In the wake of today’s challenging business landscape due to COVID- 19, continuous cost pressure, increasing market volatility and technology-driven disruptions are repurposing and reshaping conventional business models. More agile and strategic approaches are adopted to manage and increase the resilience of critical supply chains.
This has given rise to the emergence of Global Services (GS) hubs where multinational corporations (MNCs) scale up by incorporating multiple functions and providing higher value-added services that infuse full control in the decision-making process, budgeting and reporting as well as rendering strategic business services delivery across international operations. GS caters to a variety of business models such as principal hubs, global business services (GBS) and headquarters operations
This new driver of growth is the main contributor of foreign direct investments (FDI) in the services sector and has been categorised as a Priority Sector under the 12th Malaysia Plan (2021-2025).
In a study conducted by the Boston Consulting Group (BCG), EY and SSON (The Future of GBS is Digital, GBS Survey 2020) on how GS organisations managed crisis, five key capabilities that needs to evolve to meet their future roles include technology enablers, advanced service offerings, new ways of working, a future oriented set-up, and responses to cost challenges. Adaptability to sudden changes in the face of the pandemic is what sets a successful Global Services apart.
To remain resilient and adaptable to changing conditions, digitalisation, talent pool and a secure supply chain network will become pivotal in ensuring the viability of GS. In fact, the digitalisation of business models and processes is already underway in most organisations. According to the International Data Corporation (IDC) Worldwide Quarterly Cloud IT Infrastructure Tracker, vendor revenue from the sales of IT infrastructure products (server, enterprise storage, and Ethernet switch) for cloud environments, including public and private cloud, increased 34.4% year-on-year in the second quarter of 2020. This highlights that companies are investing in IT infrastructure products as they start to adopt remote work arrangements or a borderless workspace. Recognising these growing trends, the Government has introduced initiatives such as JENDELA and MyDigital under the Digital Economy Blueprint to boost the digitalisation agenda of Malaysia and enhance connectivity across the country.
The Global Services sector has also been influenced by the staggering speed of digital solutions and advanced technologies that are influencing conventional business models to converge into Digital Tech Hubs. By interconnecting technologies with key strategic services such as procurement and distribution as well as consolidation of their shared services functions, companies can gain real-time visibility, cost savings and have better control over their supply chain management activities.
The merging of conventional business models with digital solutions is especially evident in E&E companies that have set-up its global supply chain hubs in Malaysia, embarking on their 4IR journey by embracing advanced manufacturing processes such as robotics, digital twin optimisation, intelligent planning and advanced process control solutions. These operations are supported by smart supply chain systems that are equipped with predictive risk capabilities to help detect supply disruptions and mitigate risk of material availability. The supply chains are also equipped with automated shipment planning and logistic systems to optimise the best distribution routes and ensure on-time delivery.
With supply chain interruptions in recent months due to restrictions imposed during Covid-19, many businesses are looking for new sources of supply or relocating its operations closer to their domestic market to diffuse risk. Malaysia’s geographical position in the heart of ASEAN and within Asia Pacific makes it a viable proposition as a strong global distribution hub and puts the country in a vantage point when compared to other countries in this part of the region. The ’e-Mergence of e-Fulfillment Hubs‘ by companies exploring to establish Regional Fulfilment centers in Malaysia with the increasing adoption of technology in the country will make the supply chain process seamless and efficient.
In selecting their business location, most companies place high importance on access to talent and supportive business conditions capable of nurturing growth and innovation. Many companies compete to attract highly educated and skilled talents, and as such, many choose new cities for growth based on the potential talent pool located there. An ongoing shift towards a more knowledge-oriented economy is exacerbating this process, where human capital is increasingly playing a key role in the relative competitiveness of cities.
However, with the access to talent broadened beyond physical borders due to remote work, GS will be able to restructure its organisations and attract the best talents worldwide without being bound by location. Demand for talent with digital skills will also increase. Companies are now seeking talents that can combine traditional skills such as technical, creative, and problem-solving skills with tech savviness.
Taking cognisance of these shifts and transformation, Malaysia continues to offer a conducive and supportive ecosystem to nurture competitive GS hubs. The Government is focussed on strengthening the business environment including fostering talent development and enhancing digital infrastructure and air connectivity. Among recent initiatives are the Principal Hub 3.0 and Global Trading Hub (GTC) schemes that were introduced under the Malaysian Budget 2021. The PH 3.0 incentive aims to encourage more companies to relocate and make Malaysia its control tower to manage, control and support its key functions while the Global Trading Center aims to entice companies to use Malaysia as its international trading base for undertaking sourcing, procurement and distribution of raw materials, components and finished products to its related and unrelated companies in Malaysia and abroad.
For more information on making Malaysia your Global Services Hub, please contact the Business Services and Regional Operations Division of MIDA.