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Will Malaysia’s IT sector have to retrench workers too?

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By Charles F. Moreira, Editor

In our earlier article, “The bench gets shorter for India’s IT workers”, we cited Indian media reporting that India’s IT companies are expect to retrench up to 200,000 workers within a year and the reasons for this have been attributed to greater protectionist measures in the United States which have resulted in fewer contracts being awarded to Indian IT firms, tighter restictions in hiring even those Indian IT workers who already have H1-B visas, US-based subsidiaries of Indian IT firms being required to hire more American IT workers at almost twice the pay, the greater use of automation software to perform tasks traditionally done by IT workers and that since overseas projects are quoted in US dollars, the strengthening of the Rupee from INR68 to INR64 to the US dollar over the past six months has IT companies in India earning fewer Rupees once their payment is repatriated to India.

So will the above factors similarly affect Malaysian IT companies and IT workers? – Enterprise TV asked National ICT Industry Association of Malaysia (PIKOM) Research Committee Chair, Woon Tai Hai at the media presentation of the 10th Edition of the PIKOM ICT Job Market Outlook in Malaysia Report 2017 at PIKOM’s headquarters on 22 June 2017.

“Firstly, relatively few Malaysian IT workers seek work in the US, unlike their Indian counterparts, so are unlikely to be as severely affected by tighter restictions on the hiring of foreign IT workers there”, said Woon. “Also with our Ringgit remaining relatively week versus the US dollar and since the Ringgit’s strength is closely related to the price of crude oil (Brent Crude) which is falling right now, the Ringgit is likely to remain weak against the US dollar, which makes Malaysian IT companies more competitive on price relative to their Indian counterparts”, he added.

However, it does not seem likely that the strenghtening of the Rupee versus the US dollar over the past six months is a valid reason, since the Rupee had steadily weakened over the past 10 years, from around INR39 to the US dollar in 2007 to INR64 today, so the strengthening of the Rupee by a mere INR4 over the past six months seems unlikely to have reduced Rupee-denominated earnings significantly enough to warrant such a large number of retrenchments. Over the same 10 year period the Ringgit also weakened versus the US dollar in a somewhat similar pattern.

USD-to- INR

USD-to-MYR

brent

The Economic Times of 14 May 2017 quoted Head Hunters India founding chairman and managing director K Lakshmikant who in turn quoted from a McKinsey & Co. report presented at the Nasscom India Leadership Forum last February. which predicted that between 30 and 40% of India’s IT workers – mostly older workers – would be unable to re-skill themselves with newer technologies so would soon become irrelevant to the industry’s needs, hence such massive retrenchments.

Meanwhile, according to PIKOM’s job market report, the average monthly salary of ICT professionals in Malaysia had increased by 4.6% from RM8,114 in 2015 to RM8,484 in 2016 and PIKOM predicts this to increase further by 6.7% to RM9,060 in 2017.

Salaries for ICT professionals increased year-on-year across the board for fresh graduates, junior executives, senior executives, managers and senior managers between 2009 and 2017, or up by 6.7% overall between 2016 and 2017. Managers and senior managers would see their salaries increase above the overall figure, whilst increases for the more junior levels would be below the overall figure over the same period. Also senior managers earned 6.1 times more than entry-level professionals 2017 and has widened from 6.44 times in 2016 and PIKOM is concered about this widening gap.

As to why this is so, Woon explained that entry level professionals are the first to suffer during a downturn, during which time companies also tend not to hire enter level staff. Speaking from his own company’s perspective, Woon said, “I need experienced people first and entry level people later”.

The automotive, heavy industry and machinery industry paid the highest average monthly salary of RM8,962 for ICT professionals, followed by the call centre, IT enabled services and business process outsourcing industry which paid RM8,822; the transport, storage, freight and shipping industry (RM8,791); science & technology, aerospace and biotechnology (RM8,760 and computer and IT hardware (RM8,397).

Using the salary of an IT project manager for referrence across different countries, in purchaing power parity terms, these professionals earned 1.8, 1.55, 1.46, 1.38, and 1.3 in Hong Kong, United Arab Emirates, Australia, Saudi Arabia and the United States than in Malaysia.

There altogether were 11,227 job vacabncies for ICT professionals in Malaysia in 2016, of which about a third were in the computer and IT software industry. However, this number was 40% down from 18,249 vcancies in 2015. Vacancies for entry-level ICT professionals dropped by almost 60% over this period. Woon attributed this low growth in vacancies to the challenging economic climate in 2016

Meanwhile, the ICT industry’s contribution to Malaysia’s GDP increased from RM152.1 billion in 2015 to RM164 billion in 2016, up four times over 2017.

Looking ahead, Woon believes that software-related services will still be in demand since software requires customisation, whilst e-commerce services will also be in demand.

“The landscape of ICT in Malaysia has evolved over the last 10 years and Internet of Things (IoT) is most likely to affect us, whilst applications and services will be one of the major drivers. As we are behind the curve, we can look towards Europe and the United States for lessons”, Woon said.

As to why most students tend to avoid courses in science, technology, engineering and mathematics (STEM), Woon explained that some students regard business and accounting courses to be easier, the entry requiremenst to STEM programmes higher and unfortunately, there are fewer jobs for STEM graduates.

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