Knight Frank: Malaysia now key player in offshoring market, has 8pc share of Asia-Pacific
The report said Penang is becoming a major offshoring hub that has built up offices in Bayan Lepas. This, it said, is in line with the state government’s plans to drive the economy by making Penang a prime investment destination for global business services activities, research and development as well as technology hubs. — Picture by KE Ooi

KUALA LUMPUR, 2 APRIL 2024 — Malaysia has established itself as a significant player in the Asia Pacific offshoring market, currently hosting 607 Global Business Services (GBS) companies, according to Knight Frank Malaysia.

Offshoring refers to the strategic relocation of specific business operations to foreign countries, typically motivated by various factors, including but not limited to cost reduction, access to specialised expertise, expansion into new markets, among others.

Knight Frank, a London-based consultancy firm specialising in residential and commercial properties, said that approximately 30 per cent of the companies are in the Forbes Global 2000 and/or Fortune 500 companies list.

Citing the 2023 Kearney Global Services Location Index, it added that Malaysia now holds approximately 8 per cent share of the Asia-Pacific offshoring market.

“As GBS businesses increasingly adopt and utilise technologies to improve efficiency and streamline operations, the presence of skilled digital talents and a robust digital ecosystem becomes pivotal in determining expansion and relocation strategies. With strong government support, coupled with competitive real estate costs and the pool of digital talents, Malaysia remains an attractive destination for GBS companies.

“GBS players are primarily concentrated in Greater Kuala Lumpur, with business activities across various industries. As for companies in the northern region of Penang, the majority are engaged in manufacturing-related activities,” Knight Frank said in its report titled, “Asia-Pacific Horizon: Harnessing the Potential of Offshoring”.

The report said Penang is becoming a major offshoring hub that has built up offices in Bayan Lepas. This, it said, is in line with the state government’s plans to drive the economy by making Penang a prime investment destination for global business services activities, research and development as well as technology hubs. It noted that prime office rentals in Penang are approximately 25 per cent lower than those in the country’s capital.

It added that in the Greater KL region, GBS companies were initially concentrated in Cyberjaya, attracted by its unique value proposition as an MSC Cybercentre.

“Following the partial liberalisation of location requirements for the eligibility of tax incentives for Multimedia Super Corridor (MSC) status companies in 2012, alongside improved connectivity and the establishment of facilities and amenities as well as the completion of new office buildings, there has been a notable increase in leasing activities for GBS companies in the fringe of KL city and commercial precincts in the nearby suburbs.

“Today, locations such as Bangsar South, Taman Tun Dr Ismail, Bandar Utama, Mutiara Damansara, and Bandar Sunway are among the established GBS nodes,” the report added.

Knight Frank said that the typical space requirement of initial take up by the GBS players ranges between approximately 15,000 square feet and 25,000 square feet, with the growth plan in stages going up to 100,000 square feet.

“Rental rates of office spaces in these established locations remain competitive, ranging from US$1.00 per square foot to US$1.50 per square foot per month,” it said, adding that the new Tun Razak Exchange (TRX) is now being identified as the GBS hub for finance-related players, while Cyberjaya remains the focal point for IT-related players.

The report said that in Greater KL, real estate costs are expected to remain competitive as it remains a tenant-led market in the short to medium term, adding that the government’s decision to fully liberate location requirements for tax benefits of Malaysia Digital (MD) status companies, is expected to incentivise landlords of new office developments to future-proof their offices. It said that existing buildings meanwhile, may opt for refurbishment into digitally-ready office spaces, providing GBS players seeking expansion or new office setups in the country with a selection of quality office spaces at competitive rental rates.

“As GBS businesses increasingly adopt and utilise technologies to improve efficiency and streamline operations, the presence of skilled digital talents and a robust digital ecosystem becomes pivotal in determining expansion and relocation strategies. With strong government support, coupled with competitive real estate costs and the pool of digital talents, Malaysia remains an attractive destination for GBS companies,” the report said.

Teh Young Khean, executive director of Office Strategy & Solutions of Knight Frank Malaysia said: “Malaysia’s offshoring industry, encompassing Shared Services and Outsourcing (SSO) and Business Process Outsourcing (BPO), has witnessed substantial growth, particularly in the mid-90s with the establishment of major international players like Intel, IBM, DHL, and Fujitsu.”

He said this growth was fuelled by the government’s MSC initiative.

“With the new MD status announced by the government, GBS players have a wider option of buildings to choose from, and Malaysia has observed many GBScompanies setting up across various sectors. The expansion reflects Malaysia’s dynamic approach to fostering a conducive environment for business growth and innovation,” Teh added.

Keith Ooi, the group managing director of Knight Frank Malaysia, said: “The Malaysian government is committed to advancing the nation’s digital realm with strategic initiatives like the National IoT Strategic Roadmap and MyDigital, a comprehensive 10-year plan spanning three phases. Incentives such as the National Fourth Industrial Revolution (4IR) Policy and Industry4WRD are geared towards expediting digital transformation, facilitating industry evolution, and enhancing supply chain efficiency, Ooi said.

He further explained that the recent establishment of the Digital Ministry in January 2024, further underscores the government’s dedication towards digitalisation initiatives.

Source: Malay Mail  

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