Revenues from the Malaysian outsourcing industry are expected to reach US $1.1 billion in 2009, according to a joint publication by Outsourcing Malaysia and ValueNotes. The industry is also expected to grow at a CAGR of 15 percent to reach US $1.9 billion by 2013.

Currently, IT outsourcing services in Malaysia have a greater share of the overall outsourcing market, followed by BPO services; while knowledge services outsourcing, still in its nascent stage, has a smaller share.

The industry body puts the country’s impressive outsourcing growth down to government support, domain knowledge and industry expertise in BFSI, oil & gas and logistics arena. The body says it is also attracting sizeable nearshore contracts from Asian markets like China, Japan, South East Asia and the Middle East due to its multi-cultural and multi-lingual capabilities.

Arun Jethmalani, CEO at ValueNotes, a specialists outsourcing research firm, commented, “Companies in the BFSI, oil & gas and logistics sectors, which had set up operations in Malaysia decades ago, are leveraging the country’s multi-lingual ability and domain expertise in these verticals to set up IT and BPO centres in Malaysia.”

Suheil Patel, analyst and co-author of the report, explained that Malaysia has been recognised as one of the preferred destinations for outsourcing, but it also faces some challenges. “One of the major challenges for the Malaysian outsourcing industry is to overcome constraints with regards to scalability. The total number of employees in the industry is roughly comparable to the number of new hires by a leading Indian IT outsourcing service provider.”

According to Boddy Bobby Varanasi, an outsourcing consultant, one of the key concerns for the outsourcing industry in Malaysia is the need to move up the value chain to offer high value services as opposed to highly commoditised services in IT or BPO.

He continued, “Strand Aerospace Sdn Bhd is a prime example of a Malaysian company moving up the value chain in outsourcing. The company specializes in computer-aided stress testing for engines of Boeing and Airbus.”

The report, presenting the competitive landscape of service providers in the Malaysian outsourcing industry, can be purchased here “Outsourcing in Malaysia: Scaling New Heights”. The publication features in-depth insights and analysis, including the competitive standing of Malaysia as an outsourcing destination, and future trends and challenges faced by the industry.