TOMORROW’S IT TODAY

Malaysia 2017 | IT & INNOVATION | REVIEW

As Malaysia strives to develop its knowledge economy, the ICT industry is playing an integral role in this transformation, driving growth and creating opportunity in a vast array of different areas.

Growth has defined the Malaysian ICT industry for the last decade and a half, and, though rates may have slowed, the industry is a major driver of economic activity in the country. The National ICT Association of Malaysia (PIKOM) estimates that thanks to an AAGR of 8% for the last five years, the total value of the ICT sector is currently in the order of MYR155.2 billion. In 2015, the ICT industry contributed nearly 17.6% to the Malaysian economy, a contribution that was largely driven by ICT manufacturing, ICT services, e-commerce, and ICT trade. In 2015, e-commerce alone accounted for 4.8% of the economy, while ICT services were at 6.6%, representing almost 100% growth in the last 15 years. ICT services have been the real standout of the industry, though, and it is the fastest growing sub-sector of the ICT economy, growing 11% in 2015 and approaching MYR70.2 billion.

The rise of ICT services has redefined the tech landscape in Malaysia, and service-based firms are enjoying a newfound status as key drivers of Malaysia's ICT industry. In an exclusive interview with TBY, Jan Willem Middleburg, Regional Asia Director at Pink Elephant, explained the integral role his firm and service-based firms play in expanding the boundaries of the economy. “Pink Elephant provides the 'next generation' IT leaders with the knowledge and skills to successfully lead digital transformation in their organizations, using globally accepted standards and best practices," said Middleburg. “Other counties in the region could take Malaysia as an example of how to successfully drive economic empowerment by increasing the skills of the population." By the end of 2016, the ICT services sub-sector is expected to reach nearly MYR77.5 billion, propelling the industry to the next level.

Though ICT manufacturing has grown in the last few years, growth has not been evenly distributed across the sub-sector. The production of integrated circuits, semi-conductors, and electronic transistors has declined notably in the last few years. In concrete terms, this translates into 24.253 million integrated circuits, 11.797 million semiconductors, and 35.523 million electronic transistors produced in 2015. ICT services, however, have been expanding rapidly in recent years, with the motion picture, video, and television programming segments each recording double-digit growth, according to PIKOM. Computer services and telecommunication services account for the bulk of all activity in the ICT industry, representing a whopping 84.6%, or MYR65.5 billion, of the sector.

Hurdles

Though the industry has been recording impressive growth in recent years, economic hurdles are likely to dampen growth in coming years. PIKOM forecast 4.7% growth in the ICT industry, but expected global economic headwinds could undercut these rates. Furthermore, this 4.7% rate represents a decline on previous years, and the Chairman of PIKOM identified four core areas of trouble in the sector: brain-drain; lack of qualified college graduates entering the workforce; R&D and commercialization at the necessary scale; and competitive compensation. To address these hurdles, industry leaders, government officials, and community stakeholders from across the country have been striving to develop multifaceted, objective-oriented strategies for addressing these core issues.

Job Market

While various growth indexes throughout the job market have slowed, there is still robust growth in a number of key areas. Between 2014 and 2015, the average monthly salary of ICT workers grew by 5.3% to MYR8,114. According to PIKOM, wage growth slowed in every professional category in the industry. Continued strains and various economic pressures are expected to lower growth rates further in 2016, and PIKOM expects salaries to grow by an average of 4.7%. Reflecting countrywide and regional economic challenges—like a weakening ringgit, declining oil prices, and unstable commodity prices—YoY salary growth was the slowest in eight years.
Wage gaps are growing between entry-level employees and managers in the ICT industry, and according to PIKOM, senior managers earned 6.27 times more than new college graduates entering the workforce. This compares to a wage gap of 4.95 in 2010. Additionally, the income gap between middle managers and new graduates is increasing, and the gap was 3.75 times in 2015 compared to 3.21 in 2010. The widening wage gap amongst entry-level workers and management is expected to be somewhat exacerbated in the near term as firms reduce the number of fresh hires, focusing on more experienced candidates who are better able to help them adapt to tougher economic times.

Nevertheless, firms across Malaysia are excited by the opportunity in the Malaysian market and see great opportunity in the coming years. In an exclusive interview with TBY, Mark Britt, Co-Founder and CEO of iflix, explained what makes Malaysia such an appealing market, not least of which was the large pool of qualified candidates. “Approximately 30,000 Malaysian graduates with an overseas tertiary degree, international experience, and business perspective repatriate each year with the aim of continuing their careers back home," said Britt. “As we continue our rapid growth, expanding into new markets, it is a great advantage to have this depth of talent who are foreign educated with international backgrounds and networking experience." This influx of educated Malaysians goes a long way toward balancing the brain drain seen in certain areas of the industry, and as the economy continues to get stronger more Malaysians are expected to return in increasing numbers.

New Investment

In the same period, capital expanded by around 2.7%, accounting for 56.4% of Malaysia's economic growth. Of that 2.7%, an impressive 1% was funneled into the ICT sector alone. According to the Malaysian government's 2015/2016 Productivity Report, growth in ICT was driven by an explosion in mobile devices, social media, cloud solutions, e-commerce, and big data analytics. Additionally, liberalization in the service sector catalyzed a sector-leading CAGR of 7.8% in ICT.

Though Malaysia is still behind regional leaders like South Korea, Singapore, Japan, and Hong Kong in certain key ICT benchmarks, substantial progress has been made in the last five years. Between 2011-2015, Malaysia made sizable gains in the core areas of e-participation, government's online services, ICT use, and ICT access, according to the Global Innovation Index (GII). In coming years, governmental and private sector leaders hope to close the development and innovation gap between Malaysia and its most developed neighbors.
FDI plays a major role in Malaysia's ICT sector, and industry leaders and government officials expect it to only increase. According to statistics from PIKOM, FDI in in the ICT sector grew to more than RM5.85 billion, up almost RM2 billion from 2010, and in 2015 ICT accounted for around 4.7% of the total FDI entering Malaysia.

The Way Forward

With stable fundamentals and a governmental commitment to development, Malaysia's ICT industry is likely to continue flourishing. According to PIKOM, a series of government-directed plans, a growing middle class, and an urban-oriented development structure have spurred historic growth. In the short and medium-term, these same factors are likely to be the main sources of further growth. As the industry expands, reaching consumers in farther flung regions and areas of the country, growth will begin to be more inclusive. With low PC penetration rates in rural areas and growing internet penetration, the country is rife with opportunity for firms operating in these segments.

Strong growth in financial services, education, government, health, and oil and gas are expected to contribute to the growth of the ICT sector in the coming years. Additionally, ICT has also spurred a farming revolution, and new technologies and computer-based applications have improved disease and pest control and ensured higher yields and productivity. In the coming years, the government expects new applications and technologies to be further integrated into traditional, mainstay industries, catalyzing growth, efficiency, and productivity.
Moving forward, e-commerce is expected to represent a much larger portion of the economy, and by 2020, e-commerce activity is expected to double again, representing between 9 and 10% of GDP. According to international consulting firm AT Kearney, the Malaysian e-commerce market is thought to be worth about USD1.5 billion, but with more than 87 million online shoppers in the ASEAN countries and 20 million in Malaysia alone, the value of the market is expected to grow significantly in the near future, presenting a sizeable opportunity for firms able to fill the market's demand.

Malaysia's commitment to innovation and its tech vision for the future goes beyond traditional notions of ICT, and plans are afoot to reimagine the way cities are organized. Medini Iskandar is a city designed to be the future of smart cities in Malaysia. The project endeavors to create an environment totally informed by the latest technological advancements, redefining the way people conceive of and interact with cities. In an exclusive interview with TBY, Tn. Hj. Jamil Hajar Abdul Muttalib, Chairman of Medini Iskandar, explained the project's core vision. “It is our primary objective to build a livable city, a place where our inhabitants can live, work, study, and shop," he said. “A smart city is carried by its people and not just by its technology, and as the master developer, we want to build the whole ecosystem." According to the Asian Review, more than USD18.5 billion in investments are expected in the coming years, and government officials and private industry leaders expect the city to be a key hub of innovation in the future. Moving forward, cities that integrate advanced technology into their core infrastructure systems are expected to define Malaysia's urban space.

With strong growth expected in the medium term, Malaysia's IT sector is ready to shake off the doldrums of recent years. With a holistic and clear-eyed approach to stimulating sustainable growth, the ICT industry is poised to continue delivering positive growth for years to come.