Outsourcing Malaysia – Selangor becomes Data Centre Hotspot The market for data centres in Southeast Asia is currently estimated at USD 10.9 billion and projections show strong growth potentials for the coming years. In this context, Malaysia aspires to become the region’s leading data centre hub. Headed by the Minister of Human Resources under the initiative “Outsourcing Malaysia”, data centres are about to become the next pillar of the country’s booming service industry. With more than 60 % of the current data centres being located in Selangor, the state will be a major contributor and facilitator for interested investors and the data centre business community. This report is providing insights into this expanding market, its players and trends. Furthermore, the specific advantages of Selangor as an investment destination and in comparison to other states of Malaysia are highlighted. 2012 Selangor – Data Centre Industry Report 2012/13 Data Centre Industry Report – Summary 2012 Malaysia Selangor (Klang Valley) Rank in Malaysia Doing Business Ranking – World Bank (2012) 12 AT Kearney Global Services Location Index 2011 3 Population 27m 5.1m 1 GDP (2010) 559,554m 128,815m 1 (100%) (23.03%) GDP Growth (2010) 7.2% 10.8% 1 Number of Investment 910 (100%) 325 (35.71%) 1 Projects (2010) Data Centre 100% 64% (80%) 1 Distribution (%) Cybercities/ 26 19 1 Centres Data Centre - Market 3.4 2.176 (estimated) 1 Value in RM billion Supportive Outsourcing Malaysia: www.outsourcingmalaysia.org.my Infrastructure MSC Malaysia: www.mscmalaysia.my Multimedia Development Corporation: www.mdec.my Picture 1 Geographic Distribution of Data Centres in Malaysia, Source: SSIC 2012 2 Selangor – Data Centre Industry Report 2012/13 Table of Contents 1. Shared Services and Outsourcing in Malaysia .......................................... 4 1.1 Malaysia and Selangor – Prime Business Locations .......................... 4 1.2 Skilled Workforce ................................................................................ 5 1.3 Industrial Property ............................................................................... 6 1.4 Free from Natural Disaster ................................................................. 7 2. Why to invest in Selangor? ........................................................................ 7 2.1 Selangor – At a Glance ....................................................................... 8 2.2 IT Outsourcing in Selangor ................................................................. 9 2.3 Data Centres – Market Structure ...................................................... 10 2.4 Selangor – Who is Who in the Data Centre Industry ........................ 12 2.5 Trends and Developments ................................................................ 13 3. Investment Incentives for ICT Companies ............................................... 14 3.1 MSC Malaysia Status Company ....................................................... 14 3.2 Incentives for ICT .............................................................................. 15 4. Main Sources .......................................................................................... 16 3 Selangor – Data Centre Industry Report 2012/13 1. Shared Services and Outsourcing in Malaysia According to AT Kearney’s 2011 Global Services Location Index, Malaysia joined the exclusive club of top 3 outsourcing and shared services destinations globally since 2009. In line with this development, more than 250 call centres have been established as well as many regional and global shared services facilities. Many multi-national industry leaders such as Royal Dutch Shell run global IT support centres in Selangor, Cyberjaya. Others followed this example swiftly, including BMW, DHL, HP, Ericsson, Nokia, but also service providers such as Microsoft, Intel, IBM, Fujitsu, EDS and CSC. Most of these corporations have chosen to locate their business in Selangor based on advanced infrastructure, skilled workforce and a high standard of living. Looking at these investment trends, the Malaysian government identified the data centre industry as a new focus area of growth. For Malaysia and Selangor in particular this balanced investment approach, which attracts equally manufacturing and services investments provides a sustainable foundation for development. 1.1 Malaysia and Selangor – Prime Business Locations Figure 1 Source: World Bank Doing Business Index 2011/12 4 Selangor – Data Centre Industry Report 2012/13 Malaysia has become a preferred investment destination, which is supported by a business friendly investment environment, the availability of a skilled workforce and relative low initial investment costs. It does not come as a big surprise that the recent Doing Business ranking by the World Bank indicated remarkable improvements and ranked Malaysia at position 12 as of now before nations such as Sweden, Germany, Ireland and Canada. Independent research has highlighted the competitiveness of Malaysia, in which Selangor has become the role model of development and successful investment promotion. Figure 2 Source: AT Kearney 2011/12 AT Kearney’s 2011 Global Services Location Index offers a glimpse of Malaysia’s exceptional competitiveness. Only beaten by two giants, China and India, Malaysia ranked 3rd in the index. Especially in regard to the business environment Malaysia was able to score and received higher ratings than both of its larger competitors. However, there is more to it, as the following chapter reveals. 1.2 Skilled Workforce Year Fresh Jun. Sen. Middle Sen. Graduates Executives Executives Management Management (Entry (1 - 4 years (> 5 years (Manager) (Senior Level) experience) experience) Manager) 2011 RM 2.238 RM 3,151 RM 5,039 RM 7,005 RM 10,795 (USD 699) (USD 985) (USD 1,575) (USD 2,449) (USD 3,802) Percentage Change n/a 7,3 11,6 11,9 12,7 (%) to 2010 Table 1 Salary Range for IT Professionals, Source: Outsourcing Malaysia 2012 (Conversion Rate RM 3.2=1 USD) 5 Selangor – Data Centre Industry Report 2012/13 Malaysia, even though it only commands a workforce of 12-16 million, is equipped with unique features. Many employees are effectively trilingual (Bahasa Malaysia, English, Mandarin or Tamil) and highly skilled. The country spends about 8.1 % of its gross domestic product on education. Only in Selangor, every year more than 10,000 students graduate from about 130 institutions of higher learning, while there are approximately 160,000 graduates in the whole country. Moreover, Selangor is the state with the most universities and colleges as well as graduates in comparison. Besides, many graduates from other states finally settle in the Klang Valley due to better job opportunities, infrastructure and a high standard of living. In regard to the salary range, the average in table 1 reflects Selangor’s labour situation most appropriately. In Kuala Lumpur the salary usually rises higher as does the Iskandar region in Johor, while other states either have reached similar levels or mark lower because of the lack of workforce, infrastructure and further development. 1.3 Industrial Property Diagram 1 Industrial Property Prices, Source: CBRE 2011/12 Industrial property and land have experienced a steady growth trend in recent years. In this context, Selangor has the highest supply of industrial property with 34,515 units as per 2011 followed by Johor and Penang. Therefore investors are able to access a wide variety of locations, prices and different facilities. A good selection and quality usually come with a certain price tag, but the truth is far more complex. Selangor offers prime property, but does not always demand prime prices. The chart above is comparing Selangor with Johor 6 Selangor – Data Centre Industry Report 2012/13 and Penang, which are two other established and upcoming investment destinations respectively. While Penang is experiencing one price hike after another due to limited space, the property prices in Johor are also starting to catch-up due to demand from Singapore. Unconfirmed statistics tend to mark Johor already as high as Selangor. Both regions do not offer the same infrastructure, large amount of property and availability of skilled workforce. In addition, Johor cannot compare to the living standard in Selangor. Especially in regard to the property question, investors can rely on the support of the Selangor State Investment Centre, which is identifying and proposing property and land to potential investors. 1.4 Free from Natural Disaster Besides the supportive business environment, industry experts have highlighted the fact that Malaysia and especially Selangor never experienced any serious natural disaster. Even tsunamis cannot reach Selangor, since the long- stretching Indonesian island of Sumatra protects the whole coastline. This relative safety at the Straits of Malacca also refers to the power grid and possible blackouts. Since Selangor is home to major infrastructures such as sea- and airports, the national energy company Tenaga Nasional has installed the best equipment available to avoid any downtime. Figure 3 Selangor is free from For data centres, these facilities and conditions are the natural disaster perfect environment to establish their business. 2. Why to invest in Selangor? Picture 2 Key Benefits to Invest in Selangor Source: SSIC 2013 7 Selangor – Data Centre Industry Report 2012/13 2.1 Selangor – At a Glance Comparing Selangor to other investment destinations in Malaysia, there are some advantages unique to this state. Selangor