. Over that period, the sector achieved a 13.6% compound annual growth rate (CAGR). Computer services grew especially fast, with a CAGR of 22.9%, as did information services with 19.6%. PIKOM expects that ICT value-added for services will rise to RM68bn ($21.22bn) in 2014.

Productivity in ICT services is growing. According to PIKOM, the segment is the second most productive, after wholesale and retail trade services. It is also ranked second for productivity growth, after health care. The country has scored well in certain critical areas important to innovation. On the 2014 GII, Malaysia was ranked 6th in knowledge absorption, 1st in ease of getting credit, 4th in creative goods exports, 13th on the state of cluster development and 31st in e-participation. The country also ranked 30th overall in the World Economic Forum’s 2014 Networked Readiness Index, and placed highly on the government usage pillar, for which it was 9th out of 148 countries. It was also ranked 1st in internet and telephony competition and 10th on the number of procedures it takes to start a business.

The country has done a good job in building and promoting its internet. The 1998 Communications and Multimedia Commission Act entailed the creation of an efficient broadband network, while the Malaysia National Broadband Plan was passed in 2004. The government in 2007 set a target of 50% broadband penetration, which it quickly exceeded, with penetration reaching 53% in October 2010, up from 22% in 2008. By 2011 the country had already fulfilled the Information Technology Union’s broadband goals, which were set with a target date of 2015. The goals are: making broadband a national policy; offering affordable broadband to lower-income residents; and achieving a 40% broadband penetration rate. The 2010 Economic Transformation Programme, which calls for transforming Malaysia into a high-income country by 2020, also recommended increasing the broadband penetration rate, setting a goal of 65% for 2012. By the first quarter of 2014, the rate had hit 67.3%, with households having nearly 2m fixed-line connections and 2.4m wireless connections, according to the MCMC.

A Million Laptops

In 2008 the government and Telekom Malaysia (TM) initiated a project to achieve broadband connectivity throughout the country. The high-speed broadband (HSB) plan involved a public-private partnership whereby TM would fund most of the build; the total estimated cost was RM11.3bn ($3.53bn), with the government covering RM2.4bn ($749.04m). By 2010 the first phase was completed. A total of 1.4m premises were provided with coverage and 43% of them, or 600,000, had subscribed to the service. In the 2014 budget a total of RM3.4bn ($1.06bn) was allocated for the second phase of the HSB project. The goal in this phase is to bring fibre to an additional 4.8m households in urban and suburban areas.

In 2010 the country embarked on its 1Malaysia Netbook initiative with the aim of giving out 1m computers to lower-income families. The hope was to benefit 65% of the students in government schools who qualify for a free laptop if their household income is below RM3000 ($936) per month – or RM5000 ($1560) in urban areas – and if the family does not yet have a computer and the student is in forms one through five. By December 2011, 472,900 units had been distributed, and by September 2012, 754,446 had been given out. The Youth Communications Package was also introduced in early 2013 and allows people aged 21-30 with incomes of under RM3000 ($936) per month to get a RM200 ($62) rebate for a phone. The phones have to be on an approved list and cost less than RM500 ($156). Also, a Get Malaysian Business Online grant of RM1000 ($312) is available for small businesses owners.

As has been the case in many countries, wireless has been a significant part of the broadband equation. 3G has been available in Malaysia since 2004, while a high-speed download packed access platform was launched two years later, followed by WiMAX, introduced by Packet One Network, in 2008. The fast ramping up of these solutions resulted in more wireless than wired broadband connections and forced an adjustment of the broadband strategy, from one of wiring the entire country with fibre to one of introducing fibre where it makes the most commercial sense and allowing other methods of connection to be used when fibre is not justified. Unlike countries where wired broadband has received significant support from the government, fixed-line efforts in Malaysia are primarily private ventures that extend services mainly on a commercial basis, thus significantly slowing growth.

The government would like 100 Mbps broadband available in the cities and 4-10 Mbps in suburban areas, and the country is pushing to achieve these goals using all the technology available. It is not only extending the reach of the HSB plan, but it is also setting up more towers – the 2014 budget includes RM1.5bn ($468.15m) for 1000 new towers – developing back-haul capacity to serve base stations and establishing high-speed connections between Peninsular and East Malaysia. The submarine cable is also in the 2014 budget and will be built over a three-year period at the cost of RM850m ($265.28m).

High Traffic, Active Users

The arrival of long-term evolution (LTE) will help the country achieve its broadband goals. The auction for the relevant bandwidth, 2600 MHz, was held in 2012 and nine companies were awarded licences. By early 2013 the first service was being provided and networks were quickly being expanded. WiMAX, once touted as the solution for the entire country, is quickly being wound down in favour of LTE.

Malaysia internet users are highly active, and, according to the Malaysian Internet Exchange, internet traffic exploded in 2013, up 51% overall from 2012. The exchange attributed that to an increase in the use of networking and messaging sites and apps, such as Facebook, Instagram, Twitter, WhatsApp, WeChat, Viber and Line. The exchange also noted that more advanced and cheaper handsets and devices was also a factor in stimulating demand. According to a 2014 presentation at a tech roadshow by Kenneth Wong, president of the Malaysian Digital Association, 15.2m of Malaysia’s 30m people use one of the world’s top networking sites, and the average Malaysian spends almost 16 hours a week online. Malaysians also spend far more time online per day than any other people in South-east Asia, according to On Device research.

E-commerce has been an area of focus, and it is a sub-sector that has achieved significant success. Malaysia has a strong banking system, an effective payments network, good distribution and widespread usage of credit cards, so it is quite easy to shop and pay online, and receive merchandise. It is also easy to set up an e-commerce site. Statistics suggest wholesale adoption of the concept and ready acceptance of the payments options. According to ecommerce.milo, a Malaysian and Vietnamese company specialising in e-commerce, 91% of online users shop online in Malaysia and 75% of those who shop online use credit cards.

Outsourcing & Big Data

Malaysia is a major outsourcing destination. Kuala Lumpur was ranked 18th in Tholons’ annual survey of the world’s top outsourcing destinations; Penang was ranked 67th. In 2012 outsourcing generated RM5bn ($1.56bn) of revenue for the country and employed 54,000 people. By 2015 Outsourcing Malaysia forecasts it will reach RM7.1bn ($2.21bn) and employ 88,000. The focus now is to get into higher value-added work, moving from business process outsourcing to business process management and knowledge process outsourcing. The hope is that Malaysian companies will be able to contribute to research, data, statistical analysis and legal research.

Big data has also become a major area of IT interest in Malaysia. Because of the country’s low costs, good legal structures and strong IT infrastructure, it is seen as potentially a good place to host servers and run them. PIKOM said the big data and analytics market consists of 15 commercialised technologies, two patents granted and 21 applied for and six projects in the works. It added that 14,000 people work in the sector. Areas of opportunity include oil and gas, financial services, health care and massively parallel processing applications. Likewise, the cloud is seen as another area of strong growth. PIKOM estimates that big data and analytics will go from a RM120m ($37.45m) sub-sector in 2011 to RM1.56bn ($486.87m) by 2020. It also forecasts that it will go from RM140m ($43.69m) to RM2.8bn ($873.88m) in 2020, with a CAGR of 39%. Their is a larger trend to move from the hardware side of IT to the services side. “What we are experiencing is a structural change in the ICT sector,” said Cheah Kok Hoong, chairman of PIKOM. “Why do we want to focus on services? Because that’s where the value-added is.”

However, IT has been facing some significant hurdles in the country in recent years. Saturation, it appears, has already been reached. According to Wong, both broadband and cell phone penetration dropped slightly in the fourth quarter of 2013 over the third quarter. Recent data also suggests that the state of the network in Malaysia may not be as good as it should be.

According to Ookla data, the country was ranked 123rd for download speeds of 5.92 Mbps, slower that Ethiopia, Colombia, Thailand and Ghana. Although MCMC did not dispute the results, officials did take some exception to the methodology. Still, the news came as a shock and suggested that the country may be facing some larger issues in the IT sector. While it may have put all the right pieces in place and a good foundation, it has found that it is having a difficult time leading and is more reactive than proactive. This, in part, could explain the surprise in performance and the growing concern that Malaysian technology is not always on the cutting edge. “Malaysia is risk averse. It stays away from the unproven,” said Andy Khoo, head of corporate and public sector at Maxis. “With anything that is new, it is tough to get people interested.”

Outlook

Malaysia has built an impressive foundation in IT. The country has a good base of talent, skills and technology, a wide range of supporting policies and programmes, an active local market and a good reputation. It now has to focus on going from a strong local player to becoming a regional leader and finding a way to establish its IT corporations and entrepreneurs internationally. Malaysian executives understand that the country may never have its own Google or Microsoft, but they want to get more of high-end work and create more high value-added products and services.