Malaysia

Index performance

Survey highlights

• 53% say their business unit uses data analytics to a ‘large’ or ‘great extent’

• 45% use embedded sensors in their products or operations to a ‘large’ or ‘great extent’

• 65% believe their digital partners will be important to their own digital transformation

#6Overall

#6

Digital infrastructure

#6 Human capital

#11

Industry connectivity

Overview

With a ranking of 6th, Malaysia sits in the bottom half of the Asian Digital Transformation Index. Its position behind more advanced regional economies such as Singapore and Japan, and ahead of China, Thailand, the Philippines and others is consistent with its performance in other ICT and competitiveness indices. Malaysia displays definite strengths in certain areas of digital infrastructure, particularly in policy. These are offset by weaknesses elsewhere, especially in the industry connectivity category, which assesses the propensity of companies to collaborate with other organisations and communities to advance digital transformation.

Overall Score

Average 45.8

1. Singapore 75.6

2. South Korea 72.5

3. Japan 70.7

4. Hong Kong 65.7

5. Taiwan 65.1

6. Malaysia 42.0

7. China 33.9

8. Thailand 23.9

9. India 19.3

10. Philippines 18.8

11. Indonesia 16.0

The environment for digital transformationMalaysia earns comparatively low scores in the Index in important areas of infrastructure development, such as ICT access and usage (by businesses and consumers) and available broadband speeds, amongst others. Samsurin Welch, head of digital innovation, strategy and architecture at PETRONAS, an oil and gas firm, confirms that “infrastructure is still a challenge in Malaysia. Broadband connectivity is relatively expensive and limited compared with developed economies, especially outside urban centres such as Kuala Lumpur or Penang.”

Such shortcomings are not for want of government attention. Mr Welch notes that ICT development has long been a focus of central government initiatives, and Malaysia receives high marks in the Index for policies to encourage business use of technology. Digital transformation, however, presents different challenges to businesses, beyond having access to infrastructure such as high-speed networks and data centres. Mr Welch commends the government for realising this, and for establishing such agencies as the Malaysia Digital Economy Corporation (MDEC) to encourage growth of digital skills and capabilities in businesses, improve technology governance, and more generally to nurture a digital ecosystem.

The country is only at the start of this journey. Skills development illustrates the challenge. Malaysia scores well (4th) in the Index in terms of the quality of its maths and science education, but is at mid-table in human capital overall. “We have a lot of skilled IT people in Malaysia,” says Mr Welch, “but there’s a big shortage

of advanced digital experts such as data scientists, people with expertise in design or UX (user experience), or who understand, say, cognitive computing.” He adds that universities and other educational institutions have only recently begun training students in advanced digital fields such as data science. A hopeful sign, says Mr Welch, is that the government appears to have recognised the challenge, and MDEC is focusing on building local skills in this area.

The frontline: digital transformation of businesses

Malaysia-based executives surveyed by the EIU claim to be reaping substantial benefits from their digital transformation initiatives. Nearly three-quarters of respondents (73%), for example, say their investments in this area “have already proved their value.” Mr Welch is not so sure. Start-ups and other small businesses today understand what’s involved in digital transformation, he says, but that’s not necessarily true of Malaysia’s larger firms. “The corporate sector is only now starting to realise that digital transformation is something that’s important. It’s a bit of a mindset issue: people speak the language of digital transformation but they don’t really understand what it means or what’s required.”

A clue to this disconnect may be found in responses to a question about the benefits their firms are realising from their digital transformation efforts. By far the most frequently cited benefits are productivity improvements and cost savings. Arguably more important to companies’ growth and transformation will be their ability to use digital transformation to develop new product ideas, tap new customer segments and new markets, and reach markets faster. These are much less prominent responses in respondents’ list of key returns.

When asked what the chief impediments in their organisations to digital transformation are, the second most often cited response (by 38% of participants) is the lack of management support, after the lack of financing (48%). One-third of respondents (32%) also point to a lack of strategy or new ideas.

The chief benefits currently being gained from digital transformation initiatives (top responses)

It is encouraging, though, that Malaysian businesses appear to be using advanced digital technologies, even if their main benefits are thus far limited to productivity gains and cost savings. Over half of surveyed firms, for example, claim to use data analytics extensively, and 45% say the same about embedded sensors used to enable IoT devices. One-third also say their companies store most or all of their data in the cloud.

1. Digital Infrastructure

Average 47.9

1. Singapore 80.1

2. South Korea 74.4

3. Hong Kong 70.7

4. Taiwan 66.5

5. Japan 63.5

6. Malaysia 53.7

7. China 36.4

8. Thailand 22.5

9. Indonesia 19.3

10. Philippines 18.8

11. India 17.9

2. Human Capital

Average 46.0

1. South Korea 82.2

2. Japan 80.2

3. Hong Kong 76.1

4. Singapore 74.5

5. Taiwan 68.0

6. Malaysia 42.5

7. China 28.9

8. Thailand 20.6

9. Philippines 16.3

10. India 10.8

11. Indonesia 5.7

3. Industry Connectivity

Average 39.7

1. Japan 78.9

2. Singapore 64.7

3. Taiwan 57.8

4. South Korea 55.2

5. Hong Kong 40.4

6. India 33.6

7. China 33.3

8. Thailand 31.9

9. Philippines 20.5

10. Indonesia 11.0

11. Malaysia 9.2

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53%

32%30%

28%

43%

33%

Productivity im

provements

Greater cost savings

More innovative ideas / IP for new

products / services

Expanded reach into new

markets

Developm

ent of new custom

er segments

Faster speed to market (i.e. reduced tim

e it takes to develop and launch a new

product

Digital connections

Few companies can go it alone today in mastering digital capabilities and remaining competitive with digitally astute market rivals. Collaborative associations with other companies, public institutions, research institutes and others – often working in loose networks or informal communities – offer companies a chance to develop digital capabilities more quickly and cost effectively than they might otherwise manage.

Malaysian firms in the survey appear to pursue digital partnerships actively – half report having five or more such partners. But it is the weakest area of Malaysia’s performance in the Index: it ranks last in the industry connectivity category, and ahead of only Indonesia when it comes to the strength of its digital partnerships.

Agree or disagree: “Companies going it alone (without digital partnerships) will soon be a thing of the past.”

Agree Disagree

74%

26%

Another type of digital collaboration is idea and data sharing in open innovation communities. Over half of survey respondents (57%) say their companies benefit to a large extent from involvement in such communities. This may not be overstated, judging by Mr Welch’s observation that outside his fairly conservative energy industry, and especially in financial services, companies are becoming more involved in sponsoring hackathons and working with start-ups in incubators and accelerators. “There’s a lot more interest of late in open innovation,” he says. “Because of intensifying competition, companies in other industries are under a lot more pressure to do things differently.”

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Pursuing the digital oilfield

The oil and gas industry has not generally been thought of as a hotbed of digital innovation. Samsurin Welch, who is head of digital innovation, strategy and architecture at PETRONAS, Malaysia’s state-owned energy producer, thinks that is beginning to change.

One advantage energy producers have is that they have long generated an enormous amount of data, which until recently has been under-utilised. “In some ways,” he says, “oil and gas companies are data-driven organisations. If you’re talking about how to look for, explore and produce hydrocarbon resources from a reservoir that’s 3,000 feet below the seabed, all you have is data.”

Mr Welch says his company is investing heavily in advanced digital technologies to make better use of the data its fields and equipment are generating. These include advanced forms of modelling to locate new hydrocarbon deposits, as well as analytics to help squeeze more out of existing fields. “The better the algorithms and the more computing power we have to analyse the data,” he explains, “the more stuff we can squeeze out of the ground to help us increase our revenue.”

Intelligent sensors are part of the company’s array of digital tools. Mr Welch says it uses embedded sensors on drill bits, for example, to remotely monitor all drilling operations. “We can look at the data the sensors collect and predict when

problems are going to happen. We can collate the actual drilling paths against our simulations and models and optimise our drilling campaigns, potentially saving millions of dollars.”

The digital oil field should also be a safe oil field. Like its counterparts in the industry, PETRONAS is looking to use digital technologies to minimise the human role in especially dangerous activities. Airborne drones and underwater autonomous vehicles (UAVs) can be used, for example, to inspect oilfield assets such as deep-sea platforms. Using a drone, he explains, “will not just save you inspection time but it will also enhance safety. You don’t have to send in a human being to climb something hazardous.”