NEWS: Challenging Year Ahead

PETALING JAYA: Growth for the Information and Communications Technology (ICT) industry will fall to its lowest in a decade next year, according to the Association of the Computer and Multimedia Industry of Malaysia (Pikom).

“We foresee organisations cutting down on ICT spending. Our forecast for next year will be 5%, in light of the global financial crisis,” Pikom chairman David Wong told In.Tech.

He added that the local ICT sector experienced a 7% growth this year and 10% in 2007.

“The last time the local ICT sector had a 5% growth rate was during the last financial crisis in 1997,” Wong said.

But it’s not all gloom and doom.

“We are still bullish on the outsourcing industry. With the economic slowdown, companies will be looking at ways to cut cost and outsourcing will be one way of doing this,” he said.

Wong even expects the outsourcing industry to create more jobs within the ICT industry.

“Unlike the manufacturing industry, the ICT industry will be creating jobs rather than losing jobs. We need more workers in the outsourcing industry.

Currently we have only 70,000 people working in outsourcing companies but we need 300,000 by 2012,” he said.

Pikom also expects the RM7bil stimulus package (announced on Nov 3) to cushion the overall drop in ICT investment next year.

“The Government has introduced several measures in its latest stimulus package to progressively stimulate the economy.

“We see the IT industry benefiting through lower fuel prices, which in return reduces cost of ICT companies doing business,” he said.

He added that the rollout of High Speed Broadband (HSBB) and WiMAX nationwide would spur the ICT industry on.

HSBB, which will be deployed by TM, promises surfing speeds up to 1Gbps (gigabit per second).

The Government signed an agreement with TM in a public/private partnership to build the RM11.3bil HSBB network in the country, in September. It was announced that the Government will fork out RM2.4bil for the venture (StarBiz, Sept 17).

As for telecommunications spending, Wong said that Digi.com Bhd has stated that 2009 will be its biggest investment year ever, with its 3G mobile broadband rollout.

From Pikom’s point of view, ICT will continue to be the key enabler or strategic tool for cost savings and productivity improvement during these challenging times.

NEWS: Key players dissatisfied with Budget 2009

PETALING JAYA: The Association of the Computer and Multimedia Industry of Malaysia (Pikom) is disappointed with next year’s budget allocation for the country’s information and communications technology (ICT) segment.

David Wong, its chairman, told In.Tech that the Government likely sees ICT as an area that is doing relatively well and does not need as much help as other sectors.

“This is true to a certain extent but there are areas (within the ICT segment) that need to be seriously addressed, such as promoting (Malaysia as a regional centre) for outsourcing,” he said.

Pikom had hoped for a double deduction of income tax for overseas companies that are outsourcing to Malaysian-operated businesses. This would have been an encouragement for the local businesses, Wong said.

Chipmaker Intel Malaysia shared some of Pikom’s disappointment. It said it had looked forward to more incentives to reduce infrastructure costs, including the removal of import duty and sales tax exemptions on broadband equipment and consumer-access devices.

Such a move, it said, would have helped accelerate broadband deployment across the nation. “The deployment of broadband beyond urban areas will drive greater PC penetration and narrow the digital divide,” said Ryaz Patel, country manager for sales and marketing at Intel Malaysia.

Good stuff

However, the industry players are satisfied with other parts of the budget.

Pikom likes the five-year tax exemption offered to venture capitalists that fund local startups. “This is good news for our startup companies and is a good carrot to attract venture capitalists,” said Wong.

It was proposed that venture capitalists investing at least 30% of the funds needed by a startup would be eligible for the tax exemption.

“Currently only 20% of venture capitalist funding (in the country) is provided by private funds. Most early-stage funding comes from government-linked organisations like the Multimedia Development Corporation (MDeC) and Cradle Fund Sdn Bhd,” he said.

“But whether the tax break alone will be good enough to attract the venture capitalists in question, remains to be seen. Seed funding is a risky business,” he said.

The Government has also proposed that the Accelerated Capital Allowance on expenses incurred on ICT equipment for companies, which is currently claimed over two years as a tax deduction, be accelerated to one year.

“This is good,” said Wong. “If for instance, you spend RM10mil on ICT equipment. You can now claim for all of it on the first year instead of RM5mil the first year and RM5mil the next.”

This move earned kudos from Intel Malaysia, too. “Technology must be made affordable and widely available to all sectors of the community to help accelerate the digital inclusion,” said Patel.

“With the reduced timeframe to claim for the Accelerated Capital Allowance, companies can refresh their IT assets consistently to keep up with technology trends.”

Software giant Microsoft Malaysia agreed. “This serves to encourage more companies to invest in the latest know-how, such as unified communications and mobility technologies, which would result in better productivity and operational efficiencies,” said Vijay Bala, its chief financial officer. “

This is a step forward for local businesses because technology is all about empowerment — tools to bring out the best ideas and innovations.”

More goodies

MDeC chief executive officer Datuk Badisham Ghazali lauded the human capital development programme that was announced under Budget 2009.

“The double tax deduction offered to employers who sponsor staff to pursue postgraduate studies in ICT will definitely encourage more talents to join the industry, which will help meet the growing demand for knowledge workers by MSC Malaysia-status companies,” he said.

MDeC is caretaker of the MSC Malaysia initiative which is aimed at building up the country’s knowledge economy.

Intel Malaysia also supports the Government’s decision to allocate RM14.1bil under Budget 2009 to improve the quality of education at institutes of higher learning.

“We believe this will encourage the development of quality human capital and accelerate the cultivation of 21st century learning skills among students as they prepare themselves for the knowledge economy,” said Atul Bhargava, Intel Malaysia managing director.

Prime Minister Datuk Seri Abdullah Ahmad Badawi announced the details of Budget 2009 on Friday.

NEWS: Areas of ICT spending

THE top management of Malaysian companies are quite aware of the importance of information and communications technology (ICT), although not all are necessarily tech savvy. And when it comes to ICT investment, the CEO’s main concern is whether he can justify the amount used. The CEO needs to evaluate the cost effectiveness and viability of an ICT investment, which usually involves a lot of money. Here, the costs include time and commitment from not only the IT department, but also the rest of the organisation.

It is no wonder that ICT is viewed as a cost centre, in which the benefits are only to be translated into business improvements at a much later date. But more importantly, as companies plan many years ahead of time, any ICT investment is required to generate the requisite return on investment (ROI) within that time frame.

Despite such issues, ICT spending trends in the Malaysian private sector is still strong. One key area of ICT investment is security. A major concern to both public and private sectors, ICT security is getting additional attention lately due to the increasing risks of malware in the Internet and compliance to regulatory requirements. In Malaysia, banks, for example, are bound by the central bank’s mandated compliance to the Basel II Accord.

Local banks believe that compliance is important because of the need to meet with local regulations and to be able to trade with foreign companies.

Many companies have also already implemented basic risk policies and controls to meet corporate mandates such as Sarbannes-Oxley, and the ISO 17799 standards.

The ideal enterprise ICT solution to address compliance needs must be able to help companies lower their risk of non-compliance and improve internal controls through a combination of automation, process improvement and training.

Besides ICT security, another area of ICT spending comprises ICT solutions and applications that are key in improving on front-end service that deals with customers.

Although ICT and business functions are to an extent treated in compartments, top management realise that they can no longer be segregated into merely business or ICT issues. In fact, more top executives are beginning to think of ICT and business as linked matters and are no longer separately treated.

To facilitate this, it is the role of ICT vendors to work with the company towards putting in the business context.

Without a proper link to business goals, ICT becomes irrelevant. So, the enterprise must be convinced about how an ICT investment can eventually lead to large cost savings and higher profits for the organisation.

Analysts say that the local ICT spending growth will continue to remain bright.

The Malaysian ICT market is expected to grow at least 10 per cent this year due to the stronger local currency and the ICT projects from the Ninth Malaysia Plan that has revived spending from the public sector.

Some of the key areas that are expected to be quite lucrative now is security, storage management, shared services and outsourcing space.

NEWS: Regional IT demand still solid

LIKE other players in key economic sectors, the local information and communications technology (ICT) fraternity must be feeling jittery over the possible negative effects of the subprime-related or credit crisis. The US economic woes certainly pose a direct impact on the growth of regional IT markets, including Malaysia’s.

According to research firm IDC, Asean’s IT market growth rhythm could slow to just two per cent this year, which is equivalent to a potential loss of market opportunity worth a whopping US$680 million (RM2.17 billion).

The higher the country’s trade dependency is on the United States, the greater the negative impact, the firm said.

Malaysia, ranked in order of export business to the US, is fourth after Japan, Vietnam and China.

IDC believes that buffering the impact of the US economic slowdown on Asean’s IT markets will be a challenge due to the reliance on Asean exports to the US, and more stringent credit policies as local banks become more risk-adverse.

It is during such times that many, including the ICT fraternity, would welcome any effort by governments to cushion the negative impact of the global economic slowdown. These could include further efforts to diversify the export markets while at the same time boost domestic technology spending.

Talking about technology spending, a recent Gartner survey could serve to ease some worries among the players. According to the survey, regional IT demand will remain very strong this year.

The report, which involved about 1,500 chief information officers (CIOs) worldwide, revealed that IT expenditure is expected to surge by about 8.3 per cent in Asia, far above the 3.3 per cent rise in the global average.

The survey also identified that this year the focus areas among Asian CIOs include IT infrastructure and application rollouts. The implication here is, despite the possibility of the US heading into recession, Asian companies are still prepared to invest in technology to prepare themselves for future growth.

The prospects surely look encouraging, but this does mean that technology players should become complacent. The market will become more competitive than ever, as customers demand more value for their hard-earned money. They expect only the best.