ICT to Malaysia
(Last updated: 7 March 2013)
Trends and opportunities
The market
The Malaysian Information Technology (IT) industry spending is projected to grow by 7 per cent to US$5.6 billion in 2013 (source: Business Monitor International, 'Malaysia Information Technology Report Q1 2013'). The market has strong growth fundamentals, including low PC penetration, rising incomes and a high-tech-focused national development plan. Key sectors include government, telecoms, finance, health and education.
The Malaysian IT market is fragmented, with a sophisticated metropolitan market in Kuala Lumpur and its surrounds and a still very much developing market in other regions. A major production location is Penang, located on the west coast of Peninsular Malaysia. The Malaysian IT market is import-oriented and reliant on foreign technologies, with international software, hardware, and services providers already active in the market.
There will be increasingly attractive opportunities in the IT services area as the government implements measures to grow Malaysia as a regional services hub. Outsourcing in key verticals such as banking and financial services is attracting investment in data centres and other infrastructure. The government has a number of long-term initiatives with favourable implications for demand for IT product and service demand, including investment in high speed broadband infrastructure.
Internet penetration is at 56.4 per cent and the broadband penetration rate is expected to increase to 22.9 per cent in 2016, from 20.9 per cent in 2012. The total broadband market is forecasted to achieve A$1.2 billion in annual revenue by 2015, with Fiber to the Home (FTTH), Fixed Wireless Access (FWA) and metro Ethernet. (Source: Business Monitor International, 'Malaysia Information Technology Report Q1 2013')
MSC Malaysia (formerly known as the Multimedia Super Corridor) was set up in 1996 with the aim of building a competitive cluster of local ICT companies and a sustainable ICT industry. It is a national initiative to promote the transformation of the Malaysian ICT industry into world-class companies and to provide a test bed for the global ICT industry. The MSC provides state-of-the-art ICT and multimedia facilities in ‘Cybercities’ to various businesses, including major global ICT companies. The Multimedia Super Corridor (MSC) gives MSC-status companies incentives and benefits from the Malaysian government that are backed by 10 ‘Bills of Guarantees’.
The Malaysian Communication and Multimedia Commission is the regulator for the converging industries of telecommunications, broadcasting and on-line activities in Malaysia. Under the 10th Malaysia Plan, the government remains supportive of vertical pillars such as the construction, retail, financial services, telecommunication, and healthcare industries, which have contributed to local economic growth. The investment in these verticals will have an impact in the ICT space, which has been a key enabler in process automation.
Digital Media
Digital technology is gaining importance in the country as a key contributor to GDP. Digital Malaysia is a new national program launched in early July 2012 by the Ministry of Science, Technology and Innovation (MOSTI) and the Multimedia Development Corporation (MDeC). The objective is to advance the country towards a developed digital economy by 2020. Internet penetration in Malaysia is set to increase further with emerging adoption of mobile devices and social media. The mobile entertainment segment is the primary contributor of premium content revenues growth which is likely to be driven by mobile gaming and music-based content. There is a growing demand for digital media/e-commerce in other National Key Economic Areas (NKEAs) such as network security, e-learning and edutainment solutions, telecommunications, e-government and e-health.
Broadband IT
Malaysia continues to heavily promote itself as an IT hub in the Asia-Pacific region. Demand for broadband is increasing due to mobile technology. Mobile broadband is increasingly popular in the country with growing penetration rate of smartphone handsets and other mobile devices. The Malaysia Communications and Multimedia Commission (MCMC) awarded the 4G- Long-Term Evolution (LTE) spectrum to eight operators in December 2012.
In its efforts to become an industrialised nation by year 2020 and realising the importance of broadband as the backbone of a knowledge economy, the government is targeting 50 per cent household penetration by 2015. The government will be undertaking a nationwide broadband strategy to help achieve the target, which will use a mixture of fixed, mobile and satellite technologies. The push for broadband penetration will create a large demand for telecommunication products and solutions in the country.
Cloud Computing
Cloud computing is expected to gain momentum with growing investment in datacentres and ICT infrastructure in Malaysia. This model is becoming an important part of most organisations’ IT strategy and is one of the government’s top ten strategic technology priorities in the Economic Transformation Programme.
According to Frost Sullivan, based on a market survey, 33 per cent of organisations consider cloud computing as their top priority and one-third of organisations in Malaysia are using some form of cloud computing. In Malaysia, Software-as-a-service (SaaS) has the highest adoption in cloud computing followed by Infrastructure-as-a-service (IaaS) and Platform-as-a-Service (PaaS). Hybrid Clouds remain the dominant form of deployment by enterprises and this model has been identified by service providers as a key growth market. While the adoption of cloud computing offers multiple potential benefits, there are also concerns regarding bandwidth consumption, lack of maturity of cloud environments, latency, data security and privacy guarantees from service providers.
Financial IT
Bank Negara Malaysia (BNM), the country’s central bank, is responsible for promoting monetary stability and smooth operations of national payment and settlement systems. The introduction of the Kuala Lumpur International Financial District (KLFID), which will house major international banks and financial services firms are also expected to draw local software investments that support the growth of industry-specific applications such as banking and customer services solutions. The government has launched the Malaysia International Islamic Financial Centre Initiative, which allows locally incorporated foreign banks to establish Islamic subsidiaries, as well as the web-based Fully Automated System for issuing and tendering.
Health IT
The scale and scope of e-health in Malaysia shows significant potential in Internet-based health services. e-health in Malaysia covers all forms of electronic health care delivered over the Internet, from informational, educational and commercial products to direct services offered by professionals, non-professionals, businesses and consumers.
e-health also includes a wide variety of clinical activities that have traditionally been characterised as ‘tele-health’ but are delivered through the Internet. Malaysia’s Hospital Information System is being implemented in phases at all new and existing hospitals and clinics. In linking public and private facilities, a National Health Informatics Centre, which is in development, will ensure all health information is processed centrally to control the transfer of patient information between providers. The emphasis on ICT infrastructural development as well as application usage and adoption will provide the private sectors with extensive investment and employment opportunities.
IT Services
Malaysia is generally viewed positively, having been competitively positioned and attracting a good number of multinational corporations and service providers to its shores. With strong domestic demand for outsourcing services and intense competition from India and China, the government has been supportive in developing Malaysia into a competitive location through various incentives and providing programs to improve skill sets to create a ready IT services talent pool. World-class companies such as DHL, HSBC, IBM, Intel, Motorola, Nokia, Shell, Unisys and many others have set up their base of regional and global operations in Malaysia. With the growth in Business Process Outsourcing (BPO) and IT services, Malaysia’s IT services sales of US$1.6 billion in 2012 has a high growth potential. (Source: Business Monitor International, 'Malaysia Information Technology Report Q1 2013')
Opportunities
Mobile Content
- Content applications for PDAs/mobile phones
- Customised features for mobile phone
Broadband IT
- High speed broadband
- Wireless broadband technologies
Cloud Computing
- Software-as-a-service (SaaS)
- Infrastructure-as-a-service (IaaS)
- Platform-as-a-Service (PaaS)
- Network security
- Application security
- Access control
Financial IT
- Technologies that improve efficiencies and cost competitiveness
- Risk and compliance management and governance
- Next generation electronic payment solutions
- User authentication
- Asset management/wealth management solutions
- Business intelligence, business process and document management solutions
Health IT
- e-health
- Hospital Information Systems (HIS)
IT Services
- IT/technical training
- System integration and consultancy services
- Software/hardware development
- Data centre/storage
- Web services
- Software outsourcing
Competitive environment
- Global competition – many players are already in the market and are very aggressive
- Government related projects are difficult to penetrate due to red tape and a very competitive playing field with many local players
- Market potential is not necessarily linked to project size. Value can be targeted to smaller players such as small and medium enterprises
- The sales cycle can be as long as two years
- Some sectors are already oversaturated
Major telecommunications players in Malaysia include:
Dominant fixed operator – Telekom Malaysia
Three major mobile operators – Maxis, Celcom and DiGi
Other players: Axiata, Time dotcom, Astro and PacketOne, YTL Communication, U Mobile, XOX, Redtone and other small and medium sized enterprises.
Tariffs, regulations and customs
Established in 1994, the National Information Technology Council of Malaysia (NITC) functions as the primary advisor to the government on ICT matters. Chaired by the prime minister of Malaysia, the council comprises representatives from the public, private and community sectors.
The Ministry of Science, Technology and Innovation (MOSTI) is the government body responsible for formulating national ICT policies, planning ICT programmes, ICT industry promotions, co-ordination of new development of ICT applications, and providing guidance and advice to the local sector. Other government bodies with interests in the ICT sector include: the Ministry of Information; Ministry of Science, Technology and Environment; Ministry of Culture, Arts and Tourism; and Ministry of Education. Non-governmental organisations and private sector bodies include Computer Industry Malaysia and the Multimedia Development Corporation (MDeC).
Telecommunications Regulatory Environment
Currently, there are two principal regulatory agencies in Malaysia, although there are additional authorities that have considerable influence in the sector. The primary regulatory agencies are:
Ministry of Information, Communication and Culture (KPKK)
Malaysian Communications and Multimedia Commission (MCMC)
SIRIM Approval
Most telecommunication products require certification approval from SIRIM Berhad (SIRIM). In 1999, SIRIM was appointed by MCMC as a product certifying agency (type approval agency), and was appointed by Customs Malaysia as the import permit issuing agency for telecommunication products. The government wants to ensure that the imported telco products comply with the technical standards set by MCMC. If a company intends to sell an imported telecommunication product in Malaysia, it has to apply for mandatory SIRIM certified labels.
Tariffs / Taxes
Currently there are no tariffs or sales taxes imposed on computers, components and software products or health technology equipment. Additionally, there are no tariffs for most electrical and telecommunication equipment, however, these items are subject to a 10 per cent sales tax.
Licensing and Registration Requirements
IT equipment does not have any specific licensing requirements but the appropriate software licences are required. The Business Software Alliance, which promotes the usage of licensed software, also acts as the enforcement agency to ensure that software utilised by any organisation meets the appropriate licensing requirements.
Apart from this, most telecommunications equipment requires import permits. To obtain the import permits issued by the Malaysian Ministry of International Trade and Industry, the equipment must be approved. This approval process comes under the jurisdiction of the Department of Standards Malaysia, which is the government agency responsible for standards and accreditation in Malaysia. A sample of the equipment needs to be submitted as part of the approval process.
Marketing your products and services
There are two potential market entry strategies to consider.
The first is partnership, distributorship or joint-venture agreements with a local company. Selecting the ’right partner’ is an important exercise as the partner should have attributes that complement those of your company, e.g. marketing and technical support capabilities.
The second potential strategy is to establish an in-market presence. This enables you to build a greater understanding of the Malaysian market and to develop, as well as strengthen, in-market relationships. This strategy requires a larger capital outlay and is therefore recommended as a second stage process.
Other issues to consider in relation to market entry strategies are:
- Legal issues, such as intellectual property protection and contractual obligations
- Accounting issues, such as banking requirements and repatriation of funds upon project completion
- Taxation issues, such as resident withholding tax and double taxation agreements
- Employment issues, which are mainly applicable for an in-market presence, such as foreign versus local employee requirements
- MSC-status application, which is mainly applicable for an in-market presence, where companies that have been granted MSC-status enjoy tax benefits and are able to employ foreign knowledge workers
In working with a local partner for government or larger projects, it is also important to initially undertake a pilot project so that the purchasing government / organisation can assess the suitability of the product or service offering in a local market context. After successful completion of a pilot, the government / organisation would then explore the potential of implementing the pilot on a larger scale. A pilot project can help you gain a better understanding of the opportunities and challenges of undertaking a project in Malaysia.
Links and industry contacts
ICT–related resources
Association of the Computer and Multimedia Industry of Malaysia (PIKOM) – www.pikom.org.my
Government, business and trade resources for Malaysia
Malaysian Government Official Portal – www.malaysia.gov.my/EN/Pages/default.aspx
Malaysian External Trade Development Corporation (MATRADE) – www.matrade.gov.my
Malaysian Investment Development Authority (MIDA) – www.mida.gov.my/env3/
Ministry of Foreign Affairs – www.kln.gov.my/web/guest/home
Ministry of Trade and Industry (MITI) – www.miti.gov.my/cms/index.jsp
Multimedia Development Corporation (MDeC) – www.mdec.com.my
Ministry of Information, Communication and Culture – www.kpkk.gov.my
Malaysian Communications and Multimedia Commission – www.skmm.gov.my
Ministry of Science, Technology and Innovation – www.mosti.gov.my
Central Bank of Malaysia (Bank Negara) – www.billionm.gov.my
Department of Statistics Malaysia – www.statistics.gov.my/portal/index.php?lang=en
Economic Planning Unit (EPU) – www.epu.gov.my/home#=e
Royal Malaysian Customs Department – www.customs.gov.my/index.php/en
Australia Malaysia Business Council – www.ambc.org.au
Malaysia Australia Business Council – www.mabc.org.my
The World Bank – www.worldbank.org/en/country/malaysia
The International Monetary Fund – www.imf.org/external/country/MYS/index.htm
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
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