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February 20, 2017 at 13:28 pm GMT

An Ideal GBS Location

FOCUS: An Ideal GBS Location. Due to a number of attractiveness factors, from strategic location, to cost competitiveness and a strong talent pool, a growing number of international companies are locating their global business service operations in Iskandar Puteri.

An Ideal GBS Location

AN EVOLVING LANDSCAPE

Global organisations have been moving towards shared services and outsourcing (SSO) since the 1980s. The underlying idea being that dedicated specialists can undertake routine, transactional back-office work and process it more efficiently at lower cost.

As the sector has matured, embracing the clear changes produced by globalisation and connectivity, these delivery models have been subsumed into the global business services (GBS) industry. While still encompassing traditional operations, companies are now seeking to integrate governance, locations and practices, as well as to incorporate high-value services, such as business analytics and corporate planning.

GBS now aims to facilitate productivity gains, automation and working capital opportunities, particularly in information and communications technology (ICT), finance and accounting, human resources, legal, engineering services, and healthcare, while continuing to maximise the benefits that can be gained from labour arbitrage, cost competitiveness and efficiency.

 GBS IN MALAYSIA

The GBS industry has been developing rapidly in Malaysia and the country hosts the GBS operations of over 400 companies, of which at least 80 are multinational corporations (MNCs). This includes significant global players such as Kerry Logisitics, Citibank, HSBC and DHL, among others.

According to the Global Business Services Outlook Report by Outsourcing Malaysia, an initiative led by the outsourcing and ICT industries, Asia-Pacific GBS markets are projected to average a 5 per cent compound annual growth rate (CAGR) until 2019. Malaysia, however , is one of four GBS destinations projected to record CAGR growth of 10 to 15 per cent over the same period. Moreover, the industry had created 85,000 jobs as of 2016, easily surpassing targets set by the government-owned agency Malaysia Digital Economy Corporation (MDEC), a key driving force behind GBS development in the country.

Since its inception in 2004, management consultancy A.T. Kearney’s Global Services Location Index has consistently ranked Malaysia in the top three GBS locations (see fig. 1). The index tracks the offshoring landscape in 55 countries across three major categories: financial attractiveness, people skills and availability, and business environment. Additionally, in 2014, global services analyst Everest Group singled out Malaysia as the ‘emerging Asian tiger’ for global shared services, arguing that it had positioned itself as a valid destination for high-value services due to strong government support, a skilled talent pool, and sectoral expertise, as well as its developed-world infrastructure.

The Malaysian Government has repeatedly emphasised the importance of the burgeoning GBS industry. And numerous strategic initiatives have been developed as a result under the country’s Economic Transformation Plan, with business services named as one of 12 National Key Economic Areas (NKEAs). Furthermore, ‘transforming services’ was identified as a key focus area in the Eleventh Malaysia Plan 2016-2020. Thus, it is clear that the industry has high-level support.

A NEW KID ON THE BLOCK

The growth of the GBS industry in Malaysia coincides with the significant developments occurring in Iskandar Malaysia. Launched in 2006, as one of several initiatives to broaden growth opportunities outside the highly developed Klang Valley, Iskandar Malaysia was designated as an economic development corridor and given a mandate to build a strong and sustainable globally oriented metropolis. In the context of a comprehensive and long-term development plan, driven by Khazanah Nasional Berhad (Khazanah), the strategic investment fund for the Malaysian Government, and the Iskandar Regional Development Authority (IRDA), there has been a focus on attracting dynamic businesses, both local and foreign, that align with the strategic vision for the economic region.

While Iskandar Malaysia is a relatively new player on the GBS landscape compared to other areas of Malaysia, it is already one of the largest GBS locations in the country. This rapid growth and appeal has been fuelled by a number of attractiveness factors.

The local Johorian talent pool is largely multilingual and the region produces more than ten per cent of total graduates in Malaysia. Cost is another major growth driver: salaries, the cost of living, and real estate prices are significantly lower than those in Singapore, for example. Moreover, the infrastructure base in Johor has been developed and is continuing to expand. It currently comprises 15 highways, one international airport, with Singapore’s Changi Airport a one hour drive away, as well as robust telecommunications and power frameworks.

Yet, perhaps the most important attractiveness factor stimulating development is Iskandar Malaysia’s strategic location, particularly its close proximity to Singapore. The implications for potential growth related to the economic region’s geography were not lost on those crafting the long-term development plan; there are significant opportunities for companies to benefit from the Singapore market, as well as others in the Asia-Pacific region, while maintaining a Malaysian cost structure.

Thus, and in line with the broad economic development plan for Malaysia, as a whole, one of the areas identified for high-value growth in Iskandar Malaysia included SSO-related activities, encompassed in the GBS industry.

ISKANDAR PUTERI

In order to stimulate development in this sector, Khazanah set up i2M Ventures Sdn Bhd (i2M) in 2013, a non-profit entity that is mandated to focus on strategic investment promotion initiatives for the GBS and SSO sectors located specifically in Iskandar Puteri, a newly developed city in Iskandar Malaysia.

Iskandar Puteri, formerly known as Nusajaya, lies at the heart of Iskandar Malaysia and constitutes one of the five flagship zones outlined in the Iskandar Malaysia Comprehensive Development Plan 2006-2025. The city has seen high growth in property development in its initial phase and is touted to become one of the largest fully integrated urban developments in Southeast Asia. The development will continue to provide significant investment and business opportunities for years to come.

A number of important projects have already been developed in Iskandar Puteri including: Kota Iskandar, the state of Johor’s administrative centre, which houses state and federal government offices; the Southern Industrial and Logistics Clusters (SiLC), a managed and environmentally sustainable industrial park; Afiat Healthpark, an integrated medical hub; Puteri Harbour, a large waterfront development; Medini, a significant ‘smart’ urban township that is being positioned as the central business district of Iskandar Puteri; and EduCity, a purpose-built campus that offers world-class learning, living and recreational facilities.

Moreover, Iskandar Puteri is conveniently located a 40-minute drive away from Singapore’s Central Business District (see fig. 2). Thus, companies that choose to locate GBS operations in the area can capitalise on the nearshore opportunities, as well as regional market access, all while taking advantage of the talent, infrastructure, competitive-cost and liveability factors in Iskandar Puteri.

GBS ISKANDAR

As part of promoting Iskandar Puteri as a GBS hub, where foreign and Malaysian corporations can situate their shared service and other business service centres, i2M has a target to generate MYR6.5 billion of inward investment and create 14,000 high-value and knowledge-based jobs by 2020.

In order to fulfil this objective, i2M introduced the GBS ISKANDAR initiative in April 2016. This specialised programme will enable qualified companies to receive expert facilitation to meet their GBS location requirements, as well as privileged access to customised incentives provided by the GBS ISKANDAR programme.

Within this context, i2M is working with other agencies, such as MDEC, IRDA, Outsourcing Malaysia, the Malaysian Investment Development Authority, Talent Corp Malaysia and the Johor State Investment Centre to ensure that all efforts aimed at positioning Iskandar Puteri as a GBS hub are coordinated and key messaging is aligned with the strategy of best nearshore to Singapore, combined with excellent wider market access.

The goal is to attract regional headquarters and large organisations in Singapore to expand and locate their operations in Iskandar Puteri, as well as to attract MNCs from other regions to set up in the flagship zone as an alternative location from which to penetrate Singapore and the Asia-Pacific region.

BEING PROMOTED

Between 2013 and 2016, i2M attracted a number of significant local and international companies to locate their operations in Iskandar Puteri, including Frost & Sullivan, Brandt International, Courts Asia Ltd and Vistra, a multinational corporate services company. In total, i2M has recorded committed investment of MYR1.4 billion and created 2,800 jobs over this period.

During the ten-year anniversary celebrations for Iskandar Malaysia in December 2016, the Malaysian Prime Minister announced that GBS would be incorporated into the nine promoted sectors. Thus, GBS activities now fall under the renamed Financial and Business Services promoted sector. As a result, certain tax incentives are available for companies considering Iskandar Puteri as a GBS location.

Eligible companies can apply for the Medini Incentive and Support Package, while employees can enjoy a personal income tax rate cap of 15 per cent in Iskandar Malaysia, if they meet certain conditions.

TALENT DYNAMICS

Notwithstanding the various attractiveness factors present in Iskandar Puteri, the availability of talented manpower to fill new job positions is a vital ingredient for a strong and sustainable GBS industry. Thus, aside from the need to attract experienced talent to the flagship zone, i2M recognises the importance of having a well-structured professional education programme to optimise skillsets and prepare recent graduates for the world of work, particularly in GBS.

Accordingly, in April 2016, GBS ISKANDAR introduced its Campus Connect Initiative. This scheme is a partnership between industry and academia, facilitated by i2M, and designed to nurture graduates to become well-rounded citizens and endow them with skillsets that meet the current and future requirements of industry.

The first industry partner for the pilot Campus Connect Initiative project is Vision Technology Consulting (VTC), an Oracle Platinum Partner for enterprise solutions. The collaboration consists of a three-month Oracle Training and certification programme for selected students from the Faculty of Computing at Universiti Teknologi Malaysia (UTM). The programme is conducted via classroom and on-the-job Oracle training, and increases the employability and marketability of participants.

As an emerging ICT company that specialises in customer relationship management, billing systems and middleware in Malaysia, VTC intends to source young talent from Johor. This seems to be a sensible strategy given the quality universities and number of graduates in the state. Johor averages close to 17,000 graduates per year, many of whom have studied at Johor-based universities, such as UTM and the Universiti Teknologi MARA’s Johor campus, both of which are ranked highly in national education league tables.

Furthermore, EduCity is home to world-renowned institutions including the University of Reading Malaysia, Newcastle University Medicine Malaysia, the Netherlands Maritime Institute of Technology, Raffles University Iskandar, the University of Southampton Malaysia Campus, the Multimedia University, and the Management Development Institute of Singapore, all of which are within Iskandar Puteri.

The field of study distribution in the state is also favourable to companies that wish to locate GBS operations to coincide with the GBS ISKANDAR initiative. Figures from i2M suggest that 42 per cent of graduates have studied subjects relating to computing, ICT or engineering, while 43 per cent have degrees related to finance and accounting or the social sciences.

Iskandar Puteri is also able to attract highly experienced knowledge workers from both Kuala Lumpur and Singapore who are seeking a more pleasant living environment and greater quality of life.

A STRONG VALUE PROPOSITION

The rapid digital disruption in the GBS sector presents some advantages for the industry in Malaysia, and, consequently, for GBS development in Iskandar Puteri. The use of automation and the requirement for higher-value talent means that the Business Process Outsourcing space will no longer be dominated by scale. Thus, Malaysia will have an opportunity to compete based on the value of higher-skilled talent, rather than competing purely on scale and cost. Moreover, Malaysia has a large pool of graduates that have been trained to manage the emerging digital and automation tools, raising its profile amid the disruption.

It is clear that the Malaysian Government has bought into the possibilities presented by growing the GBS industry and is actively developing a sustainable talent pool to meet the needs of the international GBS community. This is reaffirmed by significant numbers of government-linked agencies that are supporting the GBS development agenda with a multi-pronged approach.

Accordingly, boosted by the support of the Malaysian federal and state governments, key public sector agencies and particularly i2M through the GBS ISKANDAR programme, the projected double-digit growth for the Malaysian GBS industry looks set to be realised. Iskandar Malaysia is in a prime position, both literally and figuratively, to take advantage of this.

This feature was produced in collaboration i2M Ventures Sdn Bhd