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Malaysia’s digital transformation efforts progress

Malaysian enterprises are taking steps to modernise their infrastructure, but many are still grappling with the lack of niche IT skills in key emerging technologies such as the internet of things

This article can also be found in the Premium Editorial Download: CW ASEAN: CW ASEAN: Trend Watch on advances in Malaysia’s digital infrastructure

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

Speaking to Computer Weekly on the readiness of Malaysian enterprises in digital transformation, several industry players and observers agree that organisations have come some way since they began their respective transformational journeys but still lack the pace of their regional peers, and that there is still a lot of room for improvement.

According to IDC’s managing director for the Association of Southeast Asian Nations (ASEAN), Sudev Bangah, Malaysia’s overall IT spending is forecast to be approximately $11bn this year, and 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.

“Against the backdrop of Southeast Asia, Malaysia sits at stage two (out of five) in IDC’s maturity curve,” he says.

However, Bangah notes that while over 55% of CEOs in Malaysia acknowledge the need to digitally transform, the remaining proportion suggests otherwise.

“The question is whether there is a fear or a resistance to spending,” he says.

Microsoft Malaysia managing director K. Raman concurs, noting that many Malaysian enterprises have made progress in their digital transformation efforts but there are still businesses that are sceptical about embracing technology to enhance their business productivity and growth.

Tactical stage

Raman points out that 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,” he notes. “[But] when comparing Malaysia to the rest of the region, we do see that Malaysia trails behind countries such as Singapore, Japan and South Korea.”

Raman cites the lack of “technology knowledge and organisational silos” as the two biggest impediments to fully embracing digital transformation, arguing that this is a reflection of the maturity level of Malaysian businesses.

“However, thanks to government initiatives and increased collaboration with technology partners, we are seeing a steady growth in technology adoption among Malaysian companies, and we expect this trend to continue,” he says.

Cisco Systems Malaysia managing director Albert Chai is more sanguine about the country’s digital transformation efforts, noting that Malaysia scored 38th place out of 141 countries globally in Cisco’s Global digital readiness index rankings.

But he acknowledges that Malaysia only came in sixth out of 27 countries in Asia-Pacific, behind Singapore, South Korea, Australia, New Zealand and Japan.

“Malaysia is at the ‘accelerate’ stage of Cisco’s index, which means we’ve taken some steps forward but there are still significant opportunities to accelerate or improve in their digital readiness.”

Who is transforming?

According to the 2020 TechTarget/Computer Weekly IT Priorities survey, 44% of nearly 200 respondents in ASEAN cited digital transformation as their top priority, followed by infrastructure modernisation (41%) and cyber security (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 digitisation.

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

Cisco’s Chai says many fintech startups and forward-looking Malaysian policies such as the Financial Technology Regulatory Sandbox Framework and the Exposure Draft on Licensing Framework for Digital Banks have led to encouraging digital advancement within the industry.

Besides this, Chai believes 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 3D printing,” he says.

Infrastructure projects

Malaysia’s National ICT Association (Pikom) chairman, Danny Lee, says the government has put in place some positive infrastructure projects, such as the RM20bn National Fiberisation and Connectivity Plan (NFCP), over the next five years.

“This would provide comprehensive coverage of high-speed and quality digital connectivity nationwide, and will further push the nation’s vision towards achieving a digital economy,” he says.

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

“They have strong leadership, they’re dynamic in adapting to new information, challenges and opportunities,” he argues. “Pikom believes this is because these sectors comprise big enterprises which have a ‘big picture’ vision for their future, and thus are ahead of others.”

Where speeds bumps lie

So where does this leave the small and medium-sized enterprise (SME) sector, widely acknowledged as the bedrock of many ASEAN economies, including that in Malaysia?

According to Microsoft’s Raman, 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 Lee 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, Lee adds.

Agreeing with this, Microsoft’s Raman stresses the “need for Malaysian enterprises to adopt a leader’s mindset to fully build their digital ecosystem in order to grow their value chain, and this change of mindset must happen now”.

Malaysia’s IoT Association chairman, James Lai, argues that SMEs are still too traditional in their approach to business. Overall, larger Malaysian enterprises are embracing digital transformation, but there are still gaps in small enterprises though the climate is improving, he says.

Lacking innovative startups

More alarmingly, Lai says Malaysia lacks innovative startups – what he defines as enterprises that are able to identify and solve local business challenges – 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,” he says. 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 Lee recommends that for SMEs to holistically embrace digitisation, a 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, he stresses.

“Leaders need to understand the competition today is not within our borders but increasingly beyond our borders,” he says. “Rather than having a short-term view of things, SMEs need to have strategic direction moving forward for the organisation.”

IDC’s Bangah says Malaysian organisations need to address the “fear” versus “resistance to spend” issue.

“In most cases we have 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,” he argues. “It’s challenging but we are seeing some positive steps taken, especially around infrastructure modernisation.”

IT skills conundrum

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

Cisco’s Chai believes that Malaysia has the right skills 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 in nature, argues IoT Association’s Lai.

“We’re moving towards open source frameworks and ever-evolving programming languages,” he says. “IT professionals need to reskill themselves on the right platforms. Overall, we still lack experts in different stacks, embedded systems, IoT hardware designers.”

IDC’s Bangah, however, warns against oversimplifying the IT skills issue, noting that it’s more complex than a binary “do we have enough or not enough” answer.

Bangah says on the demand side, there may be a shortage of some skills 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.

“It’s a much larger issue at play here, as there is a danger of reverting back to the old ways of just producing graduates with the right skills who then leave for greener pastures later,” he says.

Training programmes

Meanwhile, on the supply side, the industry should also redesign and redevelop training programmes for existing employees, Bangah says.

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

Cisco’s Chai says 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, he adds.

“Businesses should also not rely on universities alone to give them the talent that they need,” he says. “They need to invest in customised talent development programmes that will upskill their employees for the long term.

According to a Microsoft study, only 10% of business leaders expect AI to replace jobs and only 7% of workers agree with this view, further reinforcing the idea that AI will augment jobs, not displace them.

Raman says there is always a need for skilled workers and demand for specialists in science, technology, engineering and mathematics (STEM) fields is only increasing.

“Business leaders must prioritise the upskilling and reskilling of workers,” he suggests. “Proper plans and strategies should be put in place to train employees to keep up with the changes in technology. As technology can only lay the foundation for success, ultimately it is the people in an organisation that can ensure success is achieved.”

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