This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 8/23/2019

Overview
According to Gartner, Inc., spending on technology products and services in Malaysia is forecast to reach USD $15.5 billion in 2019, an increase of 4.6 percent from 2018 (see Table 1.) While worldwide IT spending is projected to total USD $3.8 trillion in 2019, an increase of 3.2 percent from expected spending of USD $3.7 trillion in 2018.

Malaysia’s ICT Spending Forecast (Billions USD, estimated USD 1= RM 4.00)

Unit: $US billions 

2017

2018

2019

2020

CARG (%)

Devices

2.66

2.80

2.96

3.18

6.1%

Data Centre Systems

0.56

0.59

0.61

0.61

2.9%

Software

1.29

1.38

1.52

1.67

9.0%

IT Services

2.90

3.08

3.28

3.49

6.4%

Communication Services

7.72

7.73

7.94

8.09

1.6%

Grand Total

15.13

15.58

16.31

17.04

4.0%

Source: Gartner (October 2018)

Malaysia is an ideal and cost-effective testbed for U.S. companies that are interested to expand their business footprint in ASEAN.
Malaysia is strategically situated with easy accessibility to other countries and has robust infrastructure, connectivity and economic stability. ICT has been identified as the key growing sector in the country that grows at an Annual Average Growth Rate (AAGR) 9.0 percent over a period of 7 years. Malaysia has always been a popular destination for U.S. ICT companies for their global market expansion. Some of the significant U.S. companies that are well established in Malaysia are IBM, HP, Intel, Google, Amazon, Cisco and many others. Malaysia has a holistic digital ecosystem and a complete ICT support system for U.S. businesses.

Leading Sub-Sectors
Malaysia aspires to be a developed nation by 2025.  The Government of Malaysia identified key digital areas to drive ICT sector: cloud, internet of things (IoT), data analytics, cybersecurity, data center, e-commerce and artificial Intelligence (AI) being the main drivers for Industry 4.0 and Smart City development.

Opportunities
Malaysia’s National Industry 4.0 Policy si the country’s action plan for   catalyzing the adoption of emerging technologies to increase productivity and competitiveness across industry sectors. The policy envisions Malaysia as a strategic partner for smart manufacturing, a primary destination for high-technology industries and this creates opportunities for U.S. providers to export services and solutions for the smart manufacturing sector in the region.

Cybersecurity is also identified as an important focus area for the overall ICT sector across all industries. Frost & Sullivan reported that the potential economic loss in Malaysia due to cybersecurity incidents is estimated at USD 12.2 billion. This is more than 4 percent of Malaysia’s total GDP of USD 296 billion. As part of the government’s cybersecurity strategy to tackle the constant cyber threats, especially in the banking industry, Malaysia’ government is actively scouting for cybersecurity solutions, advanced technologies and foreign expertise in the field in efforts to create a safer cyberspace for Malaysia. Malaysia's cybersecurity is third best globally and is ranked third among 193 countries in terms of its commitment to cybersecurity, according to the Global Cybersecurity Index (GCI) 2018.

The Government has taken special interest in developing the Internet of Things (IoT) sub-sector, which has resulted in several market partnerships. The commercialization of ‘smart city’ infrastructure, applications and services – such as smart highways, intelligent traffic management systems and advanced energy management systems – is expected to drive IoT adoption across key social and economic sectors.

The datacenter industry in Malaysia has grown rapidly, mature and is worth an estimated USD229.5 million. This number is expected to experience double-digit growth for the next three years. Over the last five years, the datacenter industry has grown rapidly to support 29 datacenter service companies and nearly 200 specialized service providers capable of providing affordable, scalable and high-quality remote data storage and retrieval services to the growing numbers of multinational corporations looking to establish regional headquarters in the country. The Government’s roadmap for eCommerce and initiatives to make Malaysia a big data analytics hub will spur more companies resulting in an increase demand for data center services.

Cloud computing is experiencing investment in data centers and ICT infrastructure in Malaysia.   Software-as-a-service (SaaS) has the highest adoption in cloud computing subsequently Infrastructure-as-a-service (IaaS) and Platform-as-a-Service (PaaS). Hybrid Clouds remain the dominant form of deployment by enterprises and this model has been identified by service providers as a key growth market.

Digital Taxation
The Malaysian government has officially announced  that a digital tax will be implemented, following a similar model and timeline in Singapore.  Digital tax will be imposed for imported online services by consumers, foreign service providers will be required to register and remit related service taxes to the Malaysian customs, effective January 1, 2020.  The digital tax in Malaysia is expected to serve as a role model for neighboring ASEAN countries and beyond to introduce a tax scheme for their digital economies.

The online services include software, music, video, and any digital advertising. These tax measures will balance competition between retail outlets and online stores, especially those owned by overseas companies.  All imported services will also be subjected to a separate sales and service tax (SST). This is to ensure that local service providers in information technology, engineering and graphic designs, among others, can fairly compete with foreign firms.

2019 Government Budget for ICT
Malaysia’s Budget 2019, themed “A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society” has three focus areas, namely: to implement institutional reforms; to ensure the socio-economic well-being of Malaysians; and to foster an entrepreneurial economy. Below is the allocation for the ICT sector:

  • Enforcement of the Mandatory Standards for Access Pricing (MSAP) to fix and reduce broadband prices by 25 percent by the end of 2018

  • Matching grants specific to Industry 4.0 initiatives through the MIDA High Impact Fund

  • Under Industry 4.0 blueprint (Industry 4WRD)

  • RM3b (est. USD 750 million) Industry Digitalisation Transformation fund with a subsidised 2 percent interest rate under Bank Pembangunan Malaysia Berhad to accelerate the adoption of smart technology

  • RM2b (est. USD 500 million) under the Business Loan Guarantee Scheme (SJPP) with Government guarantees of up to 70  , to incentivise SME investment in automation and modernisation

  • RM210m (est. USD 52 million) allocated from 2019 to 2021, to support the transition and migration to Industry 4.0

  • RM1b (USD 25 million)  allocated to develop the national broadband infrastructure through the launch of the National Fibre Connectivity Plan

Market entry
For U.S. companies to penetrate the Malaysia ICT market, there are two possible market entry strategies to consider. The first and the most common practice is through partnership, distributorship or joint-venture agreements with a local partner. The local partner usually would be responsible for handling customs clearance, dealing with established wholesalers/retailers, marketing the product directly to major corporations or the government, and handling after-sales service. Exporters of services generally also benefit from using a local partner. The second potential strategy is to establish an in-market presence. This enables U.S. companies to build a greater understanding of the Malaysian market, and use Malaysia as a launching pad to strengthen regional relationships.

Web Resources

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.