Email: hooiching.wong@jpmorgan.com

Website: www.jpmorgan.com/ts

Did you know that more than 200 of the world’s leading multinationals have Shared Service Centres (SSCs) in Malaysia¹? If you want highly competitive running costs and personnel capable of managing high value treasury activities, why not join them?

Oil, pharmaceuticals, banking, agribusiness, insurance, automotive and more – it’s hard to find an industry sector not represented by a global multinational’s SSC in Malaysia. While other countries may be grabbing the SSC headlines, Malaysia has been building a strong case for itself with a highly skilled workforce, attractive incentives, low financial risk and business efficiency. Little wonder that some 60,000² people in Malaysia now work in SSCs, with a significant proportion of those working in treasury and finance roles.

Ideal demographic, growing value

Much of the SSC activities in Malaysia over the past eight years or more have been driven by leading US and European multinationals. However, they are now being joined by a growing number of top tier corporates from Malaysia, as well as from other parts of Asia. In many cases, many of these corporations are now looking to extract more value from their current operations by running customer-facing and strategic finance activities. Some are also either in the midst of or have expanded their scope of centralisation to include the establishment of Treasury Management Centres (TMCs).

While the initial points of attraction for some of these companies may be cost management and standardisation, for some time, there has been a growing realisation that establishing an SSC in Malaysia can offer substantive advantages further up the value pyramid. Previously, SSCs in Malaysia typically focused on IT outsourcing such as Enterprise Resource Planning systems, enterprise applications or IT consulting services, before subsequently adding business process outsourcing such as Accounts Payables and Receivables, contact centre, and legal services. Now, there is increasing emphasis on the top of the value pyramid with knowledge process outsourcing services, such as treasury forecasting, risk management, market research, customer analytics and engineering services.

This is in part due to the efforts of the Malaysia Multimedia Development Corporation (MDeC) which actively encourages companies to bring higher value-add and more complex processes to the country. This is in line with the Malaysian government’s objective of becoming a developed country by 2020.

All the skills you need

Malaysia’s citizens certainly have the necessary capabilities to handle such higher value activities. For instance, the citizens of Kuala Lumpur have a literacy rate of 97.5% and the city is home to 13 tertiary education institutions, 79 high schools, 155 elementary schools and 136 kindergartens³. Language skills are essential in SSCs that may be servicing multiple countries. Not only does Malaysia have 7.4 million citizens who speak English of a high standard⁴, the population’s other first languages include those common in major markets in the region, including Hindi and Mandarin, whilst secondary languages spoken include Thai, Korean, Japanese and Vietnamese⁵.

Maximise value, minimise cost

Malaysia has further advantages as an SSC location in terms of both the cost of skilled personnel and the business environment more generally. A similar situation applies to treasury roles. For instance, according to research by Robert Walters Global Salary Survey 2014, current salaries for treasury managers in Singapore range from USD 95,000 – USD 158,000, compared with just USD 45,000 – USD 58,000 in Kuala Lumpur.

The costs of housing an SSC also favour Malaysia. For example, the average total cost of leasing prime net usable space including rent, maintenance costs and tax is USD 4180 in Kuala Lumpur versus USD 11,220 in Singapore⁶.

In conjunction with the availability of suitably skilled personnel, this highly competitive cost base represents an important opportunity for corporations looking to establish an SSC or TMC in Asia. Rather than just traditional “back office” activities, customer-facing functions such as Accounts Receivables can be operated efficiently and reliably in Malaysia. Furthermore, higher value functions, such as hedging, cash forecasting and liquidity management can also be viably undertaken – and at a very competitive cost.

Elbowing the competition aside

Malaysia’s business environment ranks well globally. For eight years running, Malaysia has been one of the top three global shared services outsourcing locations in AT Kearney’s Global Services Location Index⁷. Furthermore, one of the three primary factors in the Kearney rankings is business environment, which assesses how conducive a location is to business. Malaysia scores particularly strongly in this regard, ranking appreciably higher than countries such as India and China and even approaching the scores of developed markets such as the US.

“Malaysia makes a compelling value and performance case for any regional or global corporation considering the implementation of a Shared Service Centre (SSC)/Treasury Management Centre (TMC) in Asia, for processing or for corporate treasury activities respectively. A location in the heart of Asia, reasonable costs, the availability of suitably skilled and bilingual treasury/finance personnel, and a government keen to deliver a business-friendly environment, will give Malaysia a clear SSC/TMC edge for many corporations.”

The Malaysian government is leading the introduction of new and advanced technology, and in this regard, the country ranks in the top ten ahead of most other Asian countries and even above some developed economies such as Australia⁸.

In terms of labour market and business efficiency, Malaysia also performs strongly. In both cases it ranks fourth – ahead of multiple developed economies such as Germany, The Netherlands, the UK and the US, as well as China, India and other smaller Asian countries⁹.

Malaysia is making a targeted pitch for SSCs, with 25 designated areas accredited by the Multimedia Super Corridor (MSC) Malaysia¹⁰ for these around the country. All of these areas meet the infrastructure needs of global as well as regional SSCs that conduct large scale financial processing or mission critical treasury activities, such as high quality fiber optic connectivity. Furthermore, MDeC provides a bill of guarantees, which includes providing competitive financial incentives such as ‘pioneer’ status, which includes 100% tax exemption for up to ten years. In addition to these national initiatives, individual states within Malaysia are making their own promotional efforts to attract SSC business.

A warm welcome for TMCs

Whilst Malaysia’s initiatives to attract SSCs have already reached a considerably high profile, as part of its strategy of bringing in jobs of higher skill levels and value-add, the country is also providing incentives for TMCs as well. Approved TMCs are given a 70% exemption on certain statutory income arising from treasury services rendered to related companies for five years.

Statutory income includes all fees and/or management income from providing qualifying services to related companies in Malaysia and overseas. Amongst others, these comprise revenue arising from lending/financing, placement of surplus funds and group risk management activity such as FX, interest rate, market and commodity risks.

Maximise the value of global banks

While Malaysia clearly has much to offer corporates looking for a location for a global or regional SSC, maximising the value achieved by one and ensuring its smooth implementation is not a trivial matter. This is an area where a bank with a global perspective and connectivity can add significant value. In the case of an Asian corporate looking to implement its first SSC, a global bank can share the best practices that it sees being used by global multinationals, thus providing a valuable benchmark.

Such calibre of a global bank adds a different sort of value when a US or European multinational looks to establish an SSC in a location such as Malaysia. In such instances, the value comes from the bank’s global network and its technical expertise in helping such multinationals consolidate their banking providers consistent with the corporation’s global treasury strategy and business needs. This is difficult to achieve with a local bank which lacks the wide global network required to extract the maximum value from standardisation of processes and connectivity.

In the case of both Asian and global multinationals, another area where a bank with a global perspective can add value is in the validation of project roadmaps, often provided by external consultants. These roadmaps lay out the steps and process changes required to establish an SSC or TMC, but for a variety of reasons, may not be entirely feasible. A suitably qualified global bank can assess the practicability of these roadmaps and suggest appropriate refinements or amendments that will ensure a smooth transition. Concurrently, it can also assist in other areas, such as reviewing treasury management policies or recommending the most efficient way to aggregate surplus liquidity resulting from SSC operations, into a regional or global liquidity management structure.

Conclusion

Malaysia makes a compelling value and performance case for any regional or global corporation considering the implementation of an SSC/TMC in Asia, for processing or for corporate treasury activities respectively. A location in the heart of Asia, reasonable costs, the availability of suitably skilled and bilingual treasury/finance personnel, and a government keen to deliver a business-friendly environment, will give Malaysia a clear SSC/TMC edge for many corporations.

Yet attractive as all these factors are, in isolation, they are not enough. Maximising the value of this benign landscape requires the support of a banking partner that has the global perspective to assist the corporate client in the realisation of global best SSC practice. Furthermore, this has to be delivered in the context of a wider appreciation of the client’s holistic needs and how a regional or global SSC in Malaysia can deliver optimal support for these.

1. Performance Management & Delivery Unit (PEMANDU), Malaysia
2. Performance Management & Delivery Unit (PEMANDU), Malaysia
3. MSC Malaysia
4. MSC Malaysia
5. MDeC: “Malaysia Global Business Services”
6. “Occupier Perspective Global Occupancy Costs – Offices 2013”, DTZ
7. AT Kearney, Global Services Location Index, 2011
8. Ernst & Young
9. IMD Business School
10. MSC Malaysia