August 6, 2020

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Malaysia must continue to push digital transformation efforts

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While Malaysian enterprises are making strides in digital transformation because they generally see the benefits of doing so, the industry nonetheless still face several impediments that could stifle their efforts to be fully digitalised in the coming years.

Malaysia’s overall IT spending is forecasted to be approximately US$11 billion by 2020 and that a large proportion of that spending has shifted to managed and cloud services, suggesting that enterprise digital transformation is somewhat playing a role in Malaysia.

While over 55% of CEOs in Malaysia have acknowledged the need to digitally transform, the remaining proportion suggests otherwise. The question is whether there is a fear or resistance to spending.

The tactical stage

While the benefits are clear, many businesses are stuck at the tactical stage of their digital transformation journey.

Digital transformation is accelerating in Southeast Asia, as it is expected that by 2021, at least 48% of the region’s GDP will be derived from digital products and services. However, when comparing Malaysia to the rest of the region, it trails behind countries such as Singapore, Japan and South Korea.

It appears that the lack of technical knowledge and organisational silos are the two biggest impediments to fully embracing digital transformation; this reflects the maturity of businesses.

However, government initiatives and increased collaboration with technology partners, are enabling a steady growth in technology adoption among Malaysian companies, and this trend is expected to continue.

Who is transforming?

According to a recent survey, 44% of nearly 200 respondents in ASEAN cited digital transformation as their top priority, followed by infrastructure modernisation (41%) and cybersecurity (36%).

The priorities are not surprising, given that more enterprises are coming under pressure to remain competitive in the face of digital disruption across industries, such as financial services, logistics and telecommunications.

In Malaysia, digital transformation spans a wide gamut of industries and while not all industries are equal in their maturity curves, industry watchers note that verticals such as media, digital content, healthcare, education and some spots of manufacturing and even property developers – touting smart living and townships – have begun some form of digitalisation.

But perhaps the clear winner in digitalisation is found in the banking, financial services, and insurance (BFSI) sector, particularly in the fintech realm, observers note.

One expert argues that fintech startups and forward-looking Malaysian policies such as the Financial technology regulatory sandbox framework and the Exposure draft on the licensing framework for digital banks have led to encouraging digital advancement within the industry.

Besides this, the upcoming commercialisation of 5G networks could boost digital transformation in the manufacturing sector.

Malaysia’s national industry 4.0 framework has earmarked strategic initiatives to drive smart manufacturing adoption including the internet of things (IoT), sensor technology, artificial intelligence/machine learning (AI/ML), mobile connectivity, robotics, and 3-D printing.

Infrastructure projects

The Chairman of Malaysia’s National ICT Association (Pikom) noted that the government has put in place some positive infrastructure projects, such as the RM 20 billion National Fiberisation and Connectivity Plan (NFCP) over the next five years.

In terms of verticals, the aviation, BFSI, e-commerce and medical sectors are currently ahead of other verticals in digitalisation.

Future challenges

So how will the small and medium-sized (SME) sector, widely acknowledged as the bedrock of many ASEAN economies, including that in Malaysia, fare?

While 85% of organisations polled are in the midst of their digital transformation journey, only 7% in Southeast Asia can be classified as digital transformation leaders – organisations that have at least a third of their revenue derived from digital products and services.

Pikom’s Chairman points out that many SMEs struggle because they have lacklustre leadership and may lack the agility to adapt. Additionally, they may not have the right understanding of the importance of digital transformation and can be perceived as costly to implement.

There is a need for Malaysian enterprises to adopt a leaders’ mindset to fully build their digital ecosystem to grow their value chain, and this change of mindset must happen now.

The need for more innovative startups

More alarmingly, Malaysia lacks innovative start-ups rather than companies that merely copy business models that work in other countries, such as e-payments, ride-sharing and the like.

The market can only support a small number of players serving the same need, one expert noted. Another challenge plaguing Malaysia is that many companies tend to do software research and development (R&D), something he says is easier compared to hardware R&D, which he claims is far more complex.

Pikom’s Chairman recommends that for SMEs to holistically embrace digitalisation, strong management and long-term vision are needed to drive the agenda. A company’s management cannot just have short term goals to drive profitability and the bottom line.

In most cases, research has found that accountability is holding a lot of enterprises back. And the reality of the situation is that digital transformation is difficult and must be seen as a long-term effort, something that takes guts, investment and an appetite for risk to execute – regardless of the size of the enterprise.

Many enterprises tend to wait as long as they can to get into such investments because the aforementioned issues are occasionally enough to allow them to put off the agenda.

The issue of IT skills

Besides mindset changes, Malaysian organisations embarking on digital transformation are also being challenged by a lack of the right IT skills.

Malaysia has the right skill sets in the electronics sector but concedes that there is lack of skills in niche IT sectors, such as Industry 4.0, that are needed to propel the country’s digital transformation ambitions.

This challenge is exacerbated by the fact that much of the IT support infrastructure and software systems are proprietary.

The world is now moving toward open-source frameworks and ever-evolving programming languages. IT professionals need to re-skill themselves on the right platforms. Overall, we still lack experts in different stacks, embedded systems, IoT hardware designers.

However, another expert warns against oversimplifying the IT skill sets issue, noting that it’s more complex than a binary “do we have enough or not enough” answer.

On the demand side, there may be a shortage of some skill sets in certain areas. But the more important question for government agencies and the IT industry as a whole to ask is why people with the right skills are hopping to neighbouring countries, he contends.

Training programmes

Meanwhile, on the supply side, the industry should also re-design and re-develop training programmes for existing employees.

The typical budget for training stands between 3% and 4% of employee costs. If that mentality doesn’t shift, it seems like we will be discussing this issue once again in 2025.

There is a need to identify skills gaps within each enterprise and to pursue training and development programmes that address these gaps. Beyond that, organisations should also look to attract, recruit and retain a diverse workforce with complementary skills and build them into collaborative teams.

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