FACTORS LEADING TO DECENTRALIZATION OF OFFICE FIRMS:
THE CASE OF MULTIMEDIA SUPER CORRIDOR
MUHAMMAD ASIM TUFAIL
UNIVERSITI TEKNOLOGI MALAYSIA
PSZ 19 :16 (Pind. 1/97)
UNIVERSITI TEKNOLOGI MALAYSIA
BORANG PENGESAHAN STATUS TESIS
JUDUL :
FACTORS LEADING TO DECENTRALIZATION OF OFFICE FIRMS
THE CASE OF MULTIMEDIA SUPER CORRIDOR
SESI PENGAJIAN : 2005/2006
Saya,
MUHAMMAD ASIM TUFAIL
( HURUF BESAR )
mengaku membenarkan tesis (PSM/Sarjana/Doktor Falsafah)* ini disimpan di Perpustakaan Universiti
Teknologi Malaysia dengan syarat-syarat kegunaannya seperti berikut:
1.
2.
3.
4.
Tesis adalah hak milik Universiti Teknologi Malaysia.
Perpustakaan Universiti Teknologi Malaysia dibenarkan membuat salinan untuk tujuan pengajian
sahaja.
Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran antara institusi
pengajian tinggi.
* * Sila tandakan ( 9 )
9
SULIT
(Mengandungi maklumat yang berdarjah keselamatan
atau kepentingan Malaysia seperti yang termaktub di
dalam AKTA RAHSIA RASMI 1972)
TERHAD
(Mengandungi maklumat terhad yang telah ditentukan
oleh organisasi / badan di mana penyelidikan dijalankan)
TIDAK TERHAD
__________________________________
(TANDATANGAN PENULIS)
Alamat Tetap: 3/48, TEACHERS COOPERATIVE
SOCIETY NEW TOWN, 74800,
Disahkan oleh,
_________________________________
(TANDATANGAN PENYELIA)
PROF. DR. SUPIAN BIN AHMAD
Nama Penyelia
KARACHI #5, PAKISTAN
Tarikh: _______________________
Tarikh:
13-12-2005
CATATAN :
* Potong yang tidak berkenaan
** Jika tesis ini SULIT atau TERHAD, sila lampirkan surat daripada pihak
berkuasa/organisasi berkenaan dengan menyatakan sekali sebab dan tempoh
tesis ini perlu dikelaskan sebagai SULIT atau TERHAD.
*** Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah dan Sarjana secara
penyelidikan, atau disertai bagi pengajian secara kerja kursus atau
penyelidikan, atau Laporan Projek Sarjana Muda (PSM).
“I hereby declare that I have read this thesis and in my opinion this thesis is
sufficient in term of scope and quality for the award of the Master of Science
(Urban and Regional Planning)”
Signature
:
………………………………
Name of Supervisor :
………………………………
Date
………………………………
:
BAHAGIAN A – Pengesahan Kerjasama*
Adalah disahkan bahawa projek penyelidikan tesis ini telah dilaksanakan melalui kerjasama antara
____________________________ dengan ____________________
Disahkan oleh
Tandatangan : ________________________________________
Nama
: ________________________________________
Jawatan
: ________________________________________
Tarikh : ___________
(Cop rasmi)
*Jika penyediaan tesis/projek melibatkan kerjasama.
BAHAGIAN B – Untuk Kegunaan Pejabat Sekolah Pengajian Siswazah
Tesis ini telah diperiksa dan diakui oleh:
Nama dan Alamat
Pemeriksa Luar
:
Assoc. Prof. Dr. Norhaslina Binti Hassan
Fakulti Sastera & Sains Sosial
Universiti Malaya
50603 Kuala Lumpur
Nama dan Alamat
Pemeriksa Dalam I
:
Assoc. Prof. Dr. Ho Chin Siong
Fakulti Alam Bina
UTM, Skudai
Pemeriksa Dalam II
:
Nama Penyelia Lain :
(jika ada)
Disahkan oleh Penolong Pendaftar di Sekolah Pengajian Siswazah:
Tatangan
: __________________________________________
Nama
: GANESAN A/L ANDIMUTHU
Tarikh : _____________
FACTORS LEADING TO DECENTRALIZATION OF OFFICE FIRMS:
THE CASE OF MULTIMEDIA SUPER CORRIDOR
MUHAMMAD ASIM TUFAIL
A thesis submitted in fulfilment of the
requirements for the award of the degree of
Master of Science (Urban and Regional Planning)
Faculty of Built Environment
Universiti Teknologi Malaysia
MARCH 2006
ii
I declare that this thesis entitled “Factors Leading to Decentralization of Office
Firms: The Case of Multimedia Super Corridor” is the result of my own research
excepts as cited in the references. The thesis has not been accepted for any degree
and is not currently submitted in candidature of any other degree.
Signature
:
………………………………
Name
:
MUHAMMAD ASIM TUFAIL
Date
:
13-12-2005
iii
Dedicated to those who think with an open mind,
to those who seek for rational answers
for the purpose of ‘being’.
ACKNOWLEDGEMENT
It is with great joy and lightness of spirit that I offer my deepest, most
heartfelt thanks to Almighty Allah for lighting up my heart with the torch of
knowledge, then to all the many people who have assisted and supported me in
countless ways as I journeyed through the process of undertaking, creating, and, at
last, finally, completing this thesis. First, I would like to take this opportunity to
thank my supervisor, Professor Dr. Supian Bin Ahmad, for introducing me to the
idea of study, “Factors Leading to Decentralization of Office Firms: The Case of
Multimedia Super Corridor” and for his exceptional patience, intelligence, tolerance,
understanding and encouragement that facilitated me throughout all stages of my
study. I extend my thanks to him for awarding me to be his teaching assistant.
Besides that, I would like to thank Associate Prof. Dr. Nordin Yahya and SPS for
assistance, Dr. Muhammad Tetsu Kubota, Post Doctoral Fellow at the Faculty of
Built Environment, and also not forgetting the students that involved in the surveys. I
extend my thanks to the companies that involved in providing the data and
information. My special thanks to Mr. Diylon and Mrs. Wee at Multimedia
Development Corporation. I also thank Dean of the faculty of Media Arts at
Massachusetts Institute of Technology (MIT), Prof. Dr William Mitchell for
providing me with his latest book and relevant material on my report, as well for his
advise and encouragement. I extend my thanks to my former Dean Prof. Kausar
Bashir Ahmed at Dawood College, Dept. of Architecture and Planning, Karachi,
Pakistan and furthermore to my close friend, Georg M. Held in Germany for the time
and patience to go through my report and give suggestions. At last, the most
appreciation and gratitude to my parents, Professor Muhammad Tufail Chaudhry
and Madam Anwar Bano, for their continuous support and love, thanks to my
brothers and sister for their care and support. In addition, I extend my thanks to all
who have helped me, individuals and parties whose names has not been mentioned,
and to those who has directly or indirectly involved in this study.
v
ABSTRACT
Technological development in the information and communication sector
is an unavoidable phenomenon to attain sustainability in today’s global era. Cities
have developed satellite towns at the periphery with hi-fidelity digital and physical
infrastructure which startup as a small town offering competitive economic
environment that, later turns into a larger urban setting and thus converts a single
centered city into a multi centered one. In case of Klang Valley Metropolitan Area
the shift of civic services to Putrajaya and in addition, development of Multimedia
Super Corridor offering avant-garde global competitive incentives to local and
foreign companies in order to develop a super block of research and development
based economic sector to spearhead the Malaysian Vision 2020 of a knowledge
based economy and society, is an attraction to the business community all over
Malaysia. The purpose of this study is to discuss the key factors that have lured the
companies from Kuala Lumpur Metropolitan Area to move to Multimedia Super
Corridor physically. For which, companies were selected focusing on businesses in
Finance, Insurance and Real-estate and a survey was conducted, the data gathered
was analyzed to evaluate the ranking of variables of Bill of Guarantees offered in
Multimedia Super Corridor policy using Mann-Whitney U test. The findings of the
study has been that in addition to good infrastructure and good working environment
the incentives offered in Bill of Guarantees of tax exemption primarily, has been the
driver for companies to decentralize. The other factors include low cost of doing
business as well as competitive conditions as attraction for companies to take up the
special status. There are the problems of accessibility for clients and workers, high
rental rates of the property in addition to limited estate and slow development of
supportive public amenities such as public telephone booths, restaurants, shopping
areas, etc. which is restricting companies from taking up the special status. Thus, the
problems identified should be dealt by the Multimedia Development Corporation in
order to achieve the task of getting more global companies to take up the Multimedia
Super Corridor status in the second phase of development till 2010.
vi
ABSTRAK
Pembangunan teknologi maklumat dan komunikasi (ICT) adalah merupakan suatu
fenomena yang tidak dapat dielakkan lagi demi pengekalan pembangunan di era global
ketika ini. Pembangunan pusat bandaraya kemudiannya membentuk bandar satelit yang
lingkungannya dilengkapi dengan kemudahan digital dan kemudahan fizikal terkini, dimana
permulaannya hanyalah sebuah bandar kecil yang menawarkan persekitaran ekonomi yang
sangat berdaya saing dan maju seterusnya berkembang menjadi pelbagai pusat bandaraya.
Di dalam kajian kes KLMA, perpindahan pusat perkhidmatan pentadbiran awam ke
Putrajaya, juga dengan kehadiran MSC, telah memberikan kesan persaingan global kepada
syarikat-syarikat tempatan mahupun syarikat-syarikat global yang lain terutamanya ke arah
perkembangan
ekonomi
yang
berasaskan
blok
utama
R&D
(penyelidikan
dan
pembangunan). Ini sebagai faktor pemangkin utama Wawasan 2020 dalam kontek
masyarakat dan ekonomi; yang terus berteraskan pengetahuan ke arah komuniti niaga ke
seluruh Malaysia. Tujuan penyelidikan ini adalah untuk meninjau faktor-faktor utama yang
secara fizikalnya menggalakkan penyelerakan syarikat- syarikat dari Kawasan Metropolitan
Lembah Kelang (KLMA) ke Multimedia Super Coridor (MSC). Bagi mencapai matlamat
tersebut, kajian lapangan telah dijalankan terhadap syarikat yang memfokuskan urusniaga
kewangan, insuran dan juga hartanah. Seterusnya, data terkumpul dianalisa dengan
menggunakan Ujian Mann-Whitney yang bertujuan mengkaji serta menilai siri peringkatan
oleh faktor pembolehubah daripada Bil Jaminan yang telah ditawarkan didalam polisi MSC.
Kajian ini mendapati bahawa faktor penarik penyelerakan syarikat ke MSC ialah
pembangunan infrastruktur dan persekitaran kerja yang baik disamping kelebihan nilai cukai
yang rendah. Selain itu, faktor lain yang menyumbang ke arah penyelerakan syarikat
termasuklah kos perniagaan yang rendah selain kebanyakan syarikat berminat untuk
mendapatkan status MSC. Namun begitu, terdapat faktor penghalang penyelerakan tersebut
iaitu masalah aksesibiliti kepada klien mahupun pekerja, kadar sewaan hartanah yang tinggi
dalam menghadkan hak milik, ditambah dengan faktor pembangunan kemudahan awam
yang agak lambat seperti telefon awam, restoran dan pusat membeli-belah. Keadaan ini
seterusnya akan menghadkan penglibatan syarikat didalam status MSC. Maka, pihak
berkenaan seperti Multimedia Development Corporation (MDC) adalah dicadangkan
mengambil langkah bijak bagi menangani permasalahan yang timbul supaya dapat menarik
lebih banyak syarikat global demi kelangsungan pembangunan status MSC terutamanya
pembangunan fasa kedua hingga ke tahun 2010.
vii
TABLE OF CONTENT
CHAPTER
TITLE
PAGE
DECLARATION THESIS
1
DEDICATION
ii
ACKNOWLEDGMENT
iii
ABSTRACT
iv
ABSTRAK
v
TABLE OF CONTENT
vii
LIST OF TABLE
xiv
LIST OF FIGURE
xvi
LIST OF ABBREVIATIONS
xviii
LIST OF APPENDIX
xxii
INTRODUCTION
1
1.1
Prologue-Basic Parameters
1
1.2
ICT and the Global Village
2
1.3
Background of Study
4
1.4
Aim and Objectives of Study
6
1.5
Research Hypothesis
8
1.6
Research Questions
8
1.7
Scope of Study
9
1.8
Research Methodology
10
viii
2
1.9
Epilogue-Significance of Study
12
1.10
Organization of Thesis
13
DECENTRALIZATION OF TECHNOLOGY REGIONS,
GROWTH AND CHANGE AND ITS IMPLICATION
ON THE NATIONAL ECONOMY
15
2.1
Introduction
15
2.2
Evolution of ICT -The Brunt Towards Urban
Area and CBD
16
2.3
Centralization to Decentralization.
19
2.4
Spatial Impacts of ICT on Urban Land Use
21
2.5
ICT and Office Development
24
2.5.1 Location Trend for Front and Back Offices 26
2.6
2.5.2 Back Office Development
29
2.5.3 Off-Shoring – Right Shoring
30
Influential Factors on Choice of Office Location
33
2.6.1 Rental Value and Operating Cost
33
2.6.2 Labor Skill and Labor Cost
35
2.6.3 Physical Requirement
37
2.6.4 Competitive Conditions for an Office Firm 38
2.7
2.6.5 Connectivity
38
2.6.6 Low Telecommunication Rates
39
2.6.7 Low Taxes
40
ICT and Cyber City in the Information Age
42
2.7.1 Planning Aspects of a Cyber City
44
2.7.2 Infrastructure and Network Society
46
2.7.3 Effects on the Contemporary Office Space 47
2.8
Role of Technology in a City’s and Regional
Economy
47
ix
2.9
3
Conclusion
51
MULTIMEDIA SUPER CORRIDOR IN MALAYSIAN
PROSPECT
55
3.1
Introduction
55
3.2
ICT in Malaysia
56
3.3
Knowledge Based Economy
57
3.3.1 The Concept of Knowledge-Based Economy58
3.3.2 Characteristics of a Knowledge-Based
Economy
3.4
3.5
3.6
60
Development of ICT in Malaysia
62
3.4.1 National IT Agenda
62
3.4.2 Developing Labor Force
63
Globalizing of Kuala Lumpur Metropolitan
Area (KLMA)
65
3.5.1 Change in Land use Pattern
66
3.5.2 Development of Cyber Cities in Malaysia
67
Multimedia Super Corridor (MSC)
67
3.6.1 Development of Multimedia Super
Corridor
70
3.6.2 MSC Policies and Incentive
70
3.6.2.1 Bill of Guarantees
72
3.6.2.2 Multimedia Development
Corporation (MDC)
73
3.6.2.3 Financial Incentives
73
3.6.2.4 Non-Financial Incentives
76
3.6.3 MSC Flagship Applications
80
3.6.4 MSC Flagship Application’s Development 81
3.7
Shared Services Development
81
3.7.1 Out Sourcing
82
x
3.7.1.1 Research and Development
3.8
in MSC
83
IT Shared Service and Contact Centers
84
3.8.1 Developed Infrastructure for Shared
and Services
84
3.8.1.1 Facilities Offered in MSC
86
3.8.1.2 Multiple Communication Service
Providers
88
3.8.1.3 Internet Infrastructure and
Optic Fiber Backbone
3.8.1.4 IP Transit Services
88
90
3.8.2 MSC Performance Guarantee
90
3.8.2.1 Telecommunications
90
3.8.2.2 Power
91
3.8.2.3 Chilled Water
91
3.8.2.4 Competitive Cost of Doing
Business
92
3.8.2.5 Office Accommodation and
Land Lease
3.9
3.10
92
3.8.2.6 Payroll
93
3.8.2.7 Telecommunication Tariffs
95
An Overview of MSC and Its Progress
97
3.9.1 Companies Outlook
97
3.9.2 Employment Outlook
99
3.9.3 Technology Focus
100
3.9.4 Financial Outlook
101
3.9.5 Intellectual Property Outlook
104
Conclusion
105
xi
4
EVALUATION OF FACTORS LEADING TO OFFICE
DECENTRALIZATION TO MULTIMEDIA SUPER
CORRIDOR
106
4.1
Introduction
107
4.2
Research Design
4.3
Scope of Data Collection and Analysis
108
4.4
The Survey
110
4.4.1 The Population
111
4.4.2 The Study Area
112
4.4.3 The Questionnaire
113
4.4.4 The Sample Design
116
`
109
4.4.5 Survey Method and Problems Encountered 118
4.5
4.6
5
Analysis Technique
119
4.5.1 Process of Analysis
120
Conclusion
121
THE CHARACTERISTICS OF FIRMS, FACTORS
THAT INFLUENCE OFFICE LOCATION DECISION
AND COMPANY’S RESPONSE TOWARDS MSC
POLICIES
122
5.1
Introduction
122
5.2.1 Basic Characteristics of firms
123
5.2.1.1 Ownership of Firms
125
5.2.1.2 Firm’s nature and Share of business 126
5.2.1.3 Size of firms
130
5.2.1.4 Duration of Current and
Previous Location of Firms
5.2.2
133
Office Division, Location and
Mode of Communication
136
xii
5.3
Ownership of Office Premises
140
5.4
Mode of communication
142
5.5
Use of teleworking and arrangement with
employees
5.6
144
Evaluation of incentives offered by MSC
as location decision
148
5.7
Conclusion
154
6
FACTORS LEADING TO DECENTRALIZATION OF
OFFICE FIRMS
155
6.1
Introduction
155
6.2
Setting up of variables
156
6.3
Factors influencing decision to relocate in the
MSC area
6.4
156
Analysis of Response towards the Bill of
Guarantees
156
6.4.1 MSC Status and Ownership of Companies
158
6.4.2 Location Time period and MSC status
159
6.4.3 Private and Public Listed companies and
location Choice
160
6.4.4 The Location choice of Finance, Insurance
and Real-estate Sectors
161
6.5
The Hypothesis of Study
162
6.6
Method for testing Hypothesis
163
6.7
Factors that drive Firms to Relocate
164
6.7.1 Factors Driving Companies to MSC Area
164
6.7.2 Factors Identified as Driver of Shift by
Respondents
165
6.8
Testing of Hypothesis
168
6.9
Conclusion.
176
xiii
7
CONCLUSION AND RECOMMENDATION
178
7.1
Introduction
178
7.2
Information And Communication Technologies
and Office Decentralization
179
7.3
The Focus of the Study
180
7.4
Major Findings of the Study
181
7.5
Additional Measures to Encourage Offices to
Decentralize towards MSC
7.6
183
The Implication of the Study Findings to Urban
Decentralization Policy
7.6.1
184
The Implementation of Decentralization
Policy
185
7.7
The Contribution of study to Urban Planning
186
7.8
Recommendation for Future Studies
187
7.9
Conclusion
188
REFERENCES
189
Appendices A – B
201
xiv
LIST OF TABLE
TABLE NO
TITLE
PAGE
2.1
Global Economic Cycles
23
2.2
Transition to an Information Society
27
2.3
Top 15 Developing Countries Ranked by Sum of Outbound
and Inbound Foreign Direct Investment as a Percentage of
GDP (1997-2001)
3.1
41
Growth Competitiveness and Network Readiness Index
Rankings 2003-2004
85
3.2
Cyber Cities within the MSC
86
3.3
Asia Pacific Market Sector Summary: 4th Quarter 2002
93
3.4
Loaded Cost per Person
94
3.5
Benchmark Figures of Salary for Technical Staff Employed
by MSC Status Companies
95
5.1
Owner Ship of the Firms; according to sectors
124
5.2
Private and Public Listed companies
124
5.3
Ownership of Firms
126
5.4
Nature of Business
127
5.5
Firm Size in Terms of Employees
130
5.6
Firm Size in Terms of Equity Participation
131
5.7
Time located in this area
133
5.8
Previous Location of Company
134
5.9
Division of Office
137
5.10
Back Office Separate
139
5.11
Premises Rented and Ownership (Front-Office)
140
xv
5.12
Premises Rented and Ownership (Back-Office)
141
5.13
Mode of Communication Front and Back Office
143
5.14
Use of Teleworking in a Company
145
5.15
No of Employees
146
5.16
Days of Teleworking
147
5.17
Mode of Communication with Teleworkers
147
5.18
World Class Physical and Information Infrastructure
148
5.19
Unrestricted Employment of Foreign Workers
149
5.20
Freedom of Ownership
149
5.21
Global Sourcing of Funds
150
5.22
Tax Exemption
151
5.23
Intellectual Property Protection & Cyberlaws
151
5.24
No Censorship of Internet
152
5.25
Globally Competitive Telecom Tariffs
153
5.26
MSC Infrastructure tenders for MSC Companies
153
5.27
One-stop Super Shop MDC
154
6.1
Summary of Response of Companies to Bill of Guarantees
157
6.2
Driver to Move Office from Existing Location
166
6.3
Driver to Move Back-office from Existing Location
167
6.4
Ranks
170
6.5
Provide a world-class physical and information infrastructure
171
6.6
Allow unrestricted employment of local and foreign knowledge
workers
6.7
Ensure freedom of ownership by exempting companies with MSC
status from local ownership requirements
6.8
172
Give the freedom to source capital globally for MSC infrastructure
and the right to borrow funds globally
6.9
172
173
Provide competitive financial incentives; include Pioneer Status
(100% Tax Exemption) for up to ten years or an Investment Tax
Allowance for up to five years, and no duties on the importation of
multimedia equipment.
6.10
6.11
173
Become a regional leader in intellectual property protection and
cyberlaws.
174
Ensure no censorship of the internet.
174
xvi
6.12
Provide globally competitive telecommunication tariffs.
6.13
Tender key MSC infrastructure contracts to leading companies
willing to use the MSC as their regional hub.
6.14
6.15
175
175
Provide a high-powered agency to act as an effective
one-stop super shop.
176
Summary of Mann-Whitney U test
177
xvii
LIST OF FIGURES
FIGURES NO
TITLE
PAGE
2.1
Technology Transitions and the Changing Space Economy
28
3.1
MSC- Cyber cities Area
71
3.2
Malaysia’s International IP Backbone Connectivity
89
3.3
Malaysia’s International Bandwidth Capacity
89
3.4
Office Rental Rates in other competitive areas
93
3.5
Telecommunications Rates for 2 Mbps
96
3.6
Telecommunications Rates for 34 Mbps
96
3.7
Current Operational Status
98
3.8
Paid-up Capital
98
3.9
Employment Outlook
99
3.10
Employment of Foreign Knowledge Workers
100
3.11
Technology Focus
101
3.12
Sales by Companies
102
3.13
Expenditures of Companies
102
3.14
Research and Development Expenditures
103
3.15
Profitable Companies
104
3.16
Intellectual Property Outlook
104
4.1
Research Method Flowchart
108
4.2
The Study Area
115
5.1
Cross Tabulation on Market Share and Nature of Companies
128
5.2
Cross Tabulation on Ownership and Market Share of Companies
129
5.3
Cross Tabulation of Firm Size in Terms of Employees
and Ownership
131
5.4
Cross Tabulation on Firm Size and Market Share
132
5.5
Cross Tabulation on Previous Location and Firm Size
134
5.6
Cross Tabulation on Previous Location and Ownership
135
5.7
Cross Tabulation on Previous Location and Nature of Business
136
xviii
5.8
Cross Tabulation on Office Division and Firm Size
137
5.9
Cross Tabulation on Office Division and Ownership
138
5.10
Cross Tabulation on Office Division and Nature of Business
139
5.11
Cross Tabulation of Land Lease and Ownership
141
5.12
Cross Tabulation of Land Lease and Firm’s Size
142
5.13
Cross Tabulation of Land Lease and Nature of Business
142
5.14
Cross Tabulation of Communication Mode and Ownership
144
5.15
Cross Tabulation of Ownership and Use of Teleworking
145
5.16
Cross Tabulation of Business Nature and Use of Teleworking
146
6.1
Response of Foreign and Local Companies to MSC’s Bill of
Guarantees
6.2
Response of Companies to MSC’s Bill of Guarantees by Time of
Inception
6.3
159
Response of Public Listed and Private Companies to MSC’s
Bill of Guarantees
6.4
158
160
Response of Sector wise Companies to MSC’s Bill of Guarantees 162
xviii
LIST OF ABBREVIATION
ATM
-
Asynchronous Transfer Mode
APCN
-
Asia Pacific Cable Network
APCN2
-
Asia Pacific Cable Network 2
BOG
-
Bill of Guarantee
BPO
-
Business Process Outsourcing
ADSL
-
A Symmetric Digital Subscriber Line
CBD
-
Central Business District
CCC
-
City Command & Control Centre
CCTV
-
Close Circuit Television
EDI
-
Electronic Data Interchange
E-commerce
-
Electronic Commerce
E-community
-
Electronic Community
E-economy
-
Electronic Economy
FDI
-
Foreign Direct Investment
FLAG
-
Fiber Loop Across Globe
GDP
-
Growth Domestic Product
GLC
-
Government Link Company
FIRE
-
Finance Investment and Real estate
HRD
-
Human Regional Development
IBMS
-
Integrated Business Management System
ICT
-
Information and Communication Technologies
IP
-
Internet Protocol
IPP
-
Intellectual Property Protection
ITO
-
Information Technology Outsourcing
IDN
-
Integrated Digital Network
INTA
-
International Association for Urban Development
ISDN
-
Integrated Service Digital Networks
IT
-
Information Technology
xix
ITA
-
Investment Tax Allowance
JV
-
Joint Venture
K-economy
-
Knowledge Economy
KLCC
-
Kuala Lumpur City Centre
KLIA
-
Kuala Lumpur International Airport
KLMA
-
Kuala Lumpur Metropolitan Area
KLSE
-
Kuala Lumpur Stock Exchange
LAN
-
Local Area Network
MDC
-
Multimedia Development Corporation
MESDAQ
-
Malaysian Exchange For Securities Dealing and
Automatic Quotation
MGS
-
Multimedia Super Corridor Grant Scheme
MTDC
-
Multimedia Technical Development Corporation
MMU
-
Multimedia University
MNCs
-
Multi National Corporations
MSC
-
Multimedia Super Corridor
MSCVC
-
Multimedia Super Corridor Venture Capital
MW
-
Mega Watt
NASSCOM
-
National Associate of Software and Services Company
NITA
-
National Information Technology Agenda
NITC
-
National Information Technology Council
PABX
-
Private Automatic Branch Exchange
PMSB
-
Pendinginan Megajana Sdn.Bhd
Psf
-
Per square foot
R&D
-
Research & Development
RM
-
Ringgit Malaysia
RT
-
Refrigerant Ton
SAFE
-
South Africa Far East
SCADA
-
Supervisory Control of Data Acquisition
SDH
-
Synchronous Digital Hierarchy
SMEs
-
Small and Medium Enterprises
SMW3
-
South East Asia, Middle East, Western Europe~
3 Submarine Cable Network
STILL
-
Strategic Trusts Implementation Committee
xx
S&T
-
Science & Technology
TNB
-
Tenaga National Berhad
TM
-
Telekom Malaysia
UPM
-
Universiti Putra Malaysia
U.S.A
-
United Stated of America
USD$
-
United States Dollar
U.K
-
United Kingdom
VoIP
-
Voice over Internet Protocol
VSAT
-
Very Small Aperture Terminal
WAP
-
Wireless Application Protocol
xxii
LIST OF APPENDICES
APPENDIX
A
B
TITLE
PAGE
Questionnaire of Profile Survey- information of
company and respondent
201
List of companies surveyed
205
CHAPTER 1
INTRODUCTION
1.1
Prologue-Basic Parameters
The importance of information to urban and regional economies is evident
from the continuous growth of the information sector in the economic base of all
major metropolitan cities (Newton, 1995). Networks allow cities to play global as
well as regional roles. Such technologies are facilitating a shift in resource from
production of goods to provision of services, particularly information based services
(Brotchie et al, 1995).
This increases the competition between cities for the
provision of goods and services and for the attraction of new industries, in particular
company headquarters or regional offices, associated services, new technology,
knowledge and information based services and industries (Brotchie et al, 1995).
This study focuses on the effects of such growth parameters in information
sector on office firms in the Kuala Lumpur Metropolitan Area (KLMA) because of
development of Multimedia Super Corridor (MSC).
2
This chapter gives a brief introduction on the effects of information and
communication technologies (ICT) on urban land use pattern; furthermore, it
provides an introduction to the overall structure of the thesis. This includes; the
background of this study, aims and objectives of the research, formulation of
research hypothesis, identification of research questions, application and significance
of research and the organization of thesis.
(For further elaboration on chapter
sequence, refer to section 1.9)
1.2
ICT and the Global Village
At the end of the 20th century the world has seen advancements in the field of
information technology as never before. Whereas the impact has been evident in all
development sectors; the most significant result is ICT, due to which it has now been
termed as a ‘Global Village’ in which all communities act as one and are linked by
the web of optic fiber and other means of telecommunication. Bender (1997) has
described it as the situation in the 19th century whence with the invention of
telegraph and telephone; one could speak from one side of a continent to the other
being on the line. The 20th century has seen a move towards the next cycle of
wireless and trackless radio, television, satellites and the World Wide Web (WWW).
Within this ‘Global Village’ it is possible to respond to everyone virtually in any part
of the world (Bender 1997).
In context of a city, ICT plays an important role in a country’s overall
economic development.
Information and communication have had a primary
economic and administrative role throughout the history. Twentieth century has seen
the rise of Suburbia and “non-urban” lifestyle especially in post-industrial societies.
The previous “urbane” lifestyle has been altered by the development of the virtual
world also known as ‘cyberspace’. Especially this decade (i.e.1990’s) has witnessed
3
the birth of virtual environments that are distributed by the WWW or the Internet
(Velibeyoglu, 1999).
Nowadays, new technologies have taken significance in the global world.
Technologies sometimes emerge because they are needed; that is the reason why
researchers are motivated to develop a technology because they are aware of a need
that the technology can satisfy. Often, there is a cyclical interrelationship between
technological and social issues related to the work environment. The social context
gives rise to the need for a given technology and from time to time this technology
may have social impacts that are significant enough to alter the social context, giving
rise to the need for another round of technological innovation (Kraut, 1994). The
development of ICT has made an impact on overall socio-economic fabric of a city.
Thus, there is a need for planners to explore new ways of planning strategies which
encompass the needs of today’s as well as future requirements in a city’s profile.
The notion of a computerized or virtual community is structured into four
main parts. First a review of the emergence of post-industrial society and the growth
of information networks, computers, software and hardware. Second, an outline of
the geography of high-technology manufacturing, services and globalization. Third,
the development of an information infrastructure in cities largely involving
telecommunication but also smart buildings and electronic highways. Finally, the
emergence of cyberspace and virtual communities (Brotchie, et al, (1995).
Advancements in ICT has encouraged decoupling of office activities of a firm
in many knowledge based cities. This has facilitated the offices to use high level of
technology to decentralize from city centre because of factors such as increased
travel cost to the city centre, increase in floor space rent, traffic congestion, air
pollution, image, prestige, competitive conditions, availability of labor and tradition
(Chua, 2001). Office activities can be divided in two components. First, there are
corporate headquarters or front-office functions and secondly, there are back-office
functions. The front office contains those functions that relate to organizational
4
development and marketing and as a result they rely heavily on face-to-face
communication with clients. The back office, on the other hand contains activities
that relate to routine operations such as security processing, claim payment and other
support services that do not involve direct client contact (Moss, 1999).
Large-scale information-intensive companies devote approximately 55% of
employment to headquarter activity and 45% of the employment to back-office
activity. Within the back office, the labor pool is estimated to be 75% clerical and
25% managerial or professional. In terms of space, the typical back-office employee
will occupy 14 to 15 square meter of space, while the managerial or professional
employee will occupy about 20 square meters (Moss, 1999).
A significant reason for locating back-office facilities in the periphery of a
city or in suburban location is occupancy cost. Currently, Central Business District
(CBD) rental rates are generally 20 to 50 percent higher than those found on the
periphery of a city or in a suburb. Occupancy cost, however, is strongly influenced
by factors other than existing rental rates such as area prestige, availability of skilled
labor, infrastructure, competitive conditions for business, connectivity options,
communication rates and taxes (Moss, 1999). Therefore, it is critical for planners to
research and to observe the urban shifts in the informational city. The information
revolution has begun to transform central cities and towns, travel patterns and floor
space requirements. The signals of this trend have been currently available in some
post-industrial cities in the world (Velibeyoglu, 1999).
1.3
Background of Study
The Kuala Lumpur Metropolitan Area (KLMA) with its importance in
national socioeconomic and urban development has been historically the city to be
5
equipped with extensive telecommunication infrastructures meant for socioeconomic
and administration activities. Kuala Lumpur, the largest city within the KLMA
region, is the commercial capital of the nation. Its economic catchments encompass
the entire country. It covers a total area of approximately 4,000 square kilometers. It
is estimated that the population of Kuala Lumpur in the year 2000 was 1.423 million
people and it is expected to grow to 2.2 million by the year 2020.
The per capita
GDP for Kuala Lumpur during the period 1995 to 2000 rose from RM21,157 to
RM25,968, an average annual growth rate of 6.1 percent which was more than twice
that of the national average (Malaysia, 2003).
In Malaysia, it is specially Kuala Lumpur that received latest information
and communication technology infrastructures and services such as Integrated
Services Digital Networks (ISDN) and fiber optics.
This showed that offices in
KLMA enjoy more advanced communication infrastructures and services than other
major cities in this country. This also means offices in this city could have a higher
information and communication sophistication and utilization level, which has great
impact on the decision to decentralize. Hence, offices in the city of Kuala Lumpur
could be more adaptive towards ICT applications which might influence the office
decision to locate outside the city centre area.
Due to the increasing congestion in the capital city and the global attraction
of the city as market hub in the South East Asia, new satellite towns such as
Technology Park Malaysia and Cyberjaya has been developed for the multi national
companies to locate there regional offices in this region as such companies make use
of high level modern information and communication technologies (Malaysia, 2003).
These new towns offer the best possible infrastructure and incentives by the
government to turn the economy to meet the challenges of globalization and adapt to
the knowledge based economy.
For such purpose a super corridor was developed to the south of Kuala
Lumpur which is 50 km long and 15 km wide namely the Multimedia Super
6
Corridor. In order to attract international business setups to cater the potential
market of the South East Asian region, many incentives were offered which are
defined in the policy of the MSC.
In order to keep pace with the global changing economic environment, the
government was forced to face these main challenges; Firstly, there is the need to
attract and retain technology intensive firms. Secondly, the development of high
speed telecommunication access and thirdly, to guarantee that low income residents
can have access to information at their homes.
The development of the MSC is proposed to create a high technological
environment and infrastructure that can attract national and international investors.
The aim and objective of this technology region is to replicate the economic success
in Silicon Valley, USA and also to develop applications through the use of ICT to
transform key economic sectors such as finance, insurance and real-estate sectors
(Malaysia, 2002).
1.4
Aim and Objectives of Study
Information and communication technologies are leading to the demise of
traditionally core dominated cities. What used to be a mono-centric urban fabric is
now changing to multi-centered one, interlinked by commercial belts or industrial
parks.
Countries such as India, The Philippines, China, Singapore, Australia and
Czech Republic are competing to convince information intensive firms to be located
in their cities like finance, insurance and real-estate sectors as these are the strongest
7
growing sectors in urban economies. In order to attain this goal they are offering
greater tax incentives, avant-garde infrastructure and competitive conditions.
In the context of Malaysia, the government has developed the Multimedia
Super Corridor (MSC) piloted by its development agency, Multimedia Development
Corporation (MDC) to market the real estate in such scene of global changing
economics to attract the information intensive firms. At the same time, MSC is
meant to form a cluster of information intensive local based and foreign companies
to adapt the research and development strategy in key information based areas in
order to transform the economy into a knowledge-based economy.
This study focuses on key factors through which the companies from Kuala
Lumpur are migrating to the development corridor and the driver which is the prime
mover for such shift. The hypothesis is that such a shift is taking place due to the
attraction to the Bill of Guarantees (BOG) provided in the MSC status policy.
The main purpose of this study is to identity the factors that are the reasons
for office activities to be sub-urbanized from the CBD towards the MSC area.
Furthermore, to point out the driver for such shift is another objective.
Thus, objectives of this study are as follows:
a.)
To identify the effects of technology on decentralization of the city
and the driver for such decentralization.
b.)
To identify the factors due to which the decentralization of office
spaces is taking place from the CBD of Kuala Lumpur towards the MSC area.
c.)
Analyze and assess the effectiveness of existing BOG offered by the
MSC for offices to move physically to the development area and
8
d.)
To recommend future policy direction for the existing development
policy.
1.5
Research Hypothesis
The research hypothesis is formulated thus;
“Due to advanced ICT infrastructure and incentives provided by the MSC,
global as well as local business companies are moving from the city centre of Kuala
Lumpur towards the MSC in order to get maximum output of the advanced
infrastructure and greater incentives offered by the corridor’s development policies”.
The basis for this hypothesis is that MSC is offering several incentives
through a comprehensive Bill of Guarantees in its development policy which should
be an attraction to companies that are high level users of ICT.
1.6
Research Questions
The research questions addressed in this study are:
How the sector wise migration of business companies belong to Finance,
Insurance and Real-estate sectors of economy from Kuala Lumpur towards the MSC
is taking place and what is its percentage participation to the overall equity?
9
What are the drivers of such shift for offices to migrate from the previous
location which may lead to, for instance; infrastructure, digital connectivity, low
taxes, land cost, security, labor cost, competitive conditions?
What are the responses of companies towards the Bill of Guarantees offered
in the MSC policy?
What measures should be taken in the form of infrastructure and incentives in
order to attract more global and local companies to take up the MSC status?
Thus, evaluating the influx of business and employees towards the MSC and
concluding the further measures for policy guidelines and future development for
building of a more sustainable environment by introducing information and
communications technology (ICT) in the new urbanism where technology plays a
major role in the urban economics.
.
1.7
Scope of Study
The study focuses mainly on the spatial movement of firms, physically from
KLMA towards MSC. The background information about these companies and
reasons for such movement were obtained by a questionnaire survey constructed for
such purpose. The area selected for this study has been the designated MSC area
which is 50 km long and 15 km wide stretching from Kuala Lumpur International
Airport (KLIA) to the Kuala Lumpur City Center (KLCC) housing Petronas Twin
towers..
10
The aspects that are covered by this study were the reasons for which a
company has chosen to locate in MSC and the choice of companies on the Bill of
Guarantees provided in the policy for taking up MSC development status.
Furthermore, the description of company, its size and the location time were chosen
as the determinant factors.
The aspects have been identified after a thorough
research on available literature.
The aspects being covered believed to be sufficient enough to draw
conclusion as these has been noted as the determinants of relocation of office firms
in the information age according to the literature available. The conclusion drawn is
trusted as the population chosen has diversity of major information sectors.
1.8
Research Methodology
The research methodology has been adopted as follows:
First, an extensive study was conducted on the location of firms, the drivers
for relocation in the information era, the role of cities in the new economy formed by
the information and communication technologies (ICTs) and the challenges faced
with it to remain competitive with the growth of information sectors.
Afterwards, a thorough study has been done on similar kind of studies with
the reference of the developed as well as fast developing economies in different
regions and their impact on overall world economic scene.
11
The study was further taken up in the case of Malaysia on efforts being taken
to retain information intensive firms and a background study was conducted on the
MSC and its progress up to date through published material available. Then a
hypothesis was formulated according to the review of literature.
Thus, companies were selected according to the profiles which are dealing in
business related to finance, insurance and real-estate (FIRE) as being the intensive
users of information.
Moreover, a questionnaire was developed after the study of major influential
factors on the location decision for the business conducted in today’s global
economy and the policies offered in support to attract such businesses from their
current or contemporary location.
A pilot survey was conducted of MSC status holder companies selecting a
number of 10 respondents residing in Cyberjaya area only.
For sampling design, the method of stratified random sampling was used to
select samples from the population which was of a total of 71, out of which, a
response of 30 respondents was gathered accumulating to 42.86%.
Afterwards, the data was analyzed using statistical Software for Social
Sciences (SPSS).
This software is commonly used among social sciences
researchers for its effectiveness in sorting data and convenience in running analytical
techniques. Mann-Whitney U-test technique was applied to test the hypothesis.
This technique was selected for analysis because it is a non-parametric statistical test
requiring two independent sets of data.
This technique does not require any
assumptions about the nature of the population from which the samples have been
taken.
Unlike many other significance tests, the null hypothesis in the Mann-
12
Whitney U test cannot be rejected, so there should be no consistent difference
between the two set of values. According to the analysis of the response, incentives
offered in Bill of Guarantees of MSC policy are expected to be the major attraction
for companies to move their office location for the reason of taking up MSC status.
1.9
Epilogue-Significance of Study
Sustainability has been the prime concern for the future of the cities growth.
According to the “Agenda 21” United Nations Conference on Environment and
Development the Earth Summit in Rio de Janeiro in 1992 (United Nations, 1992).
To achieve this task many countries have developed new ways of urban
decentralization to tackle problems such as traffic congestion, urban sprawl,
pollution and environmental decay (Chua, 2001).
For such decentralization, high value incentives are offered which do not only
attract the local CBD but in the era of globalization convert the newer developed
satellite towns with hi-fidelity infrastructure into a global city which, in due time, is
to attract the city centre and to convert into the centre of regional socio economics.
Generally, the findings of the study of change in the CBD due to MSC is to
benefit mostly the planning authorities on the national and regional level, policy
makers, developers, urban planners, researchers and academicians. Ultimately it is to
help in overview of the policy offered by the MSC is to evaluate the locational trend
on the choice of office activities due to incentives offered in the policy of MSC. It
will provide some guidelines to the further development of structure plan for the
Kuala Lumpur Metropolitan Area (KLMA).
13
The findings provide some basis of guidelines on reviewing office
development strategies and the impacts of office decentralization on the existing
CBD of a city. For researchers, this could be a guide for further research on the
topic. For practicing planners, this study will show some dynamics of changes into
CBD of a city and could help in formulating more comprehensive planning policies
according to the future requirements of sustainable growth.
1.10
Organization of Thesis
The thesis is divided into seven chapters as follows:
Chapter one describes the introduction to the research, the research
background, statement of issues and the introduction to the policies offered by the
MSC, leading to research objective, research hypothesis, the scope of study, the
importance of the research and finally, to the organization of thesis.
The second chapter provides an extensive literature review based on the past
and present office development pattern in the cities. Furthermore, past and current
literature on location decisions and their impact on office decentralization with
studies of the other developed city’s perception examples are conducted.
This
provides thorough background understanding of the research issue. The theoretical
framework is developed and elaborated in detail in this chapter, too.
Chapter three provides the background about the incentives offered by the
MSC and its Vision 2020 to change Malaysian economy into the knowledge based
economy. It also looks on the KLMA structure plan for the future development.
This chapter mostly highlights the policies adopted to meet the challenges for future
sustainability.
14
In chapter four, the research method is highlighted in order to achieve the
goals and objectives of research.
This includes the selection of population for
analysis, the method of analysis, the setting up of variables for the hypothetical test
and the method of testing the hypothesis.
It also shows the ways adopted to
minimize the error of data collection and also indicates the hindrances that have been
tackled with, during the course of data gathering.
Chapter five presents the analysis of the data collected and elaborates the
outcomes. It has concluded that the incentives offered in the Bill of Guarantees of
MSC policy, namely, tax exemption and world class infrastructure provision are the
primary drivers forcing the companies to move physically to the MSC. In addition,
freedom to employ foreign workers and globally competitive telecommunications
tariffs remain significant.
Chapter six is based on the testing of hypothesis on the results of the analysis
and leading to the measurement of the magnitude of decentralization of offices using
the nonparametric hypothesis testing technique of Mann-Whitney U test. The test
hypothesizing that companies are taking up the MSC status and thus locating in the
MSC due to the lucrative incentives offered in the MSC Bill of Guarantees which has
been proven true and a very significant factor for companies locating in the MSC.
Chapter seven discusses the outcomes of the research, it has been concluded
that the Bill of Guarantees offered in MSC policy is quite comprehensive. It also
concluded that there is a need to accelerate the development of public amenities such
as; telephone booths, transport and restaurants etc. Furthermore, it concludes a need
for the provision of more rental space on cheaper rental value to attract small and
medium sized companies to cluster in the MSC area. It also provides suggestions for
the future research on the topic.
CHAPTER 2
DECENTRALIZATION OF TECHNOLOGY REGIONS, GROWTH AND
CHANGE AND ITS IMPLICATION ON THE NATIONAL ECONOMY
2.1
Introduction
In the information age, setting up the economic structure in a right way for
the cities is the path towards the economic development and growth. Thus, it is not
right if the cities are being neglected in this dynamic situation (Harvey, 1997).
This chapter mainly consists of general review on the international body of
researchers, identifying the factors influencing decentralization of office space in
metropolitan areas due to ICT. It describes how ICT can add to the tendency of
office space to decentralize by division of firms into front and back offices. This
chapter also identifies the factors that influence the decision to relocate, the spatial
impacts of ICT including the role of technology in the regional metropolitan
economy. In addition, the literature also identifies the issues of foremost aspects that
generated the concept towards the task of achieving knowledge based economy.
16
2.2
Evolution of ICT -The Brunt Towards Urban Area and CBD
It is clear nowadays, that the geographical boundaries between nations are
diminishing rapidly as a result of advent advancement in the Information and
Communication Technologies (ICT) (Hamsa, 2001; Moss, 1999), the growth in ICT
sectors allows the companies to relocate in any part of the world where appropriate
conditions of political stability, favorable policies and infrastructure with manpower
are available in seeking maximum profits with lower costs.
Much of the ‘new’ urban geography has recently focused on urban form in
view of its dynamics under the influence of great technological progress. Urban
economic spaces are becoming increasingly flexible spaces in the post- Fordist era
marked by flexible specialization and knowledge-based production systems (Peck,
2000; Lees, 2002). Many writers have predicted that post-modern cities may be
represented by a centre less urban form. As ICT allows the business to decentralize
anywhere thus making the need of a central location of business insignificant (Dear
and Flusty, 1998; Dear, 2000).
Numerous studies investigating the future of financial districts have
considered the virtual configuration of electronic systems and how to deal with ways
in which information and capital flows (Sassen, 1995, 1998, 1999, 2000, 2002; Amin
and Thrift, 1995; Castells, 1993, 1996; Hepworth, 1992; Ascher, 1995; Dematties,
2000) as it is seen as a need for regions to remain competitive in the economic scene
and retain its part of capital.
A model of adaptation of new urbanity is described as the edge city, a label
that Garreau (1992) applied to the rise of population clusters surrounding suburban
office parks, is a reflection of how both transportation and communication
technologies have fostered the out migration of work and housing from central city
locations. Information technology has made it possible for many firms to move their
17
headquarters and support functions to suburban campuses; others have simply moved
their routine data-processing activities to low-cost settings, in medium-size cities,
suburban areas, or overseas. Garreau pioneered the Edge City Boundaries, which
demonstrate there are now 171 new urban cores in the U.S. outside the old
downtowns. These ‘Edge Cities’ such as; Silicon Valley, California, The Route 128
Technology Corridor in Massachusetts, Tysons Corner, Virginia, Schaumburg,
Illinois, and Irvine, California which are home to the headquarters of such world
shapers as Microsoft, Motorola, McDonalds, The Greatest Show on Earth, The
Ringling Bros and Barnum and Bailey Circus. Some of these Edge Cities are now
larger than downtown Seattle or Minneapolis. They have become the places around
which the majority of all Americans now live, work and vote. Edge Cities are not
simply American creations, they have sprung up in urban areas as diverse as London,
Paris, Toronto, Seoul, Peking, Kuala Lumpur and Jakarta. These cities are the great
drivers of wealth and jobs, worldwide ( Garreau, 1991). A report prepared for the
Office of Technology Assessment of USA in 1995 points out that information and
telecommunications technologies “are making more economic functions footloose,”
but only in regions that provide an advanced telecommunications infrastructure,
skilled labor, and good airport access (OTA, 1995).
Branscomb (1994) has discussed the possibility that communications
technologies will be the focal point for future urban growth. Cities of the future are
visualized as cluster around satellite 'up links' not at the mouth of rivers.
Alternatively, small low-cost satellite systems may free population from the cluster
syndrome and equalize communications opportunities for rural residents.
The
industrial parks of the future may advertise free satellite saucers rather than railroad
as a major attraction as they are more to be communications campuses than industrial
parks (Branscomb, 1994).
The electronic space is increasingly seen as a differentiated place that needs
to be defined as a network of relations rather than as an area with a surrounding
boundary. Whilst ICT operates flows between nodal points, it needs physical space
and will not eliminate the importance of space. These new network relations are
18
expressed as those between ‘geospace’ (contiguous territorial space) and cyberspace
or electronic space, forming a new geographical operation theatre on which global
trade networks and exchanges essentially rely (Graham and Marvin, 1995; Graham,
1998; Bakis and Roche, 2000). In conceptualizing this rational space, Graham
(2002) observes ‘dynamics of dualization’ characterized by a very powerful globallocal network between institutions.
ICT is an integrating force with which headquarters of firms can better link
different functions and production processes under a centralized management
(Sassen, 1999). In Europe since the 1980s, what Dematteis (2000) has shown is a
‘dualistic’ urbanization and a de-concentration in peri-urban settlement patterns
enveloping old metropolitan agglomerations or along corridors and a strong
concentration in selected city quarters. Both movements are highly qualitative and
site selective. This trend has led to different needs of urban spaces in different
conditions of requirements of the companies.
Some office and retailing spaces have become more obsolescent. Information
technology is changing the commercial real estate business. Adaptive re-use or
demolition will be inevitable for some commercial and business districts whose
buildings are unsuitable with the new information infrastructure. As researcher
Townsend (1998) reported, the first symptoms of urban obsolescence are already
visible in the United States.
As a perfectly good office space in Manhattan’s
Financial District sits vacant because buildings are physically unable to
accommodate modern computer and networking equipment, while modern office
space elsewhere in rented as fast as it comes to market (Micheal, Whitman and
Townsend, 1998).
Gaspar and Glaesar (1996) suggest that telecommunications are not a
substitute for face-to-face interactions, but these two forms of information
transmission are complements and if they are complements, then cities and selected
19
urban spaces should be expected to get more important as information technology
improves.
In the twenty-first century, the conditions of civilized urbanity’s needs and
requirements have changed. Now people are less dependent upon the accumulation
of things and more upon the flow of information. In the same way, geographical
centrality has become less meaningful than electronic connectivity. People are now,
less dependent upon expanding consumption of scarce resources and more upon
intelligent management. Increasingly, it has been realized that people can adapt
existing places to new needs by rewiring hardware, replacing software, and
reorganizing network connections rather than demolishing physical structures and
building new ones (Graham and Marvin, 1999).
2.3
Centralization to Decentralization.
The growing use of advanced telecommunication systems has had both
centralizing and decentralizing effects on cities. New communications technologies
have enabled firms to extend their geographic reach, to create new products and
services, and to send, receive and process information from points throughout the
world as Bangalore in India, to Silicon Valley in California, USA (Mitchell, 1999).
However, telecommunications has not reduced the value of the face to face
transactions that occur in large urban centers. In fact, as telecommunications has
facilitated the rise of the multinational firm and the increased concentration of
headquarters' functions in a handful of cities. One can argue that the few cities
providing the opportunities for face to face transactions are even more important.
Communication technologies have allowed a small number of cities to emerge as
international information and financial capitals, such as New York, Los Angeles,
London, Tokyo, Singapore and Hong Kong (Moss, 1984).
20
In the same way, the availability of digital networks opens up the possibility
of radically decentralizing physical production. It is a surprising inversion of the
taken-for-granted centralizing tendencies of the industrial revolution (Mitchell,
2003). This gives evaluation to that, what many people interpret to be a post-urban
shift might actually be a transition from traditional, core-dominated, mono-centric
cities towards complex, extended and poly-centric city regions made up of a
multitude of superimposed clusters, grids and internal and external connections
(Graham and Marvin, 1999).
Gordon and Richardson (1997) of the University of Southern California have
suggested that communication technologies are reinforcing the movement out of
cities that the automobile had initiated. The reason of being in proximity to a place
is becoming redundant, entertainment already has, and instruction is more likely to
be and in this way today’s cities continue to become less compact; the city of the
future is expected to be anything but compact.
This can be seen as advancement in telecommunication and electronic
mediation supports for urban decentralization. This gives rise to a new urban order
in which people can move back to the ‘natural’ surroundings of the countryside while
still retaining close connection with their workplaces and with the culturallyenriching aspects of city life (Graham and Marvin, 1996).
By selectively loosening place-to-place contiguity requirements, wired
networks produced fragmentation and recombination of familiar building types and
urban pattern. For example, the local bank or branch bank largely disappeared in the
early digital era; it was replaced by more decentralized access points distributed
throughout the city, that is, ATM machines and electronic home banking on desktop
computers, combined with centralized back office facilities and call centers that
provided economies of scale. According to Mitchell;
21
If you don’t want to be an easy and perpetually anxious target in a
world of networks and distributed siege, one of your best strategies is
to decentralize. Instead of concentrating your business organization in
a conspicuous downtown office tower, you might disperse it to a
collection of electronically interconnected suburban locations.
(Mitchell, 2003: 180).
In the literature on general impacts of computing and telecommunication on
land use and urban form, the most commonly expressed expectation is that their use
will lead to greater decentralization (Graham, 1996, Gordon and Richardson 1997,
Stephen and Marvin, 1999). However, it is also pointed out that telecommunication
is usually a facilitator, not a driver, of decisions about residential and industrial
location and that it can support centralization as well as decentralization.
The
example has been given that, although the elevator is considered to have made
modern skyscrapers possible, the telephone played an equally important role in
making them practical (de Sola Pool, 1977).
Although computing and telecommunications may support a relative decline
in the advantage of central location, these locations will retain a competitive
advantage due to the economic agglomeration and the existence of their massive,
already built environment (Nijkamp and Solomon, 1989).
2.4
Spatial Impacts of ICT on Urban Land Use
Although ICT has a tendency to decentralize special kind of activities it also
has the effect of centralizing in clusters where there is availability of special kind of
22
services and infrastructure. Taking a look at history, in the Kondrative cycles of
about 50-60 years, a new urban spatial division of labor emerges at the peak of each
wave (Table: 2.1). The third wave that started in 1880 was discernible by growth of
a tertiary sector heavily dependent on central-place theory based on urban hierarchies
and market areas, and in association with the direct supervision of goods and services
to customers.
The fourth wave from the 1970’s was characterized by a more
specialized quaternary sector providing services to producers such as; brokerage,
financial analysis, investment, banking, legal services, auditing, computer analysis,
etc. that saw the diffusion of Fordist mass production technologies and the scope of
services being shifted from local to regional level (Castells, 1993).
Towards the end of the 1980’s, the configuration over cities emerged to
delineate a position as nodal points and command and control centers of first-order
central places. From the 1990’s, (Table: 2.1) the fourth wave has progressed further
to extend from quaternary to quinary services in global cities with a massive
concentration of corporate headquarters. Banking and other financial activities have
been intensified and diversified in the area of specialist producer services (Wong,
2003).
23
Table 2.1: Global Economic Cycles
Wave
1
2
3
Time
1770’s/80’s 1830’s/40’s
‘Industrial
Revolution’
Textiles, potteries,
canals.
‘Hard Times’
1830's/40's 1880's/90's
Steam power and railway
era.
'Victorian
prosperity'
Trains, steamships,
machine tools ...
'Great Depression'
Electrical and heavy
1880’s/90’s engineering era.
1930’s/40’s
‘Belle Epoque’
4
5
Description & Main
Industries
Early mechanization era.
Business
Paradigm
Capital-based
local
industries.
Coal
Large firms
Steel
Giant firms,
monopoly,
oligopoly.
Oil
Multinational
firms, subcontracting,
hierarchical
control.
Microchip
and
Sustainability
Networking,
systems,
flexible
specialization,
‘community’
scale.
Electricity, cable & wire,
trams, radio …
'Great Depression' Fordist mass production
era.
Cars, trucks, tractors,
1930’s/40’s aircraft, petrochemicals,
1975’s/90’s
fertilizers.
Golden age of
growth and
Keynesian full
employment.
‘Structural
adjustment’ crisis
and worse (?)
Late 20th Century Information technology
‘global recession’ (communication and
control systems)
Next wave of
economic activity
Key
Factor
Cotton &
Iron
Environmental
technology (renewables,
recycling, zero
emissions) and
sustainable
transportation.
Source : Freeman and Perez (1988).
24
The quinary-level advanced producer services assist business to improve
efficiency and service quality, as well as, to reduce costs. They are knowledge
intensive, largely regional or global market oriented supported by extensive use of
ICT.
The informational economy developed at a global scale tends to be
concentrated at global cities, assuming a new international division of labor. In an
increasingly inter-dependent global economy, global cities on the top of
informational hierarchy tend to enjoy high concentration of informational flow and
processing (Stutz and de Souza 1998; Freeman 1998). However, the extensive use of
ICT will effect the spatial organization of business and financial operations, it is
associated with that whether the CBD is preferred as a locational choice (Wong,
2003).
Saxenian (1994) has highlighted the different ways in which a high
concentration of research and development activities in suburban regions such as the
Silicon Valley in California and Route 128 in Massachusetts can generate significant
economic growth. The emergence of new economic clusters, whether in central
cities, near university campuses, or in suburban settings, demonstrates the continued
importance of human interaction in generating ideas, products and innovation, and
the heightened role of telecommunications in enhancing the productivity of
innovative individuals and firms.
2.5
ICT and Office Development
Advances in telecommunication technology are reinforcing the centralization
of critical command-and-control functions that are information based. This is so
despite the fact most futurists believe that telecommunication technology will lead to
the demise of central cities. The popular view of communication technology is that
electronic means of communication will eliminate the need for face-to-face
transactions. Advanced telecommunication technologies, it is argued, are to facilitate
25
access to economic and business affairs, without confronting the time and psychic
costs of urban life (Moss, 1999).
To Naisbitt and Aburdene (1990), global cities will not be the largest but will
be the smartest. Another futurist Goldmark believes that with the development of
digital lifestyle new rural societies will emerge. People exercise their new freedom
to locate in small, attractive settlements that are better suited to their needs (Graham,
1996). On the other hand, social thinker Castells does not believe the idea of
electronic cottages and the disappearance of the city because of the information
technologies. To him it has both concentration and deconcentration at the same time
in a number of functions and systems (Castells, 1996).
Graham (1996) has referred to the work of Saskia Sassen related to the global
cities. The development of worldwide telecommunication networks strengthened
some existing urban centers. London, New York and Tokyo, for example, have
reinforced their central positions because of their crucial roles as global transport and
telecommunication hubs, along with their concentrations of scarce skills, social and
cultural advantages and the importance of face to face exchanges at the apex of
corporate power (Graham, 1996).
On the other hand, for some offices, decentralization of some activities
become feasible with the advanced telecommunication systems.
These systems
allow firms based in one city to be directly linked to branches and subsidiary offices
in other urban centers. In this context, computers and information technologies have
made the modern office buildings even more important as the organizational node for
generating and processing information.
This will lead to the redevelopment of
obsolete commercial structures and accelerate the growth of new office districts in
central cities, and the rise of office parks in the edge of the city (Moss, 1996).
26
2.5.1 Location Trend for Front and Back Offices
The development of telecommunications, information technologies, fast
transport and the shift to an information economy is producing further changes in
scale and form including reversal of certain previous trends. Industries, particularly
manufacturing, are moving to the suburbs for increased space and access to arterial
roads, freeways, interstate highway networks, transport hubs, component suppliers
and low income labor. Services, particularly consumer services, are expanding and
following people into the suburbs. Retail activities such as; super markets and car
retailers are also moving to the suburbs. Back offices of larger companies are
similarly moving to cheaper space and less congested roads and streets in suburban
areas.
Some activities such as producer services, which are information intensive,
for instance, as those provided by managers, administrators and the professionals, are
concentrating in the cores of the major cities, with major corporate headquarters or
offices of overseas firms. Thus, each industrial transition has seen an increase in
urban scale and population, a reversal of urban form (in some instances) and
employment location, a change in the dominant transport mode, and a change in the
level of formality of employment conditions. These transitions are listed in Table
2.2, and the associated exemplary spatial forms are represented in Figure 2.1
(Newton, Brotchie and Gipps, 1997).
According to Marchetti (1992) it is an instinctive human characteristic, that
with essentially constant travel time budgets on average, 30 minutes commuting
either way between residence and workplace the size of the city has been influenced
by the distance which can be traveled within that same time budget. Thus, with each
transition, an increase in travel speed has been provided by new technology and this
has facilitated an increase in urban scale, with transition from walking city to transit
city to automobile city to telematic city. Further substitutions of destination and
27
route as well as mode have helped maintain these travel time budgets as city size has
increased (Brotchie and Gipps, 1997).
Table 2.2: Transition to an Information Society
Transition Factor
Agricultural
Societal Transition
Industrial
Informational
Centralized with
Decentralization
Industry location
Dispersed
Centralized
Industrial process
Handcraft
Mass production
Flexible
specialization
Economic engine
Human muscle
Machines
Human knowledge
Product
Customized
Uniform
Personalized
Work conditions
Informal
Formal
Team
Dominant mode of
interaction
Face to face
Hierarchical line
Management
Information
Networks
Type of Information
Transfer at Work
Verbal
Paper
Electronic
Market orientation
Local
National
Global
Commuting Pattern
Dispersed
Focused
Dispersed
Transport Network
Minimal grid or
Ribbon
Radial
Extensive Grid
Transport Mode
Private, Walk
Public rail
Private, Car
Source: Newton, Brotchie and Gipps (1997)
28
Mega city/Virtual city
Metropolis
City
Town
Fast train
Walk
Mass transit
Telework
Car transit
Car, train, communication and
information technologies (CITs)
networks
Figure 2.1: Technology Transitions and the Changing Space Economy
Source: Newton, Brotchie and Gipps (1997)
The location of "back office" facilities is currently receiving a great deal of
public attention.
Advances in computers and in telecommunications have
accelerated the movement of routine data processing activities out of central city
locations to suburban areas and small towns where the costs of space, labor, and
energy are often lower (Moss, 1999).
Front office headquarters or activities like corporate strategy, organizational
development and marketing involve frequent client contact. As a result, front offices
tend to locate in central business districts. Back office activities, however, usually
do not involve direct client contact. Back offices perform two basic functions;
firstly, processing of the firm's transactions; and secondly, compiling and supplying
needed information.
Commonly included among back office activities are
accounting services, check and security processing, claims, payments, mail, and
stock transfers (Moss, 1999).
29
The emergence of information (data) processing centers as distinct units
within information-intensive firms has given rise to yet another subdivision of firms.
These centers are focal points for electronically storing and disseminating vast
amounts of information that no longer need to be located near other office activities.
Indeed, the spatial and energy requirements of data processing centers mandate that
they be housed in customized spaces apart from both front and back offices. They
have become specialized back offices which also is an important feature in transition
to an information society (Moss, 1999).
2.5.2 Back Office Development
Back offices are decentralized operations of service and manufacturing
companies involved in activities such as data processing, medical transcription,
publishing, customer service, telemarketing, and financial services. Because back
offices do not involve extensive face-to-face client contact, companies do not have to
locate them near their clients. Telecommunications technology transcends national
borders and permits global competition to attain the company’s data entry and back
office services offering suitable infrastructure and manpower backed up with
incentives and suitable policies (Dickstein, 1992).
The search of material written about back offices revealed that most
companies initially located most of their back offices during the 1970s and early
1980s in suburban areas that were located near large metropolitan areas. At that
time, most back offices involved bank check processing and credit card operations,
such as City Corporation of New York, USA (Moss and Dunau, 1986). In 1990’s
many American companies decided to locate their back offices overseas, primarily,
but not exclusively, in English-speaking countries located in the Caribbean, Ireland,
and Asia.
These companies offer their services as subcontractors to American
companies, creating even more competition for American communities seeking
American back offices (Voshell, 1990; Woodward, 1990).
30
Another perception is that, the new developments in telecommunications
have been permissive rather than determinative factors in office location. The fact
that technology allows the decoupling of back office activities does not in itself
reduce the desirability of CBD locations. Although telecommunications systems
make it possible for back offices to move out of central cities, other factors, such as
the desire to retain skilled labor, make it preferable that the back offices still remain
close by in metropolitan areas (Moss, 1999). In the case of developing economies
such a thing is taken as an opportunity to get these back offices to be located in their
countries in order to strengthen their economy.
Another case of intra-national back offices is the case of back offices in the
securities industry. As such offices will become more standardized and more
technologically intensive, there will be increased pressure on these firms to consider
new areas where operations can be consolidated and costs lowered.
Thus, the
insurance industry, with a geographically scattered set of agents and clients, has
established a network of back offices that corresponds to the national scale of the
market they serve (Moss, 1999).
2.5.3 Off-Shoring – Right Shoring
Offshoring can be defined as relocation of business processes (including
production or manufacturing) to a lower cost location, usually overseas. Offshoring
can be seen in the context of either production offshoring or services offshoring.
China has emerged as the preferred destination for production offshoring while India
has emerged as the dominant player in the services offshoring domain (Encyclopedia
Labor Talk, 2005). As the cost of production in China is lowest, while in India the
wages of skilled graduate personal is competitive.
Offshore outsourcing is the practice of hiring an external organization to
perform some or all business functions in a country other than the one where the
31
product will be sold or consumed. It can be contrasted with offshoring, in which the
functions are performed by a foreign division or subsidiary of the parent company.
Opponents point out that this sends work overseas, thereby reducing domestic
employment. Many jobs in the IT sectors; such as, data entry, and customer support
have been or are potentially effected (Encyclopedia Labor Law Talk, 2005).
The general criteria for a job to be offshore-able are:
a.)
The job does not require direct customer interaction;
b.)
The job can be teleworked;
c.)
The work has a high information content;
d.)
The work is easy to set up;
e.)
There is a high wage difference between the original and offshore
countries;
f.)
The work is repeatable.
g.)
The driving factor behind this development has been the need to cut
costs, while the enabling factor has been the global electronic network
that allows digital data to be accessed and shipped instantly, from and
to anywhere in the world
(Encyclopedia Labor Law Talk, 2005).
Now, as the companies are taking advantages of off-shoring they have many
choices to relocate in other countries where the suitable infrastructure is in place and
the competitive labor with good skills at lower wages is available. It is of quite
importance that the place to which the business is being off-shored is the right place
in order to gain maximum profits. Such is termed as right-shoring.
The benefits of off-shoring are not confined to lowering costs. An article in
the 2002 issue of the McKinsey Quarterly points out that companies are merely
replicating what they do at home, where labor is expensive and capital is relatively
cheap, in countries in which the reverse is true (NASSCOM, 2002).
32
One of the main advantages of off-shoring is that, it allows companies to
work round-the-clock shifts, ferrying data back and forth from one place to another
as the sun sets. For another, it allows them to rethink the way they solve IT
problems. American Express, for example, paid local programmers in India $5,000
to write some software that it needed. To have bought a software package that could
do the same job would, the company estimates, have cost it several million dollars in
United States (McKinsey, 2002).
In the case of call centers, one of the world's biggest providers of "contactcentre services", advises companies to shift simple queries offshore while retaining
the more complex ones on the same shore as the caller. It calls this process "right
shoring", and estimates that about 80% of the companies that it is working with in
Britain are planning to split their call-centre operations in this way (Dickstein, 1999).
Langdale (1985) has noted that financial institutions operating in currency
markets on a global basis have offices located in various regions so that the closing
of operations in one market overlaps with the opening of the market in the next
region. When the Tokyo market closes, Bahrain opens, and it closes when the New
York market opens (Langdale, 1985). This strategy is to keep on updated with the
latest changes in the capital value market to secure profits.
This is explained by Friedmann and Wolff (1982) in this way that world cities
are closely interconnected with each other through communications and finance, and
these regions constitute a worldwide system of control over market expansion.
33
2.6
Influential Factors on Choice of Office Location
As according to the earlier discussions, the major reason for a company to out
source or offshore the work that can be done at its original setup is to save in cost
and secure maximum profits without compromising on the quality of the work to be
done. Thus, through the literature review the factors that influence the location
decision can be categorized as; physical requirements needed to conduct business
such as; rental value and operating cost, labor cost and skill, physical requirement of
building, and connectivity, and also the incremental incentives which support the
relocation of a company are further discussed as competitive conditions, low
telecommunication rates and low taxes. This study hypothesizes that such factors are
driving the office to relocate in case of MSC as well.
2.6.1 Rental Value and Operating Cost
A significant factor in locating back-office facilities in the periphery of a city
or in suburban locations is the occupancy cost (Moss, 1999). Not all cities, however,
have a distinctive CBD peripheral area suitable for back offices, even in those that
do, noncompetitive rents may prevent these areas from being developed for back
office activities. Central city rents, even for nonprime space, tend to be 20 to 50
percent higher than those found in adjacent suburbs. On the other hand, firms within
a CBD often have long-term leases for secondary space at rental rates well below
market. Thus, relocation movements will be restricted in the short run by existing
long-term leases (Moss, 1999).
In addition to space adaptability, operating expenses that are absorbed by the
tenant are closely associated with occupancy cost. As back-office operations become
increasingly computer dependent and have evolved into 24-hour, three-shift
operations, the cost of electricity has become extremely important. Large-scale
34
computer systems require air conditioning on a year-round, round-the-clock basis.
The electrical cost is particularly significant (Moss, 1999).
The internet and private intranets are becoming a significant energy
consumer. It is estimated that to move two megabytes of data over the internet
requires the energy equivalent of one pound of coal (Phillips, 2005). Therefore,
places with ample fuel reserves and low fuel prices are bound to attract more
business.
Another expense in relocation to a suburban site is commutation time for
employees. Relocation of back-office operations to the periphery of a city is only
considered cost-effective if these areas are located in close proximity to reliable
public transportation or to good highway systems.
If this is not the case, the
increasing length of commuter time will increase labor costs (Moss, 1999).
The deregulation of the financial service industries in U.S with GrammLeach-Bliley Financial Services Modernization Act (1999) has increased competition
among banks, securities firms and insurance companies by allowing each of these
industries to enter new markets through expansion of products and services. One
result has been the widening of the scope of company back office activities. But the
purchase and installation of the advanced data processing functions necessary for the
development and introduction of new products require the infusion of large amounts
of capital. More than ever, these industries are seeking the most cost-effective
locations for their back offices (Moss, 1999).
Tied to organizational decisions regarding the degree and rapidity of backoffice movement are preferences that exist among decision makers. Some firms still
have a "local commitment" to the area in which they are situated. Thus, other factors
being equal or even somewhat unequal, a firm will remain within a city's boundaries
(Moss, 1999).
35
While in case of the new emerging areas, relevant incentives will help
overcome the problem of high rental value and operating cost.
2.6.2 Labor Skill and Labor Cost
The new information technology has increased demands for a high quality
labor force.
With the advent of micro-processing, large-volume single-task
operations are giving way to multi-task, multi-machine systems that operate on-line,
in real time. Such systems require skilled clerical personnel. Although the labor
skills needed for back office jobs have increased, the capacity of big-city public
school systems to produce qualified high school graduates has declined. Public
perception of big-city school system failures has further strengthened the appeal of
suburban and satellite city labor markets (Moss, 1999).
The basic cost of labor can be reduced with intensifying usage of ICT, given
that the sophisticated technology is in a position to improve the quality and
efficiency of labor, and enable speedy and cheaper flows of information for both
firms and individuals to operate from any location (Prud’homme, 1992; Stutz and de
Souza, 1998). Although the increased availability of telecommunication technology
and the reduction in its expense has been important, the driving force toward the
globalization of back office services are demographics and labor costs (Dickstein,
1999). Another factor leading companies to choose overseas locations for their back
offices is that the prevailing wage differential between developing and industrialized
countries continues to increase. Data entry costs in the Caribbean, China, Europe
and the Philippines are far lower than in the United States (Dickstein, 1999).
Moreover, entry-level wages in the computer field are rising faster than
inflation in the United States and job turnover is very high there (Goff, 1990).
Recognizing the shortage of programmers and fearing an escalation of labor costs as
companies compete for qualified programmers, many U.S. companies have started
to locate their software development and maintenance facilities in Ireland and in
36
developing countries as India to take advantage of the lower wages there (Ludlum
1987; Tagare 1989; Goff 1990; Brandt, 1990).
Although, English language is spoken in the West, but the vast majority of
the service jobs that are now being off shored do not require highly qualified
engineers. Multinationals may in future do original R&D in low-cost places, but for
the time being most of the jobs on the move are the paper-based back-office that can
be digitalized and telecommunicated anywhere around the world, plus more routine
telephone inquiries that are increasingly being bundled together into call centers
(NASSCOM, 2003). If off-shoring is, as McKinsey claims, a "win-win" formula for
both sides then the process is set to give English-speaking countries a significant
competitive advantage.
India looks likely to remain the most attractive off shoring destination for
some time. It sees its main competitors as China and Malaysia, but Sanjukta Pal, a
consultant with Pricewaterhouse Coopers, says that the cost of operations in India is
currently 37% lower than in China and 17% lower than in Malaysia. The Philippines
is another country that is well equipped to provide competition in the future. It
produces almost 300,000 college graduates a year, all of them English-speakers. But
they are competing against India's annual crop of around two million college
graduates, 80% of whom speak English (NASSCOM, 2003).
Big western outsourcing firms such as Accenture, EDS and IBM are
developing their own facilities abroad in order to shift more of their outsourcing
business, currently performed in the West, to offshore destinations. But the cost
advantages for the latecomers are being continually eroded. Salaries in developing
countries have been rising with the demand for skilled workers, and firms have to
invest heavily in training and facilities.
The Infosys campus in Bangalore's
Electronics City, for instance, is the equal of anything in Silicon Valley (Dickstein,
1992).
37
Within an economy the wages do not have a very significant difference as
with high-grade jobs, the saving on wages is not as high as with lower-grade ones.
According to NASSCOM an IT professional with three to five years programming
experience earns $96,000 in Britain, $75,000 in America and $26,000 in India. At
the other end of the scale, low-grade call-centre jobs that in Britain earn a salary of
$20,000 earn less than one-tenth of that in India (NASSCOM, 2003).
This concludes that, the main factor for relocation of an office or its further
division into front and back office, thus, out sourcing or off shoring work to the
places where labor is cheap is entirely for the saving of cost and increase in net
profits.
2.6.3 Physical Requirement
In case of developing economies to attract back office business such
infrastructure, that can house the modern telecommunication equipment is needed to
compete with the places where it is already in place.
Back offices with special equipment require special specifications of the
buildings they are housed in.
Large mainframe computers must be housed in
buildings capable of sustaining heavy floor loads and with floor areas of 40,000
square feet or more. Such floor size and load capacity are not commonly available in
the traditional narrow office towers found within CBDs. On the one hand, the use of
computers and communications technology has fostered the development of
buildings, sometimes referred to as "smart buildings," that utilize new engineering
and architectural concepts to meet the emerging office space demands. In other
cases, however, back office activities in general, and their information processing
component in particular, are being moved to renovated industrial, warehouse, or
38
retail buildings. Often such buildings are located within the city just beyond the
periphery of the CBD (Moss, 1999). This concludes that business on the move will
be relocating in the places where the proper infrastructure is offered and is in place.
As in the case of ICT intensive firms, the places with ample network connectivity
and digital infrastructure are bound to take advantage.
2.6.4 Competitive Conditions for an Office Firm
Studies by Stutz and de Souza (1998) and Sassen (2000) also show that use of
ICT has been seen by multinational corporations (MNCs) as the most important
element to increase their competitive advantage and to support a business unit’s
competitive strategy, and therefore performance and productivity. As the firms
simultaneously enhance their communications capacity and sophistication globally,
these firms undergo corporate restructuring and have to formulate new strategies in
order to raise their competitive advantage. ICT allows an efficient decentralization
of corporate activities by providing speedy communication lines and streamlining
product designs, processing and analyzing of business information about innovations,
markets, competitors and environmental changes, hence sharpening the competitive
edge of MNCs in the market place.
2.6.5 Connectivity
The reliability, speed and bandwidth of connectivity remains of important
concern in decision of office location. Companies having large amount of data
flowing back and forth, around the clock, cannot rely on insufficient bandwidth as
well as unreliable networks. Local or regional disconnection has emerged alongside
an uneven global interconnection in the production of urban space (Wong, 2003).
William Mitchell (1995) points out that;
39
“Low baud-rate connection puts you out in the boonies, where the
flow of information reduces to a trickle, where you cannot make so
many connections, and where interactions are less intense…. Since
the cost of high bandwidth cable connection grows with distance,
information hotspots often develop around high-capacity data sources.
Much as oases grow up around wells.”
(Mitchell,1995:1)
The comparative advantages of dense urban areas are not limited to highbandwidth access. They extend to the deployment of new information technologies
in general, since most cities that have a high concentration of information industries
such as finance, insurance, and real estate are also high-use telecommunications
customers (Guldman, 1994). Thus they need high quality network infrastructure in
place for facilitation of high-end users of ICT. It is the conclusion that reliability and
band width of connectivity thus is of significance for companies relying upon ICT to
conduct business.
2.6.6 Low Telecommunication Rates
Much more than low cost, the main advantage of shifting business operations
to low-cost areas or countries comes from a combination of lower wages and the
improvement in the quality and price of international telecommunications. With the
deployment of Voice over Internet Protocol (VoIP) the cost of telecommunication
has become cheaper in the developing regions of the world. A report by Hong Kong
Shanghai Bank Corporation (HSBC) indicates that the cost of a one-minute
telephone call from Asia to America and Britain has fallen by more than 80% since
January 2001 (McKinsey, 2003).
Therefore, low telecommunication rates are
becoming one of the influential factors for location decision of an office firm to
become able to secure more profits.
40
2.6.7
Low Taxes
Developing countries keen to attract foreign direct investment (FDI) have
typically used various preferential tax policies to be competitive. Tax holidays have
been especially prevalent in the 1980s (Mintz, 1990 and Shah, 1995) since they
provide new foreign investors a low-tax regime for a qualifying period on the
presumption that a company needs time to establish good levels of profitability.
With increased globalization, (as shown in Table: 2.3) many developing
countries have been incorporating new tax policies for multinationals to establish
headquarter, financial and trading operations in their jurisdictions. To attract FDI,
while preserving revenue by countering efforts by multinationals to shift profits from
high to low tax jurisdictions, many countries have chosen low corporate income tax
rates, low or no withholding taxes on income payments to non-residents, or low rates
applied to income earned by holding companies.
These policies seem to have
become common in the past ten years compared to traditional tax holidays incentives
(Mintz, 2004).
State and local taxes can also influence the cost of a particular location for an
office, as low taxes can increase the overall profits of a company. In the near past it
has been seen that countries seeking business being off-shored and out-sourced are
offering exemption of income tax to get more benefits of the capital investment in
branch offices and thus getting advantages in the job opportunities and development
of overall economy on a city and regional basis as in the case of China, Malaysia and
India (Nilles, 1999).
41
Table 2.3: Top 15 Developing Countries Ranked by Sum of Outbound and Inbound
Foreign Direct Investment as a Percentage of GDP (1997-2001)
Developing
Country
Rank
Outbound
FDI as %
of GDP
Hong
Kong
2
19.7
Azerbaijan
6
Singapore
9
Inbound
FDI as
%of
CIT
Rate
%
Nonresident
withholding
tax (%)
Special
Financing
Regime
Tax
Holiday
20.9
17.5
none
none
none
Exp
None
0.0
17.9
25
10
None
None
Acc
Yes
5.4
9.8
22
Div 0 Int 15
yes
Yes
Acc
None
GDP
Capital
Cost
Write
Foreign
Exchange
Controls
offs
(10 yrs)
Malta
12
0.1
12.4
35
none
yes
no
ITC
yes
Chile
13
3.2
7.8
17
Div 18 Int 35
yes
no
Acc
partial
Estonia
14
1.9
8.2
0
Div 0/26 Int
n/a
none
none
no
12.5
none
none
none
no
Div 0/15 Int
none
none
PR, Acc
yes
Yes
Acc
yes
35
Bolivia
15
0.0
9.9
25/50
Seychelles
18
1.3
7.8
40
0/10
Macedonia
19
0.0
8.9
15
Div 0/15 Int
no
0/10
(93 yrs)
Aruba
21
0.1
8.4
35
Div 5 Int 0
yes
None
none
yes
Kazakhsta
23
0.0
8.0
30
15
none
None
Acc
yes
Czech
Republic
24
0.1
7.8
28
Div 5/15 Int
none
Yes
Acc
none
Jamaica
25
Acc
none
Acc
yes
none
none
n
Malaysia
0/15
27
1.1
2.0
5.8
4.6
33.3
28
(10 yrs)
Div 0/15 Int
No (except
Yes
12.5/15
trading)
15 yrs)
yes
Yes
Div
0
Int
10/151
Bahrain
28
1.6
4.9
0
0 (46 for oil
(5-
(10 yrs)
none
none
income)
Source: Ernst and Young (2004).
Notes:
a.) Rank is among all developed and developing economies. Of top 10, developed
economies include Belgium-Luxembourg (1), Netherlands (3), Sweden (4),
Ireland (5), Denmark (7), United Kingdom (8), Finland (10).
b.) Withholding taxes apply to both dividends and interest payment unless otherwise
noted.
42
c.) Either special regime or much lower tax rate on financial income, headquarter
operations, holding companies.
d.) Exp: Expensing for qualifying assets.
Acc: Accelerated depreciation or investment allowance
ITC: Investment tax credits, including research and development.
PR: Preferential corporate tax rates for some activities, including export activities.
e.) Estonia does not tax income but taxes certain payments made by companies.
Dividends are exempt from the 26% tax rate if payments are made to non-residents
with at least 20% participation in the Estonian establishment and do not reside in a
low tax country.
f.) Macedonia’s “tax holidays” are generally similar to investment incentives in that
income that is exempt is limited to the investments made by the firm.
2.7
ICT and Cyber City in the Information Age
ICT technologies are destined to change the spatial urban scene.
As
technologies develop and become more sophisticated, the cities having the
infrastructure that can meet the requirements of the information age will be the
nucleus of the economic activities controlling the diverse operations anywhere in the
world.
By installing the latest forms of telecommunication technology in the largest
urban areas first, the dominance of these areas as the focal point for conducting
business will be reinforced (Moss, 1986). In fact, because telecommunications have
also facilitated the extension of market reach and thus the rise of the multinational
firm, cities with access to the most sophisticated telecommunication systems will
have a comparative advantage with regard to choice of information services. Frontoffice functions, reliant on direct client contact and using technology to coordinate
43
dispersed operations, are likely to become highly centralized in a small number of
information-based cities (Moss, 1999).
The comparative advantage of large metropolitan regions as the sites for new
capital investment in telecommunications should allow information-intensive cities
to maintain their economic strength as places where both face-to-face and electronic
communications are affordable and accessible. Far from proving the unmitigated
decentralizing force of technology, current events bear out Mandeville’s (1983)
conclusion that technology facilitates both centralization and decentralization of
tasks and jobs. The development of internet-related technologies is also having a
profound effect on the headquarters of major financial firms by allowing a
corporation’s headquarters office to exert a new form of control over their satellite
offices.
For instance, Bank Boston in United States uses Java, an Internet
programming language, to deploy “complex programs across a large variety and a
big number of operating systems across the world” (Stirland, 1997).
In the case of a company in Boston USA, Java programs (a computer
language) are developed at the center (where such activity remains) and deployed to
branch offices. The final effect is to concentrate decision making and control in the
city of Boston where Bank Boston is headquartered. All indications are that such
enabling technologies will soon be widely deployed. Given the heightened role of
information in a knowledge-based economy and the great value placed on high-speed
communications, the location of internet hosts suggest that urban and metropolitan
regions may avoid decline because of telecommunications technology. In the 19th
century, access to a deep-water port was essential for the growth of cities (Gaveria
and Stein, 2000) at the end of the 20th century, high-speed, reliable access to the
internet may be the critical factor in regional development. New York City, the USA
financial and cultural capital, is also home to an impressive amount of activity,
stemming from the growth of the internet and the deregulation of the
telecommunications industry (Moss, 1998).
44
The economic importance of new media to New York City has been analyzed
in a 1996 study by Coopers & Lybrand. The report stated that new media businesses
were concentrated in Manhattan, south of 41st Street, in an area known as Silicon
Alley. The study found that firms in Silicon Alley generated more than $1.04 billion
in gross revenues and provided more than 18,000 full-time-equivalent jobs (Coopers
& Lybrand, 1996). Coopers & Lybrand also found that multimedia firms considered
access to a high-quality telecommunications infrastructure to be more important in
future locational decisions than the quality of life in New York which is changing the
fabric of old urban space (Coopers & Lybrand, 1996). This points to the importance
of telecommunication and connectivity infrastructure in a developed cluster of high
end users of ICT.
Abler (1970) noted that advances in information transmission may soon
permit us to disperse information gathering and decision-making activities away
from metropolitan centers and electronic communications media will make all kinds
of information equally abundant everywhere in the nation, if not everywhere in the
world. Mulgan (1991) put it, "the re-definition of the city as a system for producing
and switching information is highly visible".
2.7.1 Planning Aspects of a Cyber City
The size and importance of a city is determined by the amounts and kinds of
information flowing into and out of it, and by the way it is interconnected with other
cities in the national information flow network (Abler, 1970). It is now widely
argued that the increasingly pervasive applications of linked computer, media and
telecommunication technologies constitute nothing less than a wholesale shift of our
economy, society and culture.
Social scientists regularly now talk of a new,
emerging 'digital age', an 'information society,' or a 'network society' (Gosling, 1997;
Castells, 1996).
Such a transition is widely believed to be a new industrial
45
revolution, a societal technological and economic shift across capitalist civilization
of similar magnitude to the industrial revolution through which every aspect of
society is transformed (Graham and Marvin, 1996).
Deregulation of the telecommunications industry in U.S has caused State and
local governments to become increasingly concerned about the effects of new
technologies on economic development in rural and urban areas (Bonnett, 1996;
Miller, 1996). However, as Graham and Marvin (1996) state that telecommunication
has been a neglected subject in urban policy making and this subject remains
neglected and immature field of policy research. Bell (1979) noted almost two
decades ago that communications infrastructure is the central infrastructure tying
together a society. Gilder (1995) further added that cities have become byproduct or
leftover baggage of the industrial era due to the continuous growth of personal
computing and distributed organizations he further said that it is directed towards the
‘death’ of the cities.
The heightened use of information technologies allows firms to centralize key
executive and decision-making functions in a handful of central cities, while
dispersing the routine, data-processing, and support activities to sites on the edge of
large metropolitan regions in the developing countries. Telecommunication systems
are not leading to the obsolescence of central cities, but are allowing the face-to-face
decisions and transactions that occur in major financial capitals to serve
geographically larger markets. The deregulation of the communication industry,
combined with advances in new technology, presents a particularly important
challenge for planners, developers, and managers of office space. Communication
and information technologies are creating new choices in office location and new
demands for office structures that can accommodate modern information systems
(Moss, 1999) specially for planners it is quite evident that they have to adopt to how
the new technologies are being absorbed in the current socio-economic setup of a
city and how to plan according to the needs of the information age with better public
policies and infrastructure in place.
46
2.7.2 Infrastructure and Network Society
The rush to build fiber optic systems in the US resembles the rush to build
railroads in the 19th century; whoever can build the first integrated network expects
to capture much of the long distance business (Johnston, 1985).
Technological advances and the new emphasis on marketplace criteria in the
provision of telecommunication services have helped not hindered large cities that
are oriented to information and financial services. For years, rural areas and small
towns have benefited from the "universal service" philosophy that encouraged
extensive cross-subsidization of telephone rates. With the advent of deregulation,
telecommunication systems will be built where the major sources of communication
traffic are located, and thus, there will be growing disparities between the
telecommunication infrastructures in cities versus that in hinterland areas (Moss,
1999).
Another important social impact of using computing and telecommunications
technology for distributed work involves changes in land use patterns. A commonly
held hypothesis is that distributed work will make it possible for people to move
even farther from central sites than they currently live, possibly leading to a net
increase in travel. Again, the empirical evidence (Nilles, 1991; Mokhtarian, 1994)
has not borne out the hypothesis that distributed work will lead to fewer but longer
commuting trips in aggregate, although no long-term evaluation has been made. A
simple theoretical model based on economic location theory Lund and Mokhtarian
(1994) suggest that even after optimal residential relocation occurs, total commutemiles traveled will generally be lower because of more widespread telecommuting,
but more research is needed to refine such a model and to test empirically.
47
2.7.3 Effects on the Contemporary Office Space
Recent studies indicate that new technologies will hurt many cities by
reducing the demand for office space.
The transformative impacts of new
information technologies upon the land-use pattern will be more obvious in the next
decades.
Architect Micheal Pittas, in his commentary of Metropolis Magazine
predicted that in less than two decades telecommuting would turn metropolitan office
districts into ‘dinosaurs,’ and he foretold the extinction of the modern office
building. Pittas himself has redesigned office buildings for companies with fewer
on-site workers and more people working from home (Marshall, 1996).
Thus decentralization of clerical jobs to back offices and information
incentive work be teleworked from home, the offices in the CBD will be left
unoccupied, completely transforming the contemporary economic structure of the
CBD.
2.8 Role of Technology in a City’s and Regional Economy
Today, new and emerging telecommunications technologies are transforming
the economic role of cities and their pattern of physical development. Many cities
have lost their roles as corporate headquarters and manufacturing centers,
The most powerful of these new economic geographies of centrality at the
inter-urban level binds the major international financial and business centers: New
York, London, Tokyo, Paris, Frankfurt, Zurich, Amsterdam, Los Angeles, Sydney,
Hong Kong, among others. But this geography now also includes cities such as Sao
48
Paulo, Buenos Aires, Bangkok, Taipei and Mexico City.
The intensity of
transactions among these cities, particularly through the financial markets,
transactions in services, and investment has increased sharply, and so have the orders
of magnitude involved. At the same time, there has been a sharpening inequality in
the concentration of strategic resources and activities between each of these cities
and others in the same country.
(Sassen, 1998) while others have attracted
information-intensive activities, such as back offices, customer service centers, and
research and development laboratories due to factors, such as; high wages of labor,
insufficient infrastructure or higher occupancy costs. Furthermore, rapid advances in
information technology pose a major challenge to city-based financial, healthcare,
and educational institutions and to cities’ roles as centers for commerce and culture
(Moss, 1998).
Other researchers subscribe to short-term benefits of IT for an individual
organization yet over that a sector’s longer-term benefit of IT is not plausible. The
technology over a long period of time clearly does produce the efficiency of
particular organization. However, efficiency does not mean profitability. Efficiency
can mean the opposite. The automation of whole industries increases the volume of
transactions executed and processed, at a lower cost per unit. Industries become
more efficient, causing organizations profits to decline (Zee, 2003). The reason for it
is that being more efficient the produce becomes surplus or from the other side it can
be said the competition to sell makes the companies to compete in the lower prices
thus taking a marginal profit.
Scott (1995) and Gottmann (1997) propose that communications technologies
work in two directions by making it possible both to concentrate and to disperse
economic activities. They write that the telephone had a “dual impact” on office
location: First, it has freed the office from the previous necessity of locating next to
the operations it directed and secondly, it has helped to gather offices in large
concentrations in special areas. Cities that were once the centers for the production
of goods are now centers for the production of information that is distributed around
the world.
49
Gross (1980) foretold that, the technologies are likely to be found first in the
largest markets.
Advantages in communication already possessed by large
metropolises will be reinforced before the advantages diffuse to smaller places
(Gross, 1980). This can be visualized that the advanced technopolis with high labor
costs, such as Silicon Valley, will be avid buyers on the electronically mediated
global labor and the Delhis, Bangalores, and Kingston of the world will be sellers.
When IT does support so-called 'dis-intermediation', directly linking consumers and
producers across distance, as is the case with many call-centers delivering routine
services on-line, their destinations tend not to be rural spaces but smaller, provincial,
cities (or, in sectors like online computer programming, far-off cities like Bangalore
in India). A city’s future as an information center depends on information-producing
activities that occur through both face-to-face and electronic communications.
Public policies that foster investment and competition in the telecommunications
industry are necessary to allow cities to retain information-intensive industries and
the residential populations necessary to support stable neighborhoods and economic
activity (Moss, 1998).
Saxenian (1994) have highlighted the different ways in which a high
concentration of research and development activities in suburban regions such as the
Silicon Valley in California and Route 128 in Massachusetts can generate significant
economic growth. The emergence of new economic clusters, whether in central
cities, near university campuses, or in suburban settings, demonstrates the continued
importance of human interaction in generating ideas, products and innovation, and
the heightened role of telecommunications in enhancing the productivity of
innovative individuals and firms.
For the past half-century, futurists and urban planners have predicted that
advances in telecommunications would bring about the economic demise of urban
centers. While many cities in the United States have experienced population loss and
economic decline as in New York and Chicago, a large number of cities and
metropolitan
regions
can
benefit
from
the
development
of
advanced
50
telecommunications networks and, particularly, the internet. In general, technology
has had mixed results with regard to centralizing and decentralizing forces (Moss,
1999).
Several countries however, have established financing regime tax policies to
attract foreign investment.
Singapore, Chile, Malta and Malaysia have created
special regimes for financial income or holding companies. In some cases, like
Estonia, Macedonia and Bahrain, the low or no corporate income taxes as well as
zero withholding taxes encourages FDI as well. Those countries with the most
significant outbound investment as Singapore, Chile and Malaysia have clearly used
their special financing regimes to encourage holding and financial companies.
However, in the case of Malaysia, stringent currency controls limit its ability to
attract FDI. What is striking about these high-FDI countries is that tax holidays are
limited to only one third of the cases as in Singapore, Macedonia, Czech Republic,
Jamaica and Malaysia (Mintz, 2004).
Forecasts that teleconferencing would make air travel unnecessary have proven
to be wildly exaggerated, as have forecasts about telework and the electronic cottage
replacing the office environment as such replacement can take place only in a limited
kind of business or in a business which is conducted by free lancers. Contrary to the
conventional wisdom, new telecommunications technologies can strengthen cities
with a high concentration of information-intensive activities and firms that depend on
both face-to-face activities and electronic communications. Many cities have distinct
advantages in an information-based economy these cities have large concentrations
of media, advertising, entertainment, educational, healthcare and financial services.
Telecommunications technologies can extend the reach of these services far beyond
their traditional physical boundaries. As these services prosper, so can the cities that
house them (Moss, 1998).
51
2.9 Conclusion
After the study of international body of researchers it can be concluded that
information and communication technologies has supported the ability to mobilize,
relocate, decentralize, forming new patterns of office functions and thus changing the
nature of urban centers.
ICT has made it possible for firms to move their headquarters and support
functions to suburban location; low cost settings; medium sized cities or even
overseas to save costs and thus making more profits. Technology regions like,
Silicon
Valley
and
Route
128
Massachusetts,
USA
have
advanced
telecommunication infrastructure, skilled labor and good airport access but with that
they also are very high cost for conducting day to day operation. Thus companies
are now shifting to lower cost areas around the world where the cost of doing
business is cheaper as in India and Philippines, while retaining the front offices in
those areas. Examples of such companies are Microsoft and Hewlett Packard.
Centralized systems are failing for two simple reasons: They cannot scale,
and they do not reflect the real world of people. The world is becoming increasingly
complex.
Companies manage supply chains in real time, while hundreds of
thousands of gamers gather in shared virtual worlds.
Much
of
the
ideas
conclude
that
computing
and
information
telecommunication technology will heighten and promote decentralization of
companies having high usage of information and communication technologies, the
best example that can be given in such context is the route 128 in Massachusetts,
USA. Although ICT are changing the way in which people work and live but there
are growing concerns with the coming up on ‘Digital Divide’ and that it may be
leading to new urban spatial division of labor.
For offices, telecommunication
technology and ICT are reinforcing the centralization of critical command and
52
control functions. Such developments are bound to give more importance to a
handful of cities that will be catering to the headquarter functions of giant multinational companies.
There is an emergence of new pattern of office functions dividing it into the
front and back office functions. This is in order to take advantage of lower cost of
labor, space, energy, etc. in low cost settlements while front offices remain in the
central cities.
The back offices are decentralized operations of service and
manufacturing companies involved in activities such as data processing, medical
transcription, publishing, customer service, telemarketing, and financial services. As
back offices do not involve extensive face-to-face client contact, companies do not
have to locate them near their clients. Telecommunications technology transcends
national borders and permits global competition to attain the company’s data entry
and back office services offering suitable infrastructure and manpower backed up
with incentives and suitable policies.
Such offices are located close by to the
metropolitan region. The reason is to be within the reach of larger labor pool in a
metropolitan area as well as having access to supporting services and other outlets.
Furthermore, the relocation of business processes such as manufacturing and
production is also moving towards lower cost location usually overseas. Such is
termed as off-Shoring, while offshore outsourcing is, to hire another organization or
company to do some or all the business other then the parent company where the
product is to be sold or consumed. Traditional belief has been that the factors
effecting the choice of office relocation; labor cost, land cost, operating cost,
infrastructure, water, electricity and community facilities. But, with the development
of information technology and its absorption in the basic business processes, the
telecommunication infrastructure, connectivity, bandwidth, speed, reliability,
telecommunication tariffs and supporting policies in place has also become very
important.
53
Much of the literature existing on advanced technology regions is from the
developed countries and not much is known in the case of developing countries with
exception of India, where the big graduate pool with lower labor cost has facilitated
the development making it the most fast growing IT sector. In other regions like
Malaysia, where conditions are different, there is a need to attract more world class
companies in competition with the Philippines and China.
An American geographer, Warren (1998) argues that projections (about
telecommunications and the future of cities) give little indication that there are
significant policy issues which should be on the public agenda as little thought is
being put towards how urban policies, plans and strategies can engage with new
technologies as ‘policy agents’ to try and help shape desired urban futures in a
purposive manner. There is a need to understand how our urban life stands in a state
of subtle, two-way, articulation with electronic interactions (Robins, 1995).
India, China and Malaysia lead the top 25 ranking, as new contenders emerge
in Asia, Europe and Latin America; high quality and low costs present challenge to
U.S and other mature markets. Countries to which white collar jobs are being offshored offer a range of attractions besides low-cost labor, creating a complex
decision-making process for companies selecting offshore locations (Kearney, 2004).
Countries competing to establish themselves as offshore destinations now offer a
broad spectrum of assets. Large-population countries such as India and China, and to
a lesser extent, Russia, Brazil and the Philippines, offer vast pools of educated
workers. At the other end of the spectrum, small, highly-developed economies like
Singapore, New Zealand and Ireland offer excellent infrastructure, education systems
and business-friendly low-risk environments that make them attractive offshoring
locations also, where Malaysia has to compete with them in the region for its share of
market (Moss, 1998).
This research focuses on this kind of new emerging areas. It also analyze
that, if the factors are the same or there are other factors involved in development of
technology region of Multimedia Super Corridor in Malaysia.
54
In view of the fact that cities are the information centers of advanced
industrial society, it is critical that we improve our understanding of how new
communications technologies are influencing the structure of services, land use, and
jobs in metropolitan regions.
As the summary, the evolving ICT’s are changing the overall economic
structure of the cities in which we live and it lead to further research on how the
technologies change the overall cities.
CHAPTER 3
MULTIMEDIA SUPER CORRIDOR IN MALAYSIAN PROSPECT
3.1
Introduction
The previous chapter has discussed factors leading to decentralization of
firms to technology regions. The growth and change in such regions and its effect on
regional economy. This chapter gives the background of such circumstances in
which Malaysian government have evaluated the Multimedia Super Corridor (MSC).
It explains the country’s vision to transform its production based economy to
knowledge based and evaluating the ICT as the foundation of K-economy, the
development of National IT Agenda (NITA).
Furthermore, it discusses the
globalizing of Kuala Lumpur as being the commercial capital city of Malaysia and
discusses the incentives offered in the MSC policy, infrastructure and global, as well
as, local competitiveness of MSC for development of economy and its progress
through analysis of Impact Survey Report by MDC. This part of the review of a
technology region in the Malaysian context, supports the basis of study hypothesis on
factors that are attracting the companies to relocate in the technology region.
56
3.2
ICT in Malaysia
As discussed in chapter two, the information, communication and
telecommunication technologies today are continuously shaping the physical and
economic development which are playing the major role on development of physical
infrastructure of cities (MDC, 2004).
The Federal Territory of Kuala Lumpur is the national commercial capital of
Malaysia and forms the core of the nation’s most populous urban region and ICT
evolution where the impact of such technologies is felt most. Furthermore, the
deregulation of ICT has made the government concerned about the effects of new
technologies on economic development of the country of which, Kuala Lumpur
forms the nucleus.
Several challenges that had to be faced by the government in this context are,
firstly, the need to attract and retain technology intensive firms.
Secondly, to
develop high-speed telecommunication access and to guarantee that even low income
residents can have access to information at their homes.
The development of MSC is aimed to create a high technological based
environment and world class infrastructure that can attract national as well as
international investments. The aims and strategies of this technology region are to
replicate the economic success in Silicon Valley, USA and also to develop
applications through the use of ICT to transform the key sectors such as the
education (smart school, distant university), commerce (E – commerce), healthcare
(telemedicine), manufacturing (E – processes) and government (paperless
administration) (MDC, 2003).
57
With the emphasis on the need for cities to develop and be competitive in the
global economic scene especially those of poor developing countries that have been
marginalized and are left outside the stream and network of global economy. This is
due to inadequate information and other factors such as economic, social and
political reasons. At the INTA28 – World Urban Development Congress meeting
under the theme “Metropolisation: Integration or Disintegration?” The Prime
Minister of Malaysia Abdullah Ahmad Badawi (2003) said,
“These cities are unable to operate successfully in the global marketplace and
fall behind. Cities need to be resilient in the face of globalization”.
The development of MSC is in regard to this vision to operate and be
competitive and sustainable in facing the challenges of global market competition.
3.3
Knowledge Based Economy
The knowledge-based economy presents the way forward to achieve
sustainable rapid growth and remain globally competitive in the medium and long
term. Malaysia has set the basic foundations of a knowledge-based economy, and to
attain such status, efforts are being made in the key areas of Human Resource
Development (HRD), Science and Technology (S&T) and Research and
Development (R&D), info-structure, financing and equity, which are fundamental to
building knowledge-based economy (Malaysia, 2002; MDC 2004). According to the
statistics the progress has been significant in increasing the information and
knowledge content in economic activities. In developing further the knowledge
based economy, the country has started the experience of such development on the
knowledge accumulated from the implementation of the MSC since 1996; and thus
the results are expected to be seen in development of basic info-structure and
58
infrastructure. This has been visualized as a key to take advantage of advances in
ICT in order to improve efficiency and productivity, thus it should be a contribution
to the increase in overall competitiveness of the economy. In addition, to enhance
the human resource development in order to provide adequate skilled and knowledge
manpower in support of knowledge-based economy, a Multimedia University
(MMU) in Cyberjaya as well as Universiti Putra Malaysia (UPM) has been
developed in line with the model of Stanford University, Silicon Valley and
Massachusetts institute of technology, Cambridge in Massachusetts, USA (Malaysia,
2002)
3.3.1
The Concept of Knowledge-Based Economy
The knowledge-based economy is one where the generation and utilization of
knowledge contribute to a significant part in economic growth and wealth creation.
In such context traditional factors of production, i.e. labor, capital, raw materials and
entrepreneurship remain important. However, knowledge is the key factor, driving
growth, creating new value and providing the basis to remain competitive with other
economies (Gentzoglanis, 2000). Information technology is its fundamental enabling
tool and its nucleus is the human capital, the capacity to create, innovate, generate
and exploit new ideas as well as apply technology and exercise superior
entrepreneurial skills (Malaysia, 2002).
The knowledge-based economy provides means to maintain sustainable rapid
economic growth and competitiveness in the medium and long term. In this context,
Malaysia has to develop the enabling tools and nurture industries that have the
potential to become knowledge-intensive.
Until the mid-1990s, the country
depended largely on capital investment to maintain economic growth.
It then
initiated the strategy to shift from an input driven to a productivity-driven mode. The
basis for this change was the declining marginal productivity of capital, reflected by
59
the increasing incremental capital output ratio. The proportion of investment to GDP
was at a high level and the country consistently experienced a resource gap making
this position unsustainable in the long term (Malaysia, 2002).
The rapid creation and dissemination of knowledge and information on the
back of advances in ICT are altering the manner in which goods and services are
produced and marketed, and investments are made.
Trade and investment
transactions are conducted on-line and are becoming increasingly virtual. This has
changed the basis and format for global and regional competitiveness and forced
developing nations in particular, to review their policies and strategies.
These
countries are opening up their markets and economies to encourage freer flow of
trade and investment as well as knowledge, technology and expertise.
The
developing economies that wish to take advantage of ICT are being wired-up at a
rapid pace to facilitate the process. The country is facing increasing competition for
its labor-intensive and lower-end manufactured products from the lower-wage and
resource-rich developing economies such as China, Indonesia and Thailand. Many
of the local manufacturers of these products have been compelled to differentiate
their products as well as refocus on specific market segments to remain competitive.
With respect to high technology and knowledge-intensive industries, Malaysia has
yet to match the competency of the more advanced economies such as South Korea,
Japan, Singapore and Taiwan (Malaysia, 2002).
To maintain its competitive edge, it was envisaged to enhance its
technological and knowledge capabilities to move into the mid-range and higher-end
products. These changes were thought to be necessary so that the manufacturing and
services sectors can lead to economic growth, the knowledge based economy
prospects provided the platform to accelerate this transition for Malaysia to lay the
foundation for the knowledge-based economy in the mid-1990s, with the launching
of the National IT Agenda (NITA) and the Multimedia Super Corridor (MSC). The
MSC is developed to create an ideal IT and multimedia environment as well as a test
ground to enable the country to be in the mainstream of activities necessary to attract
knowledge workers, technopreneurs and high-technology industries.
The basic
60
physical infrastructure, including the telecommunications infrastructure with 2.5
gigabits per second asynchronous transfer mode based backbone scalable to 10
gigabits per second in the region, was completed in mid-1999. This has enabled the
transfer of voice, image and data in excessive amount to and from this area. The five
designated cyber cities of Kuala Lumpur City Centre, Kuala Lumpur Tower,
Technology Park Malaysia, Cyberjaya and Malaysian Technology Development
Corporation- University Putra Malaysia Incubator Centre became an attraction to a
sizeable number of sophisticated businesses, large technology led companies and
R&D investments (MDC, 2003; MDC, 2004). There has also been an up-gradation
of communications and multimedia infrastructure so that it can support the rapid
flow and accessibility of information within the country and across countries at better
reliability and at competitive prices, given the increasing importance to the Internet
to support electronic as well as knowledge intensive activities (Malaysia, 2002).
3.3.2
Characteristics of a Knowledge-Based Economy
Knowledge is information that is interpreted and used by decision-makers to
meet their goals. In that, there is no additional cost when shared with other users and
others cannot be excluded from using it once it is created. Knowledge is generally
divided into two types, namely, knowledge about technology and knowledge about
attributes or tacit knowledge. The latter refers to knowledge gained from experience
and which is often a source of competitive advantage (Malaysia, 2002).
According to Eighth Malaysia Plan (2001), a knowledge based economy is
characterized as following:
i.)
Has abundant resources. Unlike most resources that deplete when used, the
knowledge input is ever expanding in tandem with technology and
innovation.
61
ii.)
No location barrier. Innovation in technology opens access to resources and
markets all over the world, creating virtual market places and organizations.
There is increased mobility of workers and capital.
iii.)
A highly educated labor force. The knowledge economy comprises a betterinformed populace as the government invests more on human development.
Workers contribute to ideas, skills and knowledge by using latest technology.
(iv)
A high level of per capita wealth. Knowledge-based investments generate
increasing returns to scale and therefore, more wealth for all.
(v)
Open cosmopolitan society attractive to global talent.
There are ample
opportunities for locals to tap foreign knowledge and learn of best business
practices as world-class infrastructure will encourage foreign investment.
The population becomes willing to accept and put into practice new ideas
and technologies and hence, local companies will become fit and fully
equipped to face global challenges.
(vi)
Well connected to other global knowledge nodes. Connectivity to the rest of
the world and technology sharing as well as technology transformation will
be made easy with the free flow of information with lower cost, and reliable
infrastructure encourage information and technology sharing.
(vii)
A shift from top-down hierarchical organizational structures to flatter
shared-structures such as networks of semi-autonomous teams.
IT
development and communications technology lead to better interaction
among workers and there is an active involvement of workers in
contributing ideas and decision-making.
(viii) Skills and knowledge are key assets. Skills and knowledge become the main
assets for the economy to gain competitiveness.
(ix)
Information and communications technologies (ICTs) are pillars of the
knowledge-based economy. Access to networking is essential in acquiring
and disseminating knowledge and the internet is a key driver of ICT
especially in the development of E-based activities, resulting in new
approaches to doing things. (Malaysia, 2001)
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3.4
Development of ICT in Malaysia
The past decade has seen rapid development of ICT sector in this country.
The necessary infrastructure and environment for the development of information
and communications technology (ICT) was in place as early as during the Seventh
Plan period to enable the country to move rapidly into the Information Age. The
National IT Agenda (NITA) was further formulated in 1996 that provided the
framework for the orderly development of the country into information and
knowledge based society by 2020.
As ICT presented the best opportunities to
increase productivity and improve competitiveness, several programs and projects
were implemented to encourage a wider diffusion of ICT in the economy. A key
initiative was the Multimedia Super Corridor (MSC), which was designated for ICT
development. In addition, a set of cyber laws was enacted to provide an enabling
environment for the development of ICT.
The main cyber law was the
Communications and Multimedia Act 1998, aimed at promoting deregulation,
streamlining licensing procedures and categories as well as facilitating market
liberalization (MDC, 2003).
In Malaysia, deregulation of ICT has made the
government to be concerned about the effects of new technologies on economic
development. Productivity in the ICT sector improves economic productivity overall
while use of ICT facilitates innovation and increases labor productivity.
Deregulation of ICT industries encourages competition and greater access across
industries and across regions because of increased investment in infrastructure.
Successful economies are more likely to have rapid diffusion of ICT, particularly in
service industries where, there is still potential of ICT absorption (Malaysia, 2001).
3.4.1
National IT Agenda
The National IT Agenda, focused on human development and leveraging on
the public-private sectors partnership. The framework was based on the balanced
63
development of three key elements, namely; people, infostructure and applications.
In order to achieve the goals of NITA, the National IT Council (NITC) launched the
Strategic Thrusts Agenda in the year 1994 with the primary objective of effectively
facilitating the migration of Malaysians and institutions into the emerging networked
global environment. For such purpose, five strategic thrust areas were identified,
namely, E-Economy, E-Public Services, E-Community, E-Learning and ESovereignty. Under the E-Economy strategic thrust area, all sectors of the economy
were envisioned to create value and wealth through the successful participation in the
emerging knowledge-driven global economy. (Malaysia, 2001; MDC, 2003; MDC
2004).
3.4.2
Developing Labor Force
The ongoing revolution in ICT led to changes taking place in the composition
of employment and in the labor market (Phillip 2003). The demand for ICT workers
comprising hardware engineers, software engineers, systems analysts, computer
programmers and technical support personnel in Malaysia has increased significantly
from 88,160 in 1998 to 108,200 in 2000. This represented a rapid growth of 10.7 per
cent per annum compared with the overall employment growth of 3.7 per cent during
the same period (Malaysia, 2001). As part of the effort to meet the rising demand for
ICT workers, particularly in the MSC area, the Multimedia University (MMU) was
established in 1998 with two campuses, one each in Cyberjaya and Melaka equipped
with high speed ATMs, multimedia learning facilities and digital libraries. The
MMU offered a range of ICT and multimedia-based courses at the both
undergraduate and post-graduate levels.
In order to meet the needs of MSC, the Government undertook a number of
initiatives to a meet the demand for knowledge workers. These included measures
introduced to increase the number of institutions of higher learning.
It was
accelerated by the awarding of MSC status to institutions of higher learning or their
64
faculties that focused on training of knowledge workers in priority areas such as ICT,
engineering and management.
To catalyze the growth of venture capital companies and draw their interest
into the ICT sector, the MSC Venture Corporation (MSC VC) was set up in 1999 as
a wholly-owned subsidiary of the MDC. The MSC VC assisted MSC-status and
potential MSC-status companies, particularly the SMEs to obtain venture capital
funding. The MSC VC launched its first fund, the MSC Venture One, in June 1999
amounting to RM120 million.
The fund targeted companies either at start-up,
growth or pre-initial public offer (IPO) stages of development. By the end of 2000,
MSC VC committed investments in 10 companies amounting to RM43 million
(MDC, 2003).
As part of the effort to move towards globally competitive performance, the
Government implemented a new policy framework for the ICT and multimedia
sector that is based on rapid transition to full competition. The pro-competition
framework is identified as the main driver of performance in terms of infrastructure
rollout, service quality and innovation, and competitive pricing. For this competitive
framework Communications and Multimedia Act 1998 has been enacted with the
purpose to regulate the converging communications and multimedia industries which
endorses competition as a means of achieving high performance (Malaysia, 2001,
MDC, 2003).
The additional measures that are undertaken to ease market entry to create a
competitive environment in ICT sectors include the implementation of a clear,
simple and practical licensing regime and minimizing licensing requirements for new
services such as ISP and Voice over Internet Protocol (VoIP) has been put in place.
To ensure fair competition, the Government has undertaken to remove user tariff
controls and enforce fair interconnect rates and practices. In addition, a research
centre has also been established which conducts studies, keep continuous tabs on the
dynamics of the global ICT industry, assist the industry in benchmarking and also
65
provides advice to the Government on policy planning in the ICT industry (MDC,
2003).
3.5
Globalizing of Kuala Lumpur Metropolitan Area (KLMA)
The rapid transformation of Kuala Lumpur and its wider urban region during
the last decade of the twentieth century demands greater critical scrutiny than it has
so far attracted. Three issues in particular motivate this profile. First, an overarching
theme is the Kuala Lumpur region as a “globalizing city”. Since the early 1990s,
Kuala Lumpur has undergone a reorientation from federal capital to aspiring national
“node” in global networks. It is this globalizing shift or global reorientation which
forms an important focus on profile. The second motivation concerns the dramatic
nature of the development of the city. Population increase, spatial expansion and
economic growth over several decades’ changes of urban landscape. The third theme
demanding attention in the Kuala Lumpur area is its emerging status as an urban
region. While urban development beyond the Federal Territory of Kuala Lumpur has
long been recognized as forming part of a broader Klang Valley urban region,
planners and policy makers are now acknowledging the existence of a more
extensive Kuala Lumpur Metropolitan Area (KLMA). The centralization of political
authority, particularly within Kuala Lumpur federal territory, has made this the locus
of ostensibly national development project (Morshidi, 2002).
As an example of new form of society and economy supported by advances
in information and communications technology, MSC urban development is: a
‘national node’ for plugging Malaysia into the global information society (Brunell,
2002).
66
3.5.1
Change in Land use Pattern.
Morshidi, Brunnel and Barter (2002) have discussed the issue of globalizing
in a research paper which shows that due to the development of larger Kuala Lumpur
towards Multimedia Super Corridor and KLCC, many of the low cost settlements are
planned towards the south of the city. Brunell has also stated that the MSC and other
major investment in information infrastructure in Malaysia are overwhelmingly
concentrated in the main national city-region (Brunell, 2002). There has been
emphasis put on the further study on the impact of such development on the existing
CBD of Kuala Lumpur and the locational trends in future. This also relates to the
supply of work force in the MSC and Putrajaya. In addition, another study by Salleh
and Lee (1999) from Malaysian Institute of Planners has also suggested taking up of
same topic for further research which looks on the migration of business as well as
clustering of ICT intensive firms in the southern corridor of Kuala Lumpur and its
implications on the City of Kuala Lumpur.
Information technology is an inevitable solution to organizing and
communicating information on urban activities through electronic systems. This
would encourage the decentralization of cities into theme satellite communities
through lessening of the need for people to commute and things to be transported
(Onyirimba and Azman, 1996). The establishment of the intelligent city of Putrajaya
as Malaysia’s new national administrative within the Multimedia Super Corridor is an
indication of the government’s commitment in this direction. This will lead to the
metropolitanisation of old cities with new cities. What used to be a single-centered
urban area will be transformed into multi-centered one, creating a metropolis, which
consists of large core cities that are linked by industrial or commercial belts. This
pattern of urbanization, which is expected to take place initially in the Klang Valley
region, will spread to other developed parts of the country in the near future (Salleh
and Lee; 1999).
The ICT and new advancements in network technology are effecting on the
city’s exiting infrastructure and shape globally. The future cities are to be built
67
around the satellite connection and reliable nodes. Malaysia although having 99.9%
satellite connection reliability (NASSCOM-McKinsey, 2002) have to compete with
India, China, Singapore, and Philippines in the region to get its share in the global
market. Back offices are the major concentration of office employees and spaces in
the digitally networked global scene where all data is stored and organized, mostly
manually. The effects of such shift on financial, investment and real state developing
institutions is very vital in terms of equity participation and should be taken into
account. How will the emerging telecommunications infrastructure effect the pattern
of urban development in large metropolitan regions? Much of our thinking about
telecommunications technologies ignores the existing social, economic and
organizational constraints within which new technologies are used.
3.5.2
Development of Cyber Cities in Malaysia
As part of the effort to attract a sizeable number of excellent technology led
companies to Malaysia through the creation of an enabling multimedia environment,
five cyber cities were being developed in the MSC. Out of those Cyberjaya is
designed and developed for living as well as working in an eco-friendly environment.
A city command centre has been set up in Cyberjaya, involving the integration of 23
systems, to function as a nucleus or city hub. In addition, Wilayah Persekutuan
Putrajaya became the new administrative capital of Malaysia where the concept of
electronic government was introduced.
3.6
Multimedia Super Corridor (MSC)
Due to increasing congestion in the capital city of Kuala Lumpur and the
global attraction of the city as market hub in South-East Asia, a super corridor was
developed to the south of Kuala Lumpur in 1996, which is 50 km long and 15 km
68
wide (Figure 3.1). MSC is information and communications technology initiatives
offered by the Malaysian Government to the economic community of the world to
setup their operations here. The creation of the Corridor is a necessary strategy for
Malaysia to realize Vision 2020, the nation’s strategy plan to elevate the country to
developed nation status by 2020 (MDC, 2004).
With this ‘avant-garde’ corridor of infrastructure, the country aims to attract
leading companies of the world to locate their multimedia industry, conduct research,
export activities and develop new products as well as technology from this base. In
addition, MSC is to create opportunities for other countries to use its facilities as a
test bed for multimedia application and as a hub for their regional operation in Asia.
The MSC is a long-term plan, fully supported by the government. Although the
government is the chief architect of the MSC Vision, its implementation is largely
driven by the private sector. The primary telecommunication provider in the MSC is
Telekom Malaysia, the principal investor and builder of the telecommunication
network.
Office buildings, apartments and houses are being constructed by a
consortium of leading property developers (MDC, 2004).
In addition, an International Advisory Panel has been established comprising
of prominent corporate leaders and renowned academicians.
The names of the
internationally pronounced corporate companies are as follows:
1. EDS Corporation.
9. Bechtel Group Inc.
2. Netscape Communications
10. Sony Corporation.
Corporation.
11. DHL.
3. Silicon Graphics World Trade.
12. Madge Networks NV.
4. British telecom.
13. Nets Inc.
5. Lucky Goldstar Group.
14. Sun Microsystems.
6. Oracle Corporation
15. BDM International.
7. Microsoft.
16. Ohmae and Associates.
8. IBM.
69
17. Compaq Computer
Corporation.
23. Acer Incorporated.
24. Softbank Corporation.
18. Siemens Corporation.
25. Toffler and Associates.
19. Hewlett Packard.
26. Motorola Inc.
20. Ericsson.
27. BCE Inc.
21. NEC.
28. NTT
22. Fujitsu Limited.
(Ibrahim and Chuan, 1998).
Malaysia has successfully moved up the value chain from agriculture to
manufacturing. The MSC is expected to take it to the next level of economic
development i.e. the knowledge based economy (MDC, 2004).
The Multimedia Super Corridor is a long-term plan that extends from 1996 to
2020 in order to meet with the challenges of information age, the implementation of
MSC vision has been divided into 3 phases. In phase 1, the MSC has successfully
been created. In phase 2, it is seen to that a web of similar corridors will be
established in all over Malaysia. It is also anticipated that a global framework of
cyber laws will be harmonized and at least 4 to 5 intelligent cities in Malaysia will be
linked to other cyber cities globally. In phase 3 Malaysia will evolve into a single
Multimedia Super Corridor, and the nation will serve as global provider for new
multimedia applications. In addition investors will benefit from a range of hard and
soft infrastructure (MDC, 2004).
70
3.6.1 The Multimedia Super Corridor
In the MSC, the interaction of foreign and local companies would create new
value through the introduction of globally competitive, cutting edge products and
services and by increasing productivity in the economy.
The MSC aimed at
catalyzing a highly competitive cluster of Malaysian ICT companies nurtured to
become world-class over time (MDC, 2004).
Companies with strong value-added activities, which were providers or heavy
users of multimedia products and services, were given MSC status and enjoyed
certain privileges and incentives offered under the Bill of Guarantees.
These
included the freedom of ownership, unrestricted employment of foreign knowledge
workers, and freedom of sourcing capital globally. They were also provided with
competitive financial incentives including income tax exemption for up to 10 years
or a 100 per cent investment tax allowance for five years (MDC, 2004).
3.6.2 MSC Policies and Incentives
In order to make MSC attractive to the local and international companies a set
of incentives is offered in the development policy of this region which is discussed
here after.
a.)
physical infrastructure, including Kuala Lumpur City Centre, Kuala
Lumpur International Airport (KLIA) and integrated logistics hub, rapid rail
link to Kuala Lumpur, a smart highway, and two intelligent garden cities,
Putrajaya and Cyberjaya.
b.)
laws, policies, and practices designed to encourage electronic commerce,
facilitate the development of multimedia applications.
c.)
High-capacity global telecommunications and logistics infrastructure
which is built on 2.5 gigabit to 10 gigabit digital optical fibre backbone and
71
using the ATM switches to provide optic fibre connection to the building.
This network has a 5 gigabit international gateway with direct links to the
US, Europe, and Japan, as well as the other nations in Southeast Asia.
d.)
High-powered one-stop shop - the Multimedia Development Corporation
created to manage and market the MSC. The MSC's mission is to create the
best environment in the world for private-sector companies to pioneer the
development and use of multimedia.
Petaling Jaya
Kuala Lumpur
Technology Park Malaysia
University Putra Malaysia
MTDC
Cyberjaya
Putrajaya
50 km
KL International Airport
KLIA
MSC Area
NOT TO SCALE
15 km
Figure 3.1: MSC- Cyber cities Area
Source: MDC (2003)
The country seeks to catalyze a virtuous circle of development among local,
regional, and international businesses. The success of one will foster the success of
72
others, creating value for the companies and generating significant improvements in
productivity and competitiveness for the country (MDC, 2003).
3.6.2.1
Bill of Guarantees
Bill of Guarantees are certain services that are offered and further guaranteed
to be provided without any hindrance and in certain case there is a flaw in the
services provided, they may be covered by heavy financial penalties.
Companies wanting to enter the MSC have to submit their applications to the
MDC for 'MSC status'. Companies with the special status are entitled to enjoy the
incentives and benefits backed by the Bill of Guarantees.
Under the Bill of
Guarantees the commitments to these companies are as follows:
a)
To provide a world-class physical and information infrastructure.
b)
To allow unrestricted employment of local and foreign knowledge workers.
c)
To ensure freedom of ownership by exempting companies with MSC status
from local ownership requirements.
d)
To give the freedom to source capital globally for MSC infrastructure and the
right to borrow funds globally.
e)
To provide competitive financial incentives; including Pioneer Status (100%
Tax Exemption) for up to ten years or an Investment Tax Allowance for up to
five years, and no duties on the importation of multimedia equipment.
f)
To become a regional leader in intellectual property protection and cyber laws.
g)
To ensure no censorship of the internet.
h)
Provide globally competitive telecommunication tariffs.
i)
To tender key MSC infrastructure contracts to leading companies willing to use
the MSC as their regional hub.
j)
To provide a high-powered agency to act as an effective one-stop super shop.
73
Although such incentives are offered in nearly all of the technology area.
These incentives are not only competitive enough in comparison with other such
models but are lucrative enough to make this technology area, an area of business
attraction for local as well as global companies. Especially the income tax allowance
as sourcing of capital is fundamental to emerging companies in the beginning to
become successful overtime with the focus on companies belonging to the sector of
information and communication technologies.
3.6.2.2 Multimedia Development Corporation (MDC)
To ensure that the MSC achieves its objectives, the government has
constituted the Multimedia Development Corporation as the agency responsible for
the implementing of the MSC and for working with companies setting up operations
there. In ensuring the overall success of the corridor, the MDC is to market the MSC
globally; help shape specific laws, policies, and practices by advising the
government; and set standards for the information infrastructure and urban
developments (Malaysia, 2001; MDC, 2004).
3.6.2.3 Financial Incentives
To attract and form a cluster of companies which are high end user of the
information and communication technologies at the periphery of the city including
new and emerging SME’s as well as developed larger companies incentives have
been offered as major attraction and offering relief for ease of doing business and
making it more profitable.
MSC has been planned to nurture local SME’s which are to develop over
time. As new and emerging IT companies need capital for nurturing the business in
the ever competitive business environment, these incentives are to be of greater
attraction as such companies are very new and at infant stage of their development.
74
Due to such a reason the financial incentives become very important as they give
them relief from taxes and payments thus increasing the capital invested.
MSC-status companies may enjoy the following financial incentives:
(a)
Five-year exemption from Malaysian income tax (Pioneer Status),
renewable to 10 years, or a 100- percent Investment Tax Allowance
(ITA) for up to five years on new investments made in MSC
cyber cities. These incentives are provided for under the Promotion
of Investment (Amendment) Act 1997.
a.)
(b)
Duty-free importation of multimedia equipment.
(c)
R&D grants for local small and medium-size enterprises (SMEs).
Tax exemption or investment tax allowance
In general, companies setting up new businesses in MSC-designated cyber
cities will receive a five-year exemption from tax on their statutory income,
renewable to 10 years. Alternatively, those new companies engaging in highly
capital-intensive activities, such as infrastructure projects, or those companies whose
multimedia activities are treated as cost centers and not as revenue-generating
businesses, will receive a 100-percent Investment Tax Allowance on investments
made in MSC cyber cities (MDC, 2004).
A company receiving the income tax exemption will enjoy full exemption
from federal income tax for five years, commencing from the date when the
company incurs their first sale after granted the MSC status. It may apply to renew
the exemption for a second five-year term. Renewal of the exemption will depend on
the company's performance in transferring technology or knowledge to Malaysia
(MDC, 2004).
A company granted an ITA is allowed to deduct 100 percent of qualifying
capital expenditures from its statutory income for five years, commencing from the
75
date on which the first qualifying capital expenditure is incurred. For companies
already operating in the country, tax incentives apply to the 'value added', defined as
the company's additional statutory income above its average income for the past
three years, or as the value of new investments made in the MSC. In addition, they
enjoy the package of other financial and non-financial incentives, such as no import
duties for multimedia equipment and unrestricted employment of foreign knowledge
workers (MDC, 2004).
b.)
Duty-free importation of multimedia equipment
The importance of technical multimedia equipment for newly established
companies in ICT sector is of utmost importance for starting the operation. The
same remains for older companies who have to keep themselves updated and
competitive with the new and emerging technologies. MSC-status companies are
allowed to import multimedia equipment duty-free, if that company in the operation
of its business uses the equipment.
The exemption applies to equipment used
directly in facilitating the operational processes of companies. But, it excludes
imports for the purpose of direct sales and trading or for use as components in
manufactured items. The application can be made directly to the MDC. MSC-status
companies engaged in value-added reselling activities, such as system integrators and
who wish to be exempted from import duties of multimedia equipment and
components will need to apply separately through the MDC. The company should
describe their business activities, estimated costs and volume of imports, and sources
of supplies (MDC, 2004).
For those exporting multimedia products manufactured in Malaysia, using
dutiable components will be eligible for a refund of the duty paid on the re-exported
components. The MDC advises companies on their eligibility for such refunds under
the existing scheme for 'Drawbacks of Import Duty' and help with the application
process (MDC, 2004).
76
c.)
R&D grants for local SMEs
Finance is a fundamental need for doing research and for the development of
new products and services. The reason being that research and development is non
profitable until matured to market and needs and careful nurturing and monitoring
for them to bear fruit. Under the 7th Malaysia Plan, the Malaysian government has
allocated 20 percent of the R&D budget to the MDC for distribution as seed capital
for SMEs in the MSC that are at least 51 percent Malaysian owned. Companies need
to apply to the MDC, if they want to avail themselves of these research and
development grants. There is a special application process for these grants (MDC,
2004).
3.6.2.4 Non-Financial Incentives
In addition to the financial incentives outlined above, MSC-status companies
also enjoy non-financial incentives such as; unrestricted employment of foreign
knowledge workers, freedom of ownership, freedom to source capital globally for
MSC infrastructure and the right to borrow funds globally and other MSC benefits
such as; intellectual property protection, cyber-laws and healthy environment (MDC,
2004).
a.)
Employment of foreign knowledge workers
The importance of ability to employ foreign workers does not only support
foreign companies to expedite their tasks in more comfortable manner but in fact, it
is beneficial as well for the local companies in order to transfer knowledge and learn
from the diverse background of experiences. Many times a company feels more
comfortable when working with people having same nationality or in other cases to
benefit from lower wages or to fill up the gap of experience requirements not
available locally. Such an incentive has been offered in other technology regions as
well and has proven to be beneficial for both companies and the technological
region.
77
According to this incentive, MSC-status companies may employ any number
of foreign knowledge workers, defined in this context as an individual possessing
any one of the following qualifications:
(a)
Five or more years' professional experience in multimedia and information
technology businesses or in a field that is a heavy user of multimedia.
(b)
A university degree (any discipline) or a graduate diploma (in multimedia or
IT) from a technical college, plus two or more years' professional experience
in multimedia or IT businesses or in a field that is a heavy user of
multimedia.
(c)
A master's degree or above in any discipline
Companies are to apply through the MDC for working visas, which permit
multiple entries, for their qualifying foreign employees. Working visas for these
foreign knowledge workers is granted for initial periods of up to five years (MDC,
2004). This benefit helps in transfer and understanding of knowledge by working
with the people from different parts of the world. Thus is a key factor for the
development of MSC to compete in the global arena.
b.)
Freedom of ownership
Freedom of ownership, here, refers to that a company may be owned by a
foreign firm regardless of the local residential requirements of ownership. This
incentive has been offered to buildup confidence in the foreign owned companies
and subsidiaries to participate fully in the development of this area. MSC-status
companies can be wholly owned by foreign legal entities. These companies need to
be incorporated in Malaysia, or in the case of a foreign company seeking to establish
a branch in the country, the company needs to register with the Registrar of
Companies (ROC), in accordance with the Companies Act of 1965. The MDC
78
assists with incorporating a company in the country or registering it with the ROC
(MDC, 2004).
c.)
Freedom to source capital for MSC infrastructure globally and the right
to borrow funds globally
International companies require dealing in international currencies. Thus in
case of Malaysia, where government controls the foreign exchange it was
inevitable to grant such freedom to companies in order to be able to market MSC
globally. Companies that are engaged in developing infrastructure for the MSC are
free to source funds globally for their investments. The Controller of Foreign
Exchange gives all MSC-status companies exemption from exchange control
requirements through the MDC.
With these foreign currency exemptions,
companies become free to execute transactions in any currency in Malaysia or
elsewhere in the world or borrow any amount from financial institutions, associate
companies, or non-residents.
(a)
Remit globally for any purpose
(b)
Open foreign currency accounts in Malaysia or abroad with no limits on the
balances, including accounts for the retention of export proceeds.
All companies have to periodically supply Malaysia's central bank, Bank
Negara Malaysia, with certain statistics on their active foreign fund flows. The MDC
assists in familiarizing companies with such reporting requirements (MDC, 2004).
d.)
Other MSC benefits
In addition to the benefits described earlier, MSC companies also enjoy the
following benefits:
79
(a)
Intellectual property protection and a comprehensive framework of cyberlaws
(b)
High quality physical and IT infrastructure
(c)
Globally competitive telecommunication tariffs and service guarantees
(d)
No censorship of the Internet
(e)
High quality, planned urban developments
(f)
Excellent educational facilities, including the region's first Multimedia
University
(g)
Green environment protected by strict zoning
In general, manufacturers of multimedia products components that wish to
qualify for MSC status need to engage in a significant amount of value-adding
activity, such as R&D or design, and employ a substantial number of knowledge
workers.
In addition, they need to locate their manufacturing, IT hub, R&D
laboratory, design centre, or operational headquarters within an MSC-designated
cyber city and establish a separate legal entity for it (MDC, 2004).
e.)
Administration.
Administration of back-hand services such as; Operating a major back-office
processing centre for internal or external transactions1; maintaining and managing
regional administrative and personnel databases for daily resource management
(MDC, 2003).
1
Financial institutions doing retail or wholesale business shall not be eligible for
MSC status. However, should they set up a separate legal entity to perform R&D in
information technology or do back-room processing, such entities may be eligible
for MSC status, subject to agreement by MDC and Bank Negara Malaysia.
80
f.)
Requirements for MSC status Companies
Having qualified for MSC status, companies have to operate according to the
following conditions to maintain their designation:
(a)
Establish a separate legal business entity for MSC-qualifying multimedia
businesses and activities
(b)
Locate selected operations within MSC-designated cyber cities complying
with the MSC environmental guidelines policies, incentives, and facilities.
Companies that set up their development facilities outside the cyber cities
also need to establish a separate legal business entity for the IT hub, R&D laboratory,
design centre, or operational headquarters, which they need to locate within an MSCdesignated cyber city. In order to take advantage of MSC benefits, foreign and
domestic companies awarded MSC status need to establish their legal business entity
within one month of being approved for MSC status (Malaysia, 2001; MDC, 2004).
3.6.3 MSC Flagship Applications
To start the development of MSC, seven flagship applications were
introduced to provide business opportunities for private sector participation. These
applications attracted international market appeal.
Countries such as Algeria,
Botswana, Lebanon, Mozambique, and Syria expressed interest in the various telehealth and electronic government applications. There are ongoing initiatives to
replicate the smart school model in a number of countries including Sri Lanka and
South Africa. For the MSC, a fibre optic backbone network covering 360 kilometers
was completed.
The backbone also involved the installation of Asynchronous
Transfer Mode (ATM) switches at Cyberjaya, Wilayah Persekutuan Putrajaya and
Bukit Jalil to support broadband multimedia applications and high speed internet
access. The MSC broadband infrastructure consisted of four major rings, each ring
81
having a bandwidth of 2.5 gigabits per second (Gbps) scalable to 10 Gbps. To
ensure the high quality of the infrastructure provided, a performance guarantee with
financial rebates was introduced in 1999 (OPP3, 2002; MDC, 2003; MDC, 2004).
3.6.4 MSC Flagship Application’s Development
The second wave flagship applications focus on attracting leading-edge
technology developers into the MSC and promoting the transfer of technology and
R&D. For such a purpose, a study has been undertaken to identify the deliverables,
timelines and milestones for the development of the second wave flagship
applications (Malaysia, 2002). This study looks into the constraints identified in the
flagship processes and makes recommendations for improvement. The second wave
flagship applications are to address issues such as cross-flagships integration to
improve first wave flagship applications pilot projects prior to roll-out.
The
development of the second wave flagship applications is to be a continuing exercise,
taking into account the latest changes in the operating environment and learning
through the experiences (Malaysia 2002; MDC, 2003). This implies to the continued
development of the MSC and its potential to develop according to the future needs.
3.7
Shared Services Development
It has been recognized from other international models of such technology
regions that good infrastructure alone is not enough in a K-economy and it requires
knowledge individuals as well, for such purpose, local graduates need to be trained in
specialized areas to make them relevant to the industry (MDC, 2003).
82
As Mohamed Arif Nun (2003) said that software skills development has
become a need as well as the ability to speak English for correspondence. He further
mentioned that workers have lack of courage and of knowledge to be self starters in
the case of Malaysian knowledge workers (Nun, 2003).
The ability to communicate in English is to help attract companies shared
services from off shore, which is a major actor in today’s leading economies. There
are massive opportunities in shared services. For the past several years, companies
globally have adopted the concept of shared services as means to reducing
operational costs, while at the same time, allowing them to focus on the core of their
businesses and improving the quality of their internal services. The need for shared
services is particularly high in the areas of ICT, human resources, supply-chain
management and logistics.
Shared services are especially relevant to the MSC
because its demand stems from the need for companies, which specialize in service
innovation and emphasize investments in increased business productivity. These are
typical of the characteristics of the companies that are operating within the MSC;
making them the perfect organizations to offer shared services (MDC, 2003).
3.7.1 Out Sourcing
As explained earlier in chapter two, outsourcing is defined as a resultsoriented shared service partnership with an external service provider. Examples of
which include, Contract Manufacturing, Business Process Outsourcing (BPO) and IT
Outsourcing (ITO). MSC is providing suitable environment for outsourcing and
shared services business. But for taking its share of business it has to compete with
India for IT services and Philippines for outsourcing (Kanan, 2003).
With the
development of technology regions in the country and having the suitable
infrastructure in place, the region is bound to attract such business in the near future.
83
3.7.1.1 Research and Development in MSC
Under Phase two, the MSC is to focus on the enhancement of existing R&D
components that are believed to turn the region into a centre for innovation within
seven years.
According to Gazie, (2003) the next stage of development will
represent the shift in industrial development between Malaysia and the region, as
when low cost source from outside the country will enable it to move up the value
chain for attracting new investments (Gazie,2003)
Due to the lack of emphasis on R&D where expenditures are low in relation
to the country’s GDP, the number of researchers per 1,000 people in Malaysia is also
equally very low. For now, the country should think of how to be innovative, and to
stretch what little R&D grants are available (Gazie, 2003).
In 2003, a total of 43 MSC Status companies were funded with commitment
of RM 92.82 million under the MGS Grant Scheme. With 570 research personnel
employed in Cyberjaya, the focus of projects is mainly on business application
software, games, edutainment, development tools, wireless applications and
biometrics. To expand the scope of research, the MSC aims to rope in large foreign
as well as local companies to help make R&D a trend of the future in Malaysia
(MDC, 2003).
While it is imperative that Malaysia needs to cultivate the R&D culture, not
just because of meeting the objectives of the MSC, but also as a long-term
sustainable practice that will eventually contribute substantially to economic
development. For such purposes, there should be more incentives offered to R&D
intensive type of companies.
In addition, the country needs advise on the
implementation processes from industry players and CEOs of companies for success
(Gazie, 2003).
84
3.8
IT Shared Service and Contact Centers
Many companies with national and global operations are beginning to
consolidate segments of their internal operations such as IT support, human resource,
financial processing and customer management from multiple locations into a single
hub serving many nations. Improving global communication facilities, desire of
companies to achieve operational efficiencies, effectiveness and a constant drive to
save on costs, further encourage this phenomenon. MSC is well positioned as a cost
effective location for such hubbing activities. The MSC is the home of the country’s
ICT industry. Many global companies have established their presence in Cyberjaya,
serving its Asia and global business process (MDC, 2003; MDC, 2004).
3.8.1 Developed Infrastructure for Shared Services
Malaysia is becoming favored site for shared services as having a developed
infrastructure to cater such business needs for global business community seeking an
ideal location for a regional hub. During the period of 1999 to 2000 the country’s
economy achieved average annual growth of 4% to 7% GDP and reached in value,
an estimated US$95 billion by 2002. Exports and imports grew consistently to
US$92 billion and US$79 billion respectively, placing Malaysia among world’s top
20 trading nations (MDC, 2004).
In its recent assessment of 102 economies of the world, the World Economic
Forum ranked Malaysia as the 29th most competitive economy in its index (Table
3.1). In readiness to participate in ICT developments, Malaysia is also rated among
the most advanced (Gazie, 2003).
85
Table 3.1:
Growth Competitiveness and Network Readiness Index Rankings
2003-2004
Country
Growth Competitiveness Networked
Readiness
Index Rankings
Index Rankings
Singapore
6
2
Hong Kong
24
18
Malaysia
29
26
Thailand
32
38
China
44
45
India
56
51
Philippines
66
69
Indonesia
72
73
Source: Global Competitiveness Report 2003-2004, World Economic Forum, (2003).
According the 2004 survey carried out for the most competitiveness location
for Outsourcing and Shared Services by Kearney, Malaysia is ranked as third most
suitable location, only behind India and China.
In A.T. Kearney's 2004 Top 12 Ranking for Offshore Location Attractiveness,
following emerge out;
a. India
g. Brazil
b. China
h. Canada
c. Malaysia
i. Chile
d. Czech Republic
j. Poland
e. Singapore
k. Hungary
f. Philippines
l. New Zealand
Shared services and outsourcing are emerging as major solution trends for
organizations competing in a globalized economy. Be it a regional call centre, IT
hub, data centre, global back-office, business processing hub or other outsourcing
base.
86
A recent survey revealed that the world’s top 100 financial services providers
have plans to relocate operations in the next five years, and a good offshore location
can share some of the US$ 356 billion to be spent in the host countries for operations
cost. The off-shoring exercise will eventually translate into a bottom line annual cost
savings of US$ 1.4 billion each for the world’s top 100 financial services companies
by 2008. Malaysia, with available infrastructure in place is set to take advantage of
such investment on the move (MDC, 2004).
3.8.1.1 Facilities Offered in MSC
To get its share of such economic activities on the move MSC is offering its
own infrastructure and facilities. It has infrastructure in place for IT Shared Services
and Support Centre operations. The region offers an environment where the quality
of service and ample office space is available (Table 3.2). In addition, various
incentives are provided to attract global companies. Furthermore, the cyber cities in
MSC are audited annually on latest intelligent cities standards to keep them
competitive (MDC, 2003).
Table 3.2: Cyber cities within the MSC
CYBERCITIES
AREA
CURRENT
OFFICE SPACE
AVAILABLE
70,001,538 m2
135,301 m2
Technology Park Malaysia
927,033 m2
140,583 m2
University Putra Malaysia-Multimedia
157,021 m2
12,808 m2
381,308 m2
219,249 m2
Cyberjaya
Technical Development Corporation
Kuala Lumpur City Center
Source: MDC (2003).
87
As the nucleus of the MSC, Cyberjaya is developed as a self-contained
intelligent city. The primary development is focused on the area known as Flagship
Zone and comprises of three main zone areas: Enterprise Zone, Commercial Zone,
and Residential Zone. The rest of the Flagship Zone (at more than 40% of its total
area) is designated for public facilities, green areas and zone for recreational
purposes.
By the year 2011, it is planned to be a city supporting a working
population of approximately 50,000 and a living population of over 120,000.
Integral to Cyberjaya is the City Command and Control Centre (CCC), which acts as
a Central Monitoring Hub to monitor, manage, and implement key services,
providing single management traffic, utilities, community facilities, municipal
services and public amenities through a seamless integration of systems and services
such as Advanced Traffic Management, Integrated Utilities Management, Interactive
Community Services and more. Options for companies locating in Cyberjaya (MDC,
2003).
A.
B.
C.
Build own building.
(a)
Foreign owned MSC company can own land 100%
(b)
Freehold land.
(c)
Own choice of contractors and consultants.
(d)
Own design and specifications.
(e)
Fast approval process.
Lease building built to specifications.
(a)
Long term lease contract.
(b)
Built to specifications.
(c)
Fast constructions period.
(d)
Choice of locations.
Lease space in managed office building.
(a)
Lease period from one year to ten years available.
(b)
Class A intelligent building.
(c)
CCTV, guarded parking, IBMS, fibre optic, PABX, broadband.
(d)
1,400,000 square feet of total office area. (MDC, 2003).
88
3.8.1.2 Multiple Communication Service Providers
Shared services centres today are faced with responsibility of supporting
higher bandwidth applications enabled by a broader variety of telecommunications
technologies, at the same time seeking for lower cost of communications services. In
the MSC, high-speed internet access using ADSL, Frame Relay, and Digital leased
Circuits and ISDN are already in place to meet a company’s requirements. The MSC
is served by infrastructure built by several telecom operators including; Telekom
Malaysia, Maxis, Maxis Net, Reach, Time, Tmnet, Jaring and TimeNet (MDC,
2003).
3.8.1.3 Internet Infrastructure and Optic Fiber Backbone
There is currently at least 987 Mbps of Internet connectivity to
USA/Canada. These and other links provide high-speed IP connectivity from the
MSC and Malaysia to other parts of the globe (MDC, 2003).
The MSC is equipped with a fully reliable and redundant fiber-optic
backbone, currently at 2.5 Gbps and upgradeable to 10 Gbps capacity SDH transport
system to ensure high-speed access for MSC-Status companies located within the
MSC area. The fibre-optic backbone is directly linked to high-capacity fibre links to
Japan, USA, and South East Asia for seamless international connectivity (Figure
3.2). Malaysia is connected to the major submarine cable systems such as SMW3,
APCN, APCN2, FLAG, SAFE and several smaller regional systems (Figure 3.3).
These cable systems land in 4 different locations throughout Malaysia. Furthermore,
Malaysia is served by more than 6 satellite teleports, one of which is located in
Cyberjaya. The abundance of resilient bandwidth is to provide companies located in
MSC with reliable and cost-effective connectivity to their offices globally (MDC,
2003).
89
UNITED STATES
ENGLAND
987.0 Mbps to United States
CHINA
SOUTH KOREA
JAPAN
TAIWAN
HONG KONG
INDIA
THAILAND PHILIPPINES
AFRICA
95.0 Mbps to Japan
MALAYSIA
SINGAPORE
INDONESIA
136 Mbps to Hong Kong/China
134.0 Mbps to Singapore
4.0 Mbps to Australia
AUSTRALIA
6.0 Mbps to South Korea
1.5 Mbps to Phillipines
51 Mbps to Taiwan
Figure 3.2: Malaysia’s International IP Backbone Connectivity
Source: MDC (2003)
2.45 Gbps to Europe,
Mid-east, South Asia
SMW 3, FLAG
UNITED STATES
9.1 Gbps to America
TPC-3, CHN-US,JPN-US
ENGLAND
AFRICA
CHINA
2.6 Gbps to Japan,
APCN, APCN2
JAPAN
TAIWAN
HONG KONG
INDIA
THAILANDPHILIPPINES
MALAYSIA
SINGAPORE
INDONESIA
2.3 Gbps to Africa,
South Asia
SAT 3/WASC/SAFE
10.23 Gbps AUSTRALIA
to Asia,
Pacific countries
APCN 2
Approx. Outgoing Bandwidth
from Malaysia = 26.68Gbps
Figure 3.3: Malaysia’s International Bandwidth Capacity
Source: MDC (2003).
In Cyberjaya, all enterprise buildings are connected to the local loop exchange
facilities via SDH transport rings, thus providing diversity even in the local loop
(MDC, 2003).
90
3.8.1.4 IP Transit Services
The MSC is equipped with Telekom Malaysia’s International Internet
Exchange Facility called EastGate. EastGate is to enable domestic and regional ISPs
and bandwidth-intensive users with IP transit services to connect with various
countries including Japan and USA. EastGate’s Tier-1 Internet facility provides
direct, high-speed, reliable and seamless Internet connectivity to Japan, USA and
South East Asia with minimum aggregate bandwidth around 400 Mbps. Besides
direct 290 Mbps (3x3T3 and 1xSTM1) fibre links to USA this facility is also
connected to Japan’s A-Bone network bandwidth capacity of 51 Mbps and thereafter
to Pan-Asian Internet network connecting more than 9 countries with near zero
millisecond IP packet delays (MDC, 2003).
In the MSC companies are also allowed to own and operate their own private
network using Very Small Aperture Terminal (VSAT) technologies.
This
technology can complement fixed fibre network to ensure seamless connection
(MDC, 2003).
3.8.2 MSC Performance Guarantee
MSC gives superior provision of public services to the companies taking up
the MSC status, specially the ones that are to reside their office in Cyberjaya, the
nucleus of the Multimedia Super Corridor (MDC, 2003).
3.8.2.1 Telecommunications
National carriers Telekom Malaysia Bhd. And Maxis Communications Bhd.
have committed to provide their services to 99.9% of availability to MSC-Status
91
companies. The MSC performance guarantee is offered without premium to MSCStatus companies located within the designated cyber cities. Any service requested
is to be installed within the agreed timeframe and is backed by financial penalties
(MDC, 2003).
3.8.2.2 Power
Tenaga Nasional Bhd. (TNB), with the generation capacity of more than
7,500 MW is responsible for provision of electricity in MSC.
The electricity
network guarantees, system reliability and power quality in prime development
areas, especially in Kuala Lumpur City Centre, Putrajaya and Cyberjaya.
The
assurance is evident in Cyberjaya, the nucleus of the MSC, through implementation
of multiple source contingencies, redundancies in every network and high-end
operation using SCADA.
Performance guarantees with financial penalties are
offered to companies having MSC-Status operating within Cyberjaya. In addition,
TNB is also able to provide with a service availability of more than 99.9% to
companies located in Cyberjaya (MDC, 2003).
3.8.2.3 Chilled Water
Pendinginan Megajana Sdn. Bhd. (PMSB) is the sole provider of district
cooling service in Cyberjaya. Its current production capacity is 20,000 Refrigerant
Tones (RTs).
The use of district cooling system instead of conventional air-
conditioning has distinct advantages:
a.)
Substantial capital savings from reduction in manpower, electricity and water
costs
92
b.)
Reduced building infrastructure with the omission of cooling towers and
chiller plant rooms, thus enabling more office space and innovative building
design
c.)
Reduced overall operation and maintenance, thus enabling focus on core
businesses
Performance Guarantees with Financial Penalties are offered to direct clients
of PMSB having operating within Cyberjaya (MDC, 2003) but this facility does not
seem popular as it is not in operation as from the companies, located in MSC, point
of view the cost is much higher then setting up of conventional ways of heating and
cooling systems individually.
3.8.2.4 Competitive Cost of doing Business
In today’s global competitive market scene, companies seek to cut down their
costs of doing business in order to gain maximum profits by outsourcing to places
where overall costs such as labor and operational costs are lower. This includes low
office space rentals, labor costs, labor ability and their potential, low
telecommunication tariffs in addition to good and reliable infrastructure (MDC,
2003).
3.8.2.5 Office Accommodation and Land Lease
The description of office rentals rates compared to Cyberjaya in MSC are
hereunder shown on the regional basis which shows that the rates in Cyberjaya are
the third cheapest in the region (figure 3.4) followed by the rental rates in India.
Office rentals in Malaysia are one of the lowest in the region.
93
Office Rentals Rate
US$ psf
Cyberport
HK
S'pore
Science
Park
Intl
Business
Park, S'pore
Cyberjaya
ITP
Banglore
Hyderababd
3
2.5
2
1.5
1
0.5
0
Figure 3.4: Office rental rates in other competitive areas.
Source: MDC (2003).
The Table 3.3 shows that there are quite a high number of vacancies in the
Golden Triangle, CBD area of Kuala Lumpur. As many of the old buildings cannot
house the latest equipment and workstations which need special floor to ceiling
heights and raised floor systems to accommodate cables and other services.
Table 3.3:
Asia Pacific Market Sector Summary: 4th Quarter 2002
Kuala Lumpur Office2
Retail
Residential
Vacancy
20.3%
8.7%
2.0%
Yield
7.5%
10.3%
8.5%
Source: Information compiled by Jones Lang LaSalle, (2002)
3.8.2.6 Payroll
Surveys undertaken by MDC have indicated that the average cost of
employing a person for the ICT industry in Malaysia is approximately one-fifth of
2
Refers to the Kuala Lumpur CBD and Golden Triangle office market.
94
that in the United States (Table 3.4). Malaysia is also in a cost competitive position
as compared to other countries in Asia-Pacific. In addition, the supply of a talented
workforce and quality infrastructure makes the MSC competitive in the region.
Table 3.4: Loaded Cost per Person
Country
Staff Cost (US$)
As % of USA
Japan
78,609
123%
USA
63,743
100%
Hong Kong
43,267
68%
Korea
39,775
62%
Gulf
35,713
56%
Taiwan
32,310
51%
Singapore
30,482
48%
Malaysia
12,490
20%
India
6,065
10%
Source: MDC (2003).
The salaries of the technical staff are shown in Table 3.5 as standardized in
the MSC area. MSC assures the hiring of employees on these benchmark rates. It
also shows that the engineers in different fields are the highly paid employees in
MSC designated areas.
95
Table 3.5:
Benchmark Figures of Salary for Technical Staff Employed by
MSC-Status Companies
Staff
Salaries (RM)
CTO
7,050
Electronic Engineer
5,287
Mechanical Engineer
5,542
Software Engineer
5,422
Quality & Security Engineer
6,133
Design Engineer
4,583
Product Engineer
3,882
Application Engineer
3,021
IT Engineer
4,470
System Designer
1,750
Web Designer
3,121
Graphics Designer
2,083
Technical Writer/Translator
2,350
Solution Specialist
2,719
Software Architecture Specialist
3,300
Database Specialist
4,400
Product/Technical Manager
4,590
R&D Executive
1,875
Technical Executive
2,250
Content Developer
1,325
Source: MDC (2003)
3.8.2.7 Telecommunication Tariffs
Global competitive Telecom tariffs is of main concern for the knowledge
intensive company, reason being that their entire business depends on
telecommunications.
MSC Telecom Tariffs is a financial incentive provisioned
96
under the Bill of Guarantee to all MSC-Status companies residing in the cyber cities.
The tariffs offered are globally competitive against other similar regional initiatives.
Telecommunication rates for 2Mbps are the cheapest in relation to that of India and
Singapore, when compared to the rates in place in South East Asia, Japan, Europe
and USA (Figure 3.5). The same for 34 Mbps high band width remains the cheapest
in comparison with Singapore, India, UK and France (Figure 3.6). MDC facilitates
the telecom tariff benchmarking with the service providers periodically and
simultaneously monitor the market trends closely. MSC tariffs are revised twice a
year by the telecommunication service providers to ensure they remain globally
competitive. Companies with MSC- Status and located in the designated MSC
Cyber cities benefit from the globally competitive telecommunication tariffs (MDC,
2003).
Telecommunications Rates for 2Mbps
RM per month
200000
150000
MSC Tariff
Singapore
100000
India
50000
0
South East
Asia
Figure 3.5:
Japan
Europe
USA
Telecommunications Rates for 2 Mbps
Source: MDC (2003)
Telecommunications rates for 34 Mbps
RM per month
50000
40000
30000
20000
10000
0
MSC Tariff
Figure 3.6:
S'pore
India
UK
Telecommunications Rates for 34 Mbps
Source: MDC (2003)
France
97
3.9
An Overview of MSC and its Progress
The MSC project was started in 1996 replicating the model of Silicon Valley
in USA for the purpose of transferring production based economy to knowledge
based one. To measure the progress of it MDC conducts periodic surveys, the MSC
impact Survey 2004 was conducted by the agency in order to evaluate the progress of
the region.
The findings of the Survey provide an in-depth reflection on the
employment opportunities created, the economic contribution and the technological
impact made by MSC status companies in the previous seven years.
Out of a total of 973 companies which were awarded the MSC status prior to
2004, 716 companies were targeted for this survey. A total of 667 or 93% of the
targeted companies responded to the agency. Thus, the response rate was adequate
enough for evaluation.
3.9.1 Companies Outlook
To evaluate the current situation and measure the growth of overall MSC
status companies a comprehensive evaluation was made. Out of a total of 665
respondents, 330 indicated that they are already in the growth stage where they have
been able to successfully commercialize their products and services, already in
expansion stage and may or may not be making profits (Figure 3.7). 66 companies
indicated that they are currently looking at the possibility of making their companies
afloat on the stock market within one year.
98
No of Companies
Multinational or
Subsidiaries thereof
350
300
250
200
150
100
50
0
Post IPO
Pre IPO
Growth
Start-up
Seed
2004
Figure 3.7: Current Operational Status
Source: MDC (2004)
Furthermore, evaluation of companies’ size was evaluated on benchmark of
paid up capital. Thus, according to the response of 654 companies to the question on
paid-up capital. Figure 3.8 indicates that approximately 14% of the respondents have
a paid-up capital amounting to more than RM5 million, whilst 30% of the companies
have paid-up capital of between RM0.5 million to RM5 million. This shows that
MSC companies are, still largely made up of small and medium sized companies
with paid-up capital of less than RM500,000; having the percentage of 56%.
No of Companies
400
>RM 5 Million
300
>RM 1 to RM 5
Million
200
RM 500K to RM 1
Million
100
< RM 500K
0
2004
Figure 3.8: Paid-up Capital
Source: MDC (2004)
99
3.9.2 Employment Outlook
In this section of survey report, an evaluation was made of the current
employment statistics in MSC status companies. These regions has played a major
role in decentralization of high end knowledge based jobs from Kuala Lumpur in
Malaysian context and have attracted many foreign knowledge workers, mostly from
Asia. Thus, the transfer of knowledge from different regions is evident.
According to the survey 620 companies reported that they employed 19,061
employees in 2003 which translates into an average of 30.7 employees per company.
It is predicted that total employment figure is expected to increase by approximately
17% by the year 2005 to 22,293. It was found that more than 85% of the staff
employed can be categorized as knowledge workers holding high value jobs. Of the
19,061 people employed more than 16,000 are classified as knowledge workers.
82% of these knowledge workers are Malaysians (Figure 3.9).
No of Employees
25000
20000
Total
Non K-Worker
15000
Creative Employee
10000
Technical
Managerian
2004
2003
2004
2003
2004
2003
2004
2003
2004
0
2003
5000
Figure 3.9: Employment Outlook
Source: MDC (2004)
All MSC status companies are given the privilege of hiring unlimited number
of foreign knowledge workers from overseas. This incentive was meant to address
100
the gaps in terms of supply of knowledge workers in critical areas. A total of 2,872
foreign knowledge workers were employed as at May 2004. The ratio of knowledge
workers to the total employment has decreased from 16% as at May 2003 to 15% in
May 2004 as the confidence of the foreign companies develops on the Malaysian
knowledge workers. India continued to be the major exporter of foreign knowledge
workers in the MSC with 1,470 of them employed by MSC status companies (Figure
3.10).
No of Employees
2000
Others
South America
1500
Other Asians
Oceania
1000
North America
Middle East
500
Europe
0
ASEAN
2004
Africa
Figure 3.10: Employment of Foreign Knowledge Workers
Source: MDC (2004).
3.9.3 Technology Focus
MSC is developed as a technology region, to have clusters of knowledge
intensive companies in this area. For such a purpose companies are clustered into 7
broad categories (Figure 3.11) which are narrowed down to more specific
differentiations ranging from software development to wireless technologies. Of the
661 respondents, the most prevalent cluster was industry/vertical applications with
426 companies (64%) affirming to be involved in that activity (Figure 3.12). A
substantive representation in all sectors of the ICT industry is a crucial factor in
contributing to the success of the Corridor. The MSC has experienced an increase in
101
the number of companies offering a wide variety of ICT related products and
services.
No of Companies
System Tools & Utilities
450
Shared Services &
Outsourcing
400
350
Technology Blocks
300
250
Infrastructure Systems
200
150
Industry/Vertical
Applications
100
Enterprise Applications
50
Content Development
0
Figure 3.11: The Technology Focus of MSC
Source: MDC (2004)
3.9.4 Financial Outlook
To measure the overall profits and investments in the area, an evaluation of
financial outlook has been made. According to the MSC impact survey report, in
2003, a total of 479 companies showed a sales value of RM5.86 billion (RM12.2
million per company).
An approximation of RM6.78 billion in sales has been
forecasted by 436 companies for 2004 (Figure 3.12).
102
RM Billions
7
6
5
4
Export Sales
Local Sales
3
Total
2
1
0
2003
2004
Figure 3.12: Sales by Companies
Source: MDC (2004)
The companies experienced an increase in their total expenditure (Figure
3.13). In 2002, 464 companies reported to have spent RM3.61 billion (RM7.8
million per company). The amount increased to RM4.63 billion in 2003 reported by
539 companies, with an average of RM8.6 million per company, which is 10%
increase over that of 2002).
RM Billions
5
4.5
4
3.5
3
Capital Expenditure
Operational Expenditure
Total Expenditure
2.5
2
1.5
1
0.5
0
2003
Figure 3.13: Expenditures of Companies
Source: MDC (2004)
2004
103
A total of RM428 million, based on 343 companies, was spent on R&D in
2003 i.e.
RM1.25 million per company.
This total amount was 66% higher
compared to the amount spent in 2002 (Figure 3.14) i.e. RM258 million by 309
companies which equals to. RM0.83 million per company). This was slightly lower
compared to the projected figure for 2004 in year 2003 survey which was RM542
million as of 409 companies i.e. RM1.33 million per company). An approximation
of RM619 million in R&D has been forecasted in 2005 (296 companies; an average
of RM2.09 million per company).
RM Billions
700
600
500
400
300
200
100
0
Figure 3.14: Research and Development Expenditures
Source: MDC (2004)
Figure 3.15 shows that 320 respondents reported to make profit in 2003. This
was an increase of 40% compared to 2002. The incremental trend is expected to
prevail in 2004 with 345 respondents indicated that they would be making profit.
104
No of Companies
345
340
335
330
325
320
315
310
305
2003
2004
Figure 3.15: Profitable Companies
Source: MDC (2004)
3.9.5 Intellectual Property Outlook
Intellectual Property (IP) which is still considered as a new focus has not been
fully explored by the MSC status companies. A total of 276 IPs were registered in
2003 (Figure 3.16) consisting of patents, industrial design and trade marks. It is
projected the number will increase by more than 16% by the end of 2004.
No of IPs
700
600
500
400
300
200
100
0
2003
2004
Figure 3.16: Intellectual Property Outlook
Source: MDC (2004)
2005
105
3.10 Conclusion
This chapter demonstrated the progress of MSC and its achievements and over
all overview of the progress for which, Malaysian Government has developed the
possible infrastructure with services provided to set-up a hub in regional market of
South East Asia at least. This shows Malaysia’s commitment to drive its economy
on the lines of knowledge to compete in the global arena of future and to give a place
to Malaysia being the developed country by the year 2020. It seems that although
things are in place but even then MSC has not been able to attract the number of ICT
intensive companies from the city of Kuala Lumpur to locate in the area designated
for them. Thus, there is a need to evaluate the MSC policy and highlight the factors
that have driven the companies towards the MSC and then evaluate what can be
suggested to make the MSC policy more attracted to achieve its task of developing
the knowledge intensive corridor of excellent knowledge oriented companies.
CHAPTER 4
EVALUATION OF FACTORS LEADING TO OFFICE
DECENTRALIZATION TO MULTIMEDIA SUPER CORRIDOR
4.1
Introduction
The research methodology adopted in this study has been designed in
reference with the purpose and objectives of the study, which aims to analyze the
effect of information and communication technologies, with reference to incentives
offered in MSC policy on office decentralization. The reason being, policies are ever
evolving process and they keep on changing according to the needs and
requirements. For such a purpose, the approach of field survey of technology firms
having the MSC status where was adopted as this was the best approach for getting
the first hand data for analysis.
The target in those companies has been the
executives or managerial employees as either they are the decision makers of
relocation or they are trusted to have the knowledge of such decisions and also
having the feedback. In the context of the study, it was the best suited approach.
The limitation of such a survey based research remains the difficulty in acquiring
response from the population due to their business approach or reluctance. This
chapter presents the overall research methodology of the study. This includes the
107
design approach for the research, data collection methodology, sampling design and
the analysis technique applied. The detailed outline of methods are discussed in this
chapter.
4.2
Research Design
As this research is categorized as an evaluation research focusing on the
current incentives offered in the existing bill of guarantees offered in the MSC policy
for taking up the MSC status, firstly the review of literature was conducted on
previous studies on related models in other countries, the review covers areas such as
Bangalore in India, Silicon Valley, Silicon Alley and Route 128 Massachusetts in
USA and the decentralization with reference to ICT sector that have taken place in
other parts of the world. Then the review of literature, plans and policies was taken
up in the Malaysian context and the need for development, such policies were taken
into account leading to the formulation of goals and objectives for this research
which is, the evaluation of MSC offered incentives in the bill of guarantees (Figure
4.1). Furthermore, the study also focus on the main factors which are attracting the
companies to decentralize from Kuala Lumpur CBD. In this regard, a questionnaire
was prepared, addressing to the evaluation of Bill of guarantees as well as the drivers
of shift away from the CBD. The analysis has been made from both primary and the
secondary source of data. The secondary data was taken from the Impact Survey
report conducted by MDC in 2004 and the primary source has been the self
administered survey in the selected area conducted, in order to get the response to the
questionnaire. The hypothesis was that, because of the incentives offered, the firms
are locating in MSC. For such purpose, frequency analysis was done in the first
phase. The hypothesis was then tested using a non parametric technique, namely,
Mann-Whitney U which is also known as Wilcoxon rank sum test as being the
suitable test in context of the study. The research method flow chart has been
explained in the figure 4.1. Then the conclusion was derived which is further
108
explained in the next chapters, leading to the conclusion and recommendations for
further studies.
Review of Previous Study
and Related Research
Review in Malaysians
Context and Policies
Development of Research
Goals and Objectives
Primary Data
Development of
Questionnaire and Survey
Secondary Data
On ground Survey
Analysis of Data
MSC Impact
Survey Report
Testing of Hypothesis
Conclusion
Figure 4. 1: Research Method Flowchart
4.3
Scope of Data Collection and Analysis
In this study, two main types of data were gathered for analysis, that is, the
primary and secondary data. Secondary data which include information on the
development trend of offices and information and communication technologies in
Malaysia were collected from a variety of published resources such as books,
journals,
government
reports,
conference
papers,
dissertations,
magazines,
newsletters, news papers from the libraries and also publication from electronic
archives such as the internet. These materials were used as references in reviewing
109
the impact of ICT on office decentralization, which lead to the formulation of the
research hypothesis of this study. Together with this is the collection of primary data
through sample survey of respondents. Survey based approach was adopted in this
study to gather on ground data because most importantly, the needed data on office
characteristics and location preferences are not easily available on published
resources. Besides that, the on-ground information on the behavior of firms is also
essential for realistic findings.
limitations.
The survey method has come with merits and
The merits are that data and information gathered are first hand,
comprehensive and are tailored to the scope of study. The limitations of this method
include the requirement of time, human and financial resources in conducting the
survey and facing non-cooperation from respondents in certain cases. Information
gathered on ground includes the characteristics of firms, their location profile, the
factors that have influenced the taking up of MSC status and factors that can
influence the location choice in addition to the companies’ perspective towards
addition to incentives already provided and the problems being faced after taking up
MSC status.
Generally, data analysis section was divided into two parts, which were
presented in Chapter Five and Six.
The first part of the analysis framework
comprised discussions on the characteristics of firms, followed by characteristics of
office location, information and communication sophistication and utilization and
respondents perception on these two technologies.
Firm characteristics include
business type, ownership, business specialization, size measured by paid up capital
and by number of employees. The characteristics of office location comprised the
firm’s previous office location, reasons for relocating to current location, future
intention to relocate and the reason and factors that would encourage relocation.
The information and communication technologies and physical infrastructure’s
sophistication and utilization were defined in this study, as the types of ICT
infrastructures available in MSC and their essentiality of use, and also the types of
communication modes and their essentiality of use in each office.
110
Finally, the focus was on the firms' perception towards the incentives in Bill
of Guarantees offered by MSC, respondent’s willingness to take up the special status
and shifting business setup to the technology region. The second part of the analysis
comprised testing of hypothesis formulated for this study.
The hypothesis
hypothesized upon the influence of information and communication sophistication
and utilization on office location decision with incentives offered in the MSC policy
and the relationship between ICT sophistication and utilization with business type
and firm size.
Data collection and analysis consist of the following steps; secondary data
was evaluated from, literature review of relationship between ICT and office
decentralization and impact of ICT on office decentralization, then the study of the
same in Malaysian context, the office development trend in the country. The concept
of the knowledge based economy and for achievement of such concepts ICT
development
in
Malaysia
and
furthermore,
planning
policies
related
to
decentralization.
The primary data through administered questionnaire survey responds to the
characteristics of firms, characteristics of office location, factors influencing location
decision and perception of the firms with special status on MSC incentives offered in
the bill of guarantees.
4.4
The Survey
The total survey duration has been conducted over the time span of four
months, from December, 2004 till March, 2005. In the field survey administered
using a self prepared questionnaire, several aspects were investigated.
It includes
111
the identification of target population, the selection of study areas, sample design and
also the survey method.
4.4.1
The Population
Primarily, the survey has been targeted at large, small and medium size
private firms which have taken up the MSC status. This is due to the application of
significant information and communication technologies in large, medium and small
private, which contributes to the nation's ICT growth and advancement.
The
respondents of the survey were targeted at firm owner, director, managers or senior
executive of a firm, as they were considered to be in the right position to provide
information on the location decision and communication technology application of
their respective firms.
The targeted firm’s hierarchy is mainly offices that have
taken up the MSC status, be it the regional support centre, research and development
unit, back-office or call centers, as this is where location decision is made and
advance information and communication systems are used to manage and process the
bulk of information. The chosen subject area covered the Kuala Lumpur City Centre
but excludes the CBD area, Cyberjaya, Bukit Jalil, Damansara and Petaling Jaya.
These growth areas are having population of most of information intensive firms
which have already taken up the MSC status. The main reason for including large,
medium and small firms in both the city and outside city locations was to provide a
comparison on the influence of new technologies on location decision by offices at
different locations.
The result would enable better insight into what actually
influence office decision to decentralize.
The selection of firms has been limited to firms from the economic sectors,
namely banking, finance and insurance sector; real estate and property; information
technology (IT) and telecommunication sector, as these are the strongest growing
economic sectors in the urban economy (Department of Statistics, 1998) and the core
firms in the new economy.
The selected firms encompasses banks, finance
112
institutions and financial consultants, consultants, software developers and software
consultants, computer consultants, back offices of companies and call centers. The
reasons for selecting these firms were based on a few criteria. First, the natures of
these jobs are mainly bounded to the office which qualified them to be office-based
jobs.
Second, these office jobs are characterized by extensive handling and
management of information and knowledge, which also means higher information
and communication technologies application in job function.
Higher ICT
application also means higher possibility for office location decision to be influenced
by the widespread use of sophisticated information and communication technologies
in offices. Third, these three economic sectors have contributed significantly to the
urban economic growth of Malaysia, especially in the shift towards K-economy.
Hence the selection of firms from these economic sectors, would certainly allow
findings to be reflective on the population on the issue of ICT influence on office
decentralization.
4.4.2
The Study Area
The metropolitan region of Kuala Lumpur (KLMA) was chosen as the subject
area of the study (Figure 4.2) due to its importance as the prime centre of office
development in this country, having a potential to be the regional hub to many top
global companies with suitable infrastructure availability. This region housed a
variety of firms from the finance, insurance, real estate, property, development, IT
and telecommunication sectors, which grow in line with the national economy and
the shift into K-economy.
Currently, the issue facing Kuala Lumpur City is its
significance in the economic sector that has created ample employment on the high
order to low order service sector. Office development which goes together with this
growth has created a number of urban related problems in the city, such as
congestion, pollution and urban sprawl.
These problems are related to the
movement of people and vehicles in the city. Hence, the planning challenge is to
tackle the problem currently faced by the city in relation to offices by suggesting the
possibility to decentralize office activities with the application information and
communication technologies.
In recent years, ICT industry has experienced
113
tremendous growth in Malaysia in general and KLMA in particular.
The
proliferation of these technologies and widespread usage has promoted its wide
acceptance in offices.
Furthermore, it was observed that the trend of office
decentralization is taking place in large urban areas like Kuala Lumpur City. There
are more offices, which choose to locate in the suburban centers. This might be
prompted by the development strategy at urban and regional level, which encouraged
development with moderate dispersal to release pressure building up on city centre.
Besides that, KLMA region with its importance in national socioeconomic
and urban development has been historically the city to be equipped with extensive
telecommunication infrastructures meant for socioeconomic and administration
activities.
It is this city, that received latest information and communication
technologies infrastructures and services such as Integrated Services Digital
Networks, (ISDN) and fiber optic. This showed that, offices in KLMA enjoy more
advanced communication infrastructures and services than other major cities in this
country.
This means offices in this city could have higher information and
communication sophistication and utilization level, which might affect the decision
to decentralize. Hence, offices in the city of Kuala Lumpur could be more adaptive
towards ICT applications of which might influence the office decision to locate
outside city centre area.
Thus KLMA with its existing office composition and
advance information and communication infrastructures and services is the best
subject area to study the impact of these new technologies on office decentralization.
4.4.3 The Questionnaire
For the survey, self-administered questionnaires were distributed to collect
information from selected offices in the study areas. The questionnaire comprised of
four main groups of questions, where the first group of questions is on firm profile
(Appendix A).
114
The questions include the background information about the respondent, office
current address, ownership of the firm, duration of location at the current area,
previous location of the company, business type, business specialization, shares of
dealing in global, Asian and local markets, size in terms of equity participation and
employees. The second group of questions comprised of division of office in terms
of front and back office and location, mode of communications in between front and
back offices, area covered for front and back offices and characteristics of lease,
number of employees and their qualifications with nationality, distance of office
from employee’s residence. The third group consists of driver to shift the business
from current location or probable incentive that might will be a reason to relocate the
back office interims of infrastructure provision, area prestige, easy access,
connectivity, tax incentive, labor cost, telecommunication tariff, security, land cost or
competitive conditions.
In addition, the questionnaire also covers the use of
teleworking with number of employees involved in telework and teleworking days,
arrangement of communication mode with the teleworkers.
The forth group
gathering information on ranking of the MSC Bill of Guarantee’s incentives offered
in priority order followed by any other reason besides the bill of guarantees for
taking up the MSC status.
Furthermore, the questionnaire surveys include
suggestions for any other incentive that should be added to the bill of guarantees for
more attraction and the problems being faced after taking up the MSC status.
115
Ka
k
ra
wa
ess
pr
Ex
y
PAHANG
Rawang
N
KLCC
SELANGOR
North South
Expressway
KUALA
LUMPUR
New Klang Valley
Expressway
Klang Straits
Expressway
H
tra l
Petaling
Jaya
ay
ighw
ress
w
ay
F ede
Ampang
E xp
Klang
Shah
am
Al
N orth
Port
Klang
Kajang
uth
So
Cyberjaya
Putrajaya
a
ntr
Ce
l
Li
nk
No
rth
KLIA Dedicated
Highway
(Route 2020)
South
LEGEND
State Boundry
Railway
Expressway
Ex
pre
ssw
ay
Seremban
KLIA
NEGERI
SEMBILAN
Express Rail (ERL)
Study Area
0
Figure 4.2 :
The Study Area
Source: Brunnel (2004)
5
10 km
116
4.4.4
The Sample Design
For the sampling design, the method of stratified random sampling was used
in order to select samples from the population of large, medium and small firms in
the study area. The sample design were selected and applied because it is suitable
when differentiated information is needed for various stratums within a population
known to be different in the parameters. Stratified random sampling involved a
process of stratification or segregation of the population, which means, the
population is first divided into mutually exclusive groups that are relevant,
appropriate and meaningful in the context of the study. Then, it is followed by the
random selection of representatives from the stratum, which in this study, were
represented by three economic sectors - finance, banking and insurance sector; real
estate, property, and development sector and also information technology and
telecommunication sector.
In this study, the population was identified from the subject area through
business listing and company’s profiles published on web by MDC, i.e.
www.mdc.com.my with comprehensive list of office names and addresses, contact
number and short description on the type of service provided. Nevertheless, there are
also weaknesses in using this directory as a source. During the survey, it was found
that many of the addresses were not updated for reference. It was found out during
the field survey that, some firms have relocated, some ended their business operation
and some have even changed their telephone numbers and have not notified the
Multimedia Development Corporation. In addition, there are cases whereby the
address given does not have any office but is a premise rented possibly, only to enjoy
the benefits provided by MSC and is not functional. Therefore, a combination of
address sources should be sought after in order to minimize the inefficiency during
the survey. Besides the sample, the study has also selected the sample based on
concentration of population in 4 study areas.
determined using the following formula;
The number of samples was
117
n
= N / (1 +Ne 2)
(4.1)
Where
n
= sample size
N
= population size
e
= precision level (assumed 10%=0.10)
By using relationship (4.1), based on certain number of population (N), the
sample size (n) has been calculated. The disproportionate random sampling method
was employed in this study.
When ‘n’ was found, it was then disproportionate to
each stratum randomly according to the proportion that represents the firms in the
population. This is to ensure different population stratum is represented in the
survey accordingly.
The number of samples from each stratum would respond
equally in the survey. By using this relationship, based on the identified population
of N=127, sample size (n) calculated for the study was 96, with precision level at five
per cent. 96 firms were then randomly selected from the population and placed in
each stratum according to their proportion in the population and by location. Further
more it was found that 45 companies of the total have moved, shifted, given up MSC
status or have rented the premises in the region only to obtain the MSC status and
thus enjoy the provided incentives but in reality might be are not active in the region.
Therefore, all the companies in overall sample size were taken back into the
population and existing companies were found to be 71.
The sample distribution according to four areas of studies consists of Petaling
Jaya: 26 companies, Kuala Lumpur (KLCC): 17 companies, Bukit Jalil: 15
companies and Cyberjaya 13 companies. While, sample distribution according to
business sector consists of companies in finance sector: 28, in insurance sector: 10, in
real-estate: 11 and other information technology intensive companies and data
centres: 22.
118
4.4.5
Survey Administration and Problems Encountered
The total survey duration has been conducted over the time span of four
months, that is, from December, 2004 till March 2005. It has been found that there
has been very little cooperation from the companies selected as the population. The
reason for taking such a long time is that different strategies were taken up for data
gathering which includes, conventional snail-mail, e-mail, web posting, organized
general visits and cold calls. It has been found out that the best strategy for
conducting such a survey is to give a cold call as it is very difficult to take time
from the higher authorities of the companies through appointments as the staff
always seemed to be very busy with day to day business and also because of too
many past surveys being conducted on the MSC, they have become very reluctant
to respond. Furthermore, access to the offices was not easy and especially in
Cyberjaya, it was too difficult to locate them in such a huge area. Upon discussion
with the MDC it was found that they also encountered the similar problems when
conducting the yearly impact survey report but as being the facilitator to the
companies locating in the MSC, MDC have a signed agreement stating the
cooperation of the companies when asked for a response for the survey as a
criterion stipulated.
Other reasons for time consumption in the conduct of the survey were that
when first of all, a personal visit made to 17 companies, all located in Cyberjaya
proved to be to no avail as any response could not be gathered. Secondly, the
questionnaire was sent via email to 30 companies, as the pilot survey selected
population, again to no response. Third time, strategy of conventional snail-mail
was taken up sending the questionnaire by post which failed as well. Fourth time,
the survey was conducted via self-administered questionnaire distributed to selected
firms in the study area.
Each firm received one questionnaire to be filled by the
targeted respondents.
During the field survey, the survey members have
encountered a number of difficulties even when having an authentication letter,
requesting cooperation regarding the survey from Universiti Teknologi Malaysia.
One of the main hindrances was the difficulty to enter the selected offices, due to
119
strict security in most large office buildings. In the smaller offices, private security
system is used to prevent unwanted visitors.
This system requires visitors to
identify themselves and explain the purpose of visit before being allowed to enter.
This has caused 30 per cent of the visits to be rejected even before entering the
office.
The second problem has been the unwillingness of respondents to
participate in the survey. The respondents have given reasons such as tight work
schedule, confidentiality of office information or simply were not interested to
participate.
These problems and shortcomings have caused the response rate in
this survey to be lower than 50 per cent (42.25%). The total number of responses
has accumulated to 30 after such hardships (Table 4.2). Hence, the analysis of the
study was based on 30 samples. Despite the small number of response gathered,
the analysis can be accepted as, first, it comes from a much dispersed population. In
addition, there has been published analysis of all the companies in area by MDC
and the analysis has been adjudged with it.
This number of samples is the best achieved after taking into consideration the
problem faced by the survey personnel and also the limitation of time and other
resources such as finance, manpower and conveyance.
Therefore, these samples
were considered adequate to draw conclusion for the analysis that follows.
4.5
Analysis Technique
After the survey, raw data from the questionnaires was compiled and processed
by computer using the Statistical Software for Social Sciences (SPSS).
SPSS is
commonly used among social sciences researchers for its effectiveness in sorting
data and convenience in running the analytical techniques.
technique was used to describe the sample in general.
Initially, frequency
120
Then, it was followed by the cross-examining the inter-relationships between
variables which have been identified.
After that, Mann-Whitney U-test technique
was applied to test the hypothesis. Mann-Whitney U-test technique was selected for
analysis as it is a non-parametric statistical test requiring two independent sets of
data; this technique does not require any assumptions about the nature of population
from which the samples have been taken. It is applicable to ordinal data as well as
ranked data (the strategy of ranking has been taken up for MSC bill of guarantees).
The Man-Whitney U test also known as Wilcoxon rank sum test is the test of the
significance of a difference between the medians of two samples.
The null
hypothesis is that the samples are taken from the common population. Unlike many
other significance tests, the null hypothesis in Mann-Whitney U test cannot be
rejected, so there should be no consistent difference between the two set of values.
Any observed difference between the two samples, such that, one set of values is
consistently larger than the other is due entirely to change in the sampling process.
The testing of hypothesis process is further discussed in chapter 6.
4.5.1 Process of Analysis
Basically in data analysis, four main stages were involved. First, getting data
ready for analysis.
Second, analyze the data. Third, testing of hypothesis, and
fourth interpretation of the results.
After the questionnaire survey, collected data
was sorted into database through the process of coding, editing, categorization and
filing.
Then the data were analyzed and interpreted.
survey will be explained in Chapter Five and Six.
The observation from the
In Chapter Five, the aim is to
analyze answers given by the respondents in relation to the subject issues.
In
Chapter six, the research hypothesizes will be tested and described using MannWhitney U test technique.
relationship
The aim is to test the significance of the hypothetical
121
4.6
Conclusion
In this chapter, a framework on evaluation, the method of data collection and
analysis were described. Data have been collected from two main resources that is,
primary and secondary data. The secondary data was gathered from the published,
online and electronic materials like books, journals, thesis, reports, proceeding
papers and news articles.
The primary data was gathered through office sample
survey via self-administer questionnaires and personal interviews. As the number
of samples that could be gathered is too low as it was found on the ground that
many premises do not exist on the address that was published on
www.mdc.com.my. On the contrary, the disadvantage is that it does not include the
whole population of which, if surveyed, is able to provide more comprehensive and
thorough information on the study subject.
As for analysis, the Mann-Whitney U test analysis technique has been applied
for hypothesis testing. It is a useful technique and requires no assumptions on null
hypothesis. However this technique requires a certain minimal number of samples
to allow efficient testing.
Nevertheless, in this study, Mann-Whitney U test has
enabled collected samples data to be analyzed and interpreted meaningfully.
results of the survey and test will be discussed in the following chapters.
The
CHAPTER 5
THE CHARACTERISTICS OF FIRMS, FACTORS THAT INFLUENCE
OFFICE LOCATION DECISION AND COMPANY’S RESPONSE
TOWARDS MSC POLICIES
5.1
Introduction
In this chapter the background information on the characteristics of the
participating companies will be discussed. The population consists of the companies
belonging to the finance, banking, insurance, real estate, information technology,
consultancy and telecommunication sectors.
The analysis is focused on the
characteristics of the firms, factors that influenced office location decision and the
response of the companies towards the incentives offered in the MSC policy’s bill of
guarantee.
This analysis chapter has been divided into four sections.
Firstly the
organizational characteristics of the firms, the time being located in the present
location and the previous location of the firms. Secondly, the divisions of a firm in
terms of office separation into front office and back office, the location of back office
123
and the mode of communication in between the front office and back office. Thirdly,
the factors that would influence the shift of a firm from the present location and if the
firm can be separated into front and back office components then what would be the
probable incentive to locate them in different locations. Lastly, the response towards
the incentives offered in the bill of guarantees of MSC policy has been ranked to
analyze the main attraction for the companies that have taken up MSC status.
5.2
Descriptive Analysis of Firms’ Characteristics
In this section, in order to understand the characteristics of the participating
firms, a series of questions were asked to the respondents about their businesses and
organizational characteristics. The questions include the office current location; the
ownership; previous location of the company; time since the company is located in
the present area; nature of the business; business dealings in local; South East Asia
and global market and company size in terms of paid up capital and employees.
5.2.1 Basic Characteristics of firms
The MSC was initiated with the launch of Cyberjaya in 1996, the main goal
behind the development of this technology region is to attract local, indigenous
companies as well as foreign based companies. In case of the local firms this
technology region creates an opportunity to start a new business with provision of
adequate infrastructure and incentives. For foreign firms, it allows the firm to bring
new and advanced technology expertise and equipment in the area.
From the
responses it was found that out of 30 companies surveyed 28 (93.3%) are in the
private sector companies and one (3.3%) is a joint venture company and one (3.3%)
124
is a Government Link Company (GLC) (Table 5.1).
The GLC is Ingenuity
Microsystems Sdn. Bhd. working on software development of software products for
financial management and customer relationship management and provider of ecommerce content and infrastructure. The joint venture company is AIG Software
International JV Sdn. Bhd, which is a joint venture company between United States
of America and Malaysia. The company is working on development of software for
insurance policies.
Table 5.1: Ownership of the Firms; according to sectors
Category
Private Sector
Joint Venture
GLC
Total
Frequency
28
1
1
30
Percent
93.3
3.3
3.3
100.0
Valid
Percent
93.3
3.3
3.3
100.0
Source : Survey 2005
Cumulative
Percent
93.3
96.7
100.0
n=30
It has also been visualized that 28 (93.3%) firms of the overall respondents are
private limited (Sdn Bhd) companies and only two (6.7%) are public listed namely,
New Technology and Innovation Sdn. Bhd. and I-Systems Group Sdn. Bhd. both
companies are listed with MESDAQ (Table 5.2).
The requirements for such
technology based companies to register with Kuala Lumpur Stock Exchange (KLSE)
are;
Table 5.2 : Private and Public Listed Companies
Category
Sdn. Bhd
Public Listed
Total
Source : Survey 2005
Frequency
28
2
30
Percent
Valid Percent
93.3
93.3
6.7
6.7
100.0
100.0
Cumulative
Percent
93.3
100.0
n=30
125
a. For a technology based company there is no requirement for operating
history.
b. There is no profit rate required.
c. Issued and paid-up capital of minimum RM 2 Million is required for a
technology company.
d. A minimum number of 200 shareholders is required upon listing.
e. The promoters must hold at least 45% of the issued paid-up shares of the
company for one year after the company's admission to the MESDAQ
Market.
f. MSC companies may be 100% foreign owned and need only to inform FIC.
g. An applicant must have a definite plan and time frame for the utilization of
all the funds raised in the initial public offering.
h. The number of options offered under the MESDAQ listing of companies shall
not exceed 30% of the issued capital of the company at any one time. Apart
from this, not more than 50% of the shares available under the scheme should
be allocated, in aggregate, to directors and senior management. In addition,
not more than 25% of the shares available under the scheme shall be allocated
to any individual person.
5.2.1.1 Ownership of Firms
One of the main tasks of MDC has been to attract indigenous companies from
within the country. The reason being that, in order to convert the economy to keconomy, the local knowledge intensive firms must prosper taking advantage of
diverse technological background of countries from other regions. According to the
survey, (66.7%) of the firms surveyed are indigenous firms. The main activities of
these companies are in the businesses with intensive use of information technology.
The foreign companies that participated in the survey are; KPMG Switzerland,
FSBM Japan, Synergy log-in India, SCOPE United Kingdom, Axis Singapore, Perot
Netherlands, Intelbay Philippines, British American Tobacco United Kingdom and
APIIT Australia. They are involved in the activities such as Internet based business,
software development, e-banking, data-center, back-office, outsourcing system
126
integration, business application development and specialized training. Two of the
multinational companies are further categorized as foreign companies for ease of
analysis and low number of response.
The rest of the companies out of the
population of 30 are locally owned (Table 5.3) which shows quite a distribution in
terms of ownership of the companies.
The two Multi national companies are
Synergy Log-in systems Sdn. Bhd. and FSBM Sdn. Bhd. dealing in software
development and application service provision.
Table 5.3 : Ownership of Firms
No. of firms
20
Percent
66.7
Cumulative
Percent
66.7
Foreign
8
26.7
93.3
Multi National
2
6.7
100.0
Total
30
100.0
Ownership
Local
Source : Survey 2005
n=30
5.2.1.2 Firm’s Nature and Share of Business
Although the focus of the survey was mainly on the companies purely dealing
with finance insurance and real estate business firms as being the higher end user of
the information related companies. This target could not be achieved; even then, the
companies not directly dealing in such business were partially serving in the same
business sectors but have fallen into other category. These companies are based
upon research and development in the same sectors.
The population surveyed
accumulates to 4 companies in financial sector, 1 in real estate, 7 in consultancy and
18 in the other category (Table 5.4) but even then it is assured that all the companies
are high end user of information technology being taking part in software
development and other research on information technology.
127
In order to attract companies from all the different sectors of ICT, they are
clustered into 7 broad categories. Broadly, the companies in the technology region
are classified in the categories such as; System tools and Utilities, Shared Services
and Outsourcing, Technology Blocks, Infrastructure Systems, Industry or Vertical
Applications, Enterprise Applications and Content Development.
Table 5.4: Nature of Business
No. of firms
Percent
Cumulative
Percent
4
13.3
13.3
Real Estate Services
1
3.3
16.7
Consultancy Services
7
23.3
40.0
Other Services
18
60.0
100.0
Total
30
100.0
Nature of Business
Financial & Insurance
Services
Source : Survey 2005
n=30
The survey has covered four companies in financial and insurance services,
one in real-estate service, 7 in consultancy service while 18 in the other services such
as; Internet based business, software development, e-banking, data-center, backoffice, outsourcing system integration, business application development and
specialized training.
A question was asked regarding the market share of company business. It
was found out that companies of the population have 57% of business from the local
market, 26% dealings in South East Asian region (Figure 5.1) while they deal about
40% in the global market (i.e. outside Southeast Asia) which shows that companies
are quite well participants of the foreign investment in Malaysian economy. It is
expected that this technology region will be participating more in the global market
with more companies taking up the special status and thus reinforcing the economic
participation in Malaysian context. Furthermore, with more global participating
companies there will be an influx of more knowledge and updating input with the
advancement of latest technologies all over the world.
128
Companies dealing in consultancy and software development are more in
global business than the companies dealing in FIRE sector (Figure 5.1). With more
companies dealing in the software development and information intensive activities
this technology region will become more competitive and attractive for more
companies to take up the special status
South Asia Business
No. of Companies
10
20
25
30
40
70
4
3
2
1
0
FIRE
Other
Nature of Business
No. of Companies
Local Business
3
0
10
20
30
40
50
60
70
80
90
100
2
1
0
FIRE
Nature of Business
Other
No. of Companies
Global Business
6
10
20
25
50
70
80
100
5
4
3
2
1
0
FIRE
Nature of Business
Source : Survey 2005
Other
n=30
Figure 5.1 : Cross Tabulation on Market Share and Nature of Companies
129
No. of Companies
Local Business
0
4
10
20
30
40
50
60
70
80
90
100
3
2
1
0
Local
Ownership
Foreign
South Asia Business
10
20
25
30
40
70
No. of Companies
5
4
3
2
1
0
Local
Ownership
Foreign
No. of Companies
Global Business
10
20
25
50
70
80
100
6
5
4
3
2
1
0
Local
Source : Survey 2005
Ownership
Foreign
n=30
Figure 5.2 : Cross Tabulation on Ownership and Market share of companies
It has been observed that local companies participate in the business mostly
in the local context or in the south Asian region but some have quite high percentage
of export as well (Figure 5.2). It is thus evident that as the companies will get more
developed there will be more dealing in the global market with more investments in
this technology region.
130
5.2.1.3 Size of firms
According to the literature summary in chapter two, most of the companies
that locate their offices in technology regions are small and medium in size. These
firms are either new firms or branches of firms already in the central cities.
The sizes of firms included in the survey were measured in terms of
employment and their equity participation. As shown in Table 5.5, in terms of size
of employees, 33.3% (10) of the overall population of companies are the small size
companies 56% (17) are medium sized and 10% (3) are large size companies.
However, in terms of equity participation, 26.7% (8) are categorized as small 63.3 %
(19) are medium sized while 10% (3) are large size companies in terms of
participation in equity (Table 5.6). It shows that most of the companies are quite
well participants of the economy as they fall in medium to large companies in terms
of economic participation.
Table 5.5 : Firm Size in Terms of Employees
Small
Frequency
10
Percent
33.3
Cumulative
Percent
33.3
Medium
17
56.7
90.0
Large
3
10.0
100.0
Total
30
100.0
Company
Source : Survey 2005
n=30
It was observed that MSC has attracted more of locally based small and
medium sized companies. It was also found that all 3 large companies that have
responded to the survey are foreign owned. These companies have located their
offices in the area to take advantage of the incentives offered in MSC policy and the
bill of guarantees. It is concluded from the statistics that as MSC grows, so will the
companies and thus contributing to the knowledge of local companies overtime. The
131
large companies namely are; FSBM Japan, KPMG Switzerland and British American
Tobacco United Kingdom dealing in businesses such as software development,
business application development and back-office activities (Table 5.6) .
Table 5.6: Firm Size in terms of Equity participation
Firm Size
Frequency
Percent
Cumulative Percent
Small
8
26.7
26.7
Medium
19
63.3
90.0
Large
3
10.0
100.0
Total
30
100.0
Source : Survey 2005
n=30
The companies are mostly of small and medium size as having the paid-up
capital of less than RM 500,000; only three foreign companies have paid-up capital
of more than RM 500,000 and thus termed as large companies. The large companies
are the ones doing business in the global market and may be termed as the global role
players. Their interest and presence in MSC proves the potential that this area has
for such information intensive companies in the future.
No. of Companies
Firm Size in terms of
Employees
Small
Medium
Large
14
12
10
8
6
4
2
0
Local
Ownership
Source : Survey 2005
Foreign
n=30
Figure 5.3 : Cross Tabulation of Firm Size in Terms of Employees and Ownership
132
No. of Companies
3.0
South Asia Business
10
20
25
30
40
70
2.5
2.0
1.5
1.0
0.5
0.0
Small
Medium
Large
Firm Size in terms of Employees
No. of Companies
Local Business
0
10
20
30
40
50
60
70
80
90
100
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Small
Medium
Large
Firm Size in terms of Employees
No. of Companies
Global Business
5
10
20
25
50
70
80
100
4
3
2
1
0
Small
Medium
Large
Firm Size in terms of Employees
Source Survey 2005
n=30
Figure 5.4 : Cross Tabulation on Firm Size and Market share
It was seen that SME’s are taking part in local, South Asia and global markets
quite significantly which is a sign of growth and participation in global marketplace.
It also shows the progress according to the vision of MSC development to grow local
SME’s in the global scene (Figure 5.4). With the growth of local SME’s it is
expected that with increase in global participation the country will benefit from the
knowledge gained in support of the vision to convert economy to the knowledge
based economy as SME’s are primary drivers of growth for the region.
133
5.2.1.4 Duration of Current and Previous Location of Firms
MSC started in 1996, as a vision to change the nation’s economy from
production based to knowledge based economy. Cyberjaya, the core area of MSC
development was launched on July 8, 1999 as the nucleus of MSC with the target of
having 50 global companies to be MSC status holder in the first phase (MDC, 2003)
Now it is in its second phase of development with 70 global companies residing in
the area (MDC, 2005). Since it is still in its initial phases of development, focusing
on more technology based companies to move in this area, it was expected that most
of the companies located here are recent and of less than of five year duration.
The survey has concluded that most of the companies that is, 66.7% (20) are
located in the present location for less than 5 years while 36.7% (11) of the
companies are in this area since more than 5 years (Table 5.7). This can be because
of the new inception of the companies in the region and more companies taking up
the MSC status after five years of establishment.
Table 5.7: Time located in MSC
Time Located
one to 5 years
more than 5 years
Total
Source : Survey 2005
Frequency
20
11
30
Percent
66.7
36.7
100.0
Cumulative
Percent
66.7
100.0
n=30
Out of the 30 firms surveyed, 14 (46.7%) are new firms, 16 (53.3%) are firms
whose previous location are Damansara (3.3%), Bukit Jalil 2 (6.6%), KL city centre
3 (10%) and the others 10 (33.3%). This shows that the companies in the CBD are
not attracted to the technology area. The 3 companies that have moved from the city
centre to the technology region are Ingenuity Microsystems Sdn. Bhd., Genting
Information Knowledge Enterprise and Synergy Log-in Systems Sdn Bhd. These
companies are basically dealing in software development and content development,
134
and for such purposes MSC provides the suitable infrastructure and technology to
attract these companies from the CBD, while 14 (46.7%) companies were located in
the area since its inception. This may be due to the factor that only those companies
were located here since the time they were set-up (Table: 5.8).
Table 5.8: Previous Location of Company
1
Percent
3.3
Cumulative
Percent
6.3
Bukit Jalil
2
6.7
18.8
KL City Centre
3
10.0
37.5
Other
10
33.3
100.0
Sub-Total
16
53.3
New Firms
14
46.7
30
100.0
Location
Damansara
Frequency
Total
Source : Survey 2005
n=30
The companies that have chosen to relocate in MSC area are from different
parts of Kuala Lumpur growth areas such as; Damansara, Bukit Jalil, Kuala Lumpur
City Centre and others (Figure 5.5).
The companies consist of small (16.6%),
medium (30%) and large(6.6%) sizes. This proves that MSC’s incentives offered are
for all type of companies playing their role in market segment.
No. of Companies
Previous Location of
Company
Damansara
Bukit Jalil
KL City Centre
Other
7
6
5
4
3
2
1
0
Small
Medium
Large
Firm Size in terms of Employees
Source : Survey 2005
n=30
Figure 5.5 : Cross Tabulation on Previous Location and Firm Size
135
Another picture is that, most of the companies are still operating at their
parent location in the CBD area and have a small back-office in the area taking part
in R&D or other broad categories offered as an incentive just to take the advantages
of the lucrative benefits that are offered to have an office in the MSC. One firm
whose previous location was Damansara, three local firms whose previous location
was KLCC and 6 local firms whose previous location were in other parts of city but
have relocated.
No. of Companies
Previous Location of
Company
6
5
Damansara
Bukit Jalil
KL City Centre
Other
4
3
2
1
0
Local
Ownership
Source : Survey 2005
Foreign
n=30
Figure 5.6 : Cross Tabulation on Previous Location and Ownership
The same trend has been seen in both locally owned and foreign owned
companies (Figure 5.6).
It can be said that local companies are taking more
advantage of MSC and feel attracted to take-up the MSC status in order to benefit
from incentives offered as a larger number of companies has been attracted to
relocate. These benefits includes tax exemption till up to 10 years, freedom to
employ foreign workers, freedom to own land, competitive telecommunication
tariffs, excellent infrastructure provision, no censorship of internet, intellectual
property protection and implementation of cyberlaws and allowance of global
sourcing of funds.
136
No. of Companies
Previous Location of
Company
5
Damansara
Bukit Jalil
KL City Centre
Other Location
4
3
2
1
0
FIRE
Nature of Business
Other
Source : Survey 2005
n=30
Figure 5.7 : Cross Tabulation on Previous Location and Nature of Business
The companies located in the MSC are having a diverse distribution
background of all business sectors identified as information intensive economic role
players. The companies that have relocated in the technology region belong from,
two (6.6%) companies that relocated from Bukit Jalil and Damamnsara while five
(16.66%) from other places are in FIRE category. In the category of other
information intensive companies, one (3.3%) has relocated from Bukit Jalil, three
(10%) have relocated from the Kuala Lumpur City Centre and five (16.66%) have
relocated from other places (Figure: 5.7) which accumulates to 16 companies that
have relocated while 14 are the new companies.
5.2.2
Office Division, Location and Mode of Communication
Back-offices, a division of a company away from the front end client dealing
part, is a fundamental feature of ICT companies The driving factor behind this
development has been the need to cut costs, while the enabling factor has been the
global electronic network that allows digital data to be accessed and shipped
instantly, from and to anywhere in the world.
Out of the total of 30 companies, 8 (26.7%) companies have their back
offices separated between two areas. The rest either have combined front and back
137
offices or they are the back end supporters meaning are the back offices themselves
(Table 5.9). This indicates that as the MSC develops, such back-offices will be the
locating in Cyberjaya, one reason because, most of the back-office jobs tend to locate
in the areas where the needed infrastructure is provided at competitive rates. MSC
has that structure in place and it can accommodate quite a large number of
companies outsourcing their back-end facilities to cheaper locations.
Table 5.9 : Division of Office
8
Percent
26.7
Cumulative
Percent
26.7
Same Building
22
73.3
100.0
Total
30
100.0
Division of Office
Separate
Frequency
Source : Survey 2005
n=30
The survey showed that the companies being back-offices or are having a
back-office consist of only medium and large size companies as small companies do
not have that intensive work or data structure as well as the staff for which they need
a back-office (Figure 5.8).
No. of Companies
Division of office
10
Separate
Same Building
8
6
4
2
0
Small
Medium
Large
Firm Size in terms of Employees
Source : Survey 2005
n=30
Figure 5.8 : Cross Tabulation on Office Division and Firm Size
The companies having a back-office comprise of both local and foreign
companies (Figure 5.9). It shows the interest of foreign companies to open their
138
back-office in MSC. In addition, it also illustrates the attractiveness of MSC as an
outsourcing location for the ICT based companies.
No. of Companies
15
Division of office
12
Separate
Same Building
9
6
3
0
Local
Ownership
Foreign
Source : Survey 2005
n=30
Figure 5.9 : Cross Tabulation on Office Division and Ownership
The companies having back-offices are more from other ICT intensive
companies than FIRE (Figure 5.10). 8 of FIRE companies are having back offices in
the same building.
These companies are either back offices for compiling
transactions for banking sector or are dealing with softwares related to infrastructure
or development to support smart home systems. Three companies in the FIRE sector
having separate back offices are namely, e-pay Sdn. Bhd., having the back office
within Klang Valley dealing in financial support services, Genting Information
Knowledge Enterprise also in finance sector with its other office in Wisma Genting
and Scope International. It is expected that with more development of the ICT in this
sector more offices will be having their division into back-office and front-office to
reduce cost and secure profits and this area will be feasible for conducting such
businesses.
139
No. of Companies
14
12
10
8
6
4
2
0
Division of office
Separate
Same Building
FIRE
Other
Nature of Business
Source : Survey 2005
n=30
Figure 5.10 : Cross Tabulation on Office Division & Nature of Business
The 8 companies having separate back offices are located within Kuala
Lumpur or within Klang Valley (Appendix B) except of only one company, namely
Scope International dealing with banking transactions for Standard Chartered bank,
whose other back-office is in Petaling Jaya (Table 5.10).
Table 5.10 : Back Office Separate
Frequency
2
Percent
6.7
Cumulative
Percent
25.0
Within Klang Valley
5
16.7
87.5
Other Location
1
3.3
100.0
Total
8
26.7
22
73.3
30
100.0
Location
Within KL
No separate back office or are
back office
Total
Source : Survey 2005
n=30
140
5.3
Ownership of office premises
The MSC has been promoted as an alternate investment area. Freedom of
ownership in terms of premises allowing them to own land without local ownership
requirements was believed to be the prime concern of foreign companies for more
secure business activities. The survey shows that it did not seem to work out that
way. The other observation has been that MSC has not been able to attract more
companies from the centre of city as the space rental value in MSC is the same as
any prime office location in the CBD.
According to the observation of the survey 28 (93.3%) respondent companies
have rental premises for their offices, while two (6.7%) have their own buildings in
Kuala Lumpur (Table 5.11).
Furthermore, the 8 offices that are providing the
backend services have rented space.
This may be because of the reason that
companies dealing in such businesses do not buy their own land in other countries
than the principal countries, secondly, it gives them flexibility to move to any other
place where better incentives are offered to cut down their costs of doing business
and thus gain maximum profits.
Table 5.11 : Premises Rented and Ownership (Front-Office)
Office Premises
Rental
Frequency
28
Percent
93.3
Ownership
2
6.7
30
100.0
Total
Source : Survey 2005
Cumulative
Percent
100.0
n=30
All the back-offices were found to be in the rented facilities (Table 5.12)
proving that back-end service companies do not own premises as such services can
141
always be on the move and a demand of very competitive conditions in addition to
lucrative offers is needed to retain such companies.
Table 5.12 : Premises Rented and Ownership (Back-Office)
Back office Premises
Rental
Frequency
8
26.7
No separate back office or
22
are back office
Total
30
Cumulative
Percent
Percent
100.0
73.3
100.0
Source : Survey 2005
n=30
It was found that only the two local MSC companies (Figure 5.11) own the
premises they reside in, one is E-Cosway, in Wisma Cosway which is the subsidiary
of the building owner himself, and the other is Ingenuity Microsystems Sdn. Bhd.
which is a Government Link Company. Both the companies are medium sized
companies (Figure 5.12). Both companies fall under the heavy user of information
systems dealing in e-commerce solution and content development (Figure 5.13).
No. of Companies
20
Owner Ship
15
Local
Foreign
10
5
0
Owned
Rented
Premises Rented/Owned
Source : Survey 2005
n=30
Figure 5.11 : Cross Tabulation of Land Lease and Ownership of Companies
142
No. of Companies
15
Firm Size in terms of
Employees
12
Small
Medium
Large
9
6
3
0
Owned
Rented
Premises Rented/Owned
Source : Survey 2005
n=30
Figure 5.12 : Cross Tabulation of Land Lease and Firm’s Size
No. of Companies
Nature of Business
20
FIRE
Other
15
10
5
0
Owned
Rented
Premises Rented/Owned
Source : Survey 2005
n=30
Figure 5.13 : Cross Tabulation of Land Lease & Nature of Business
5.4
Mode of Communication
The MSC is equipped with a reliable and superfluous fiber-optic
backbone, currently at 2.5 Gbps and upgradeable to 10 Gbps capacity to ensure highspeed access for MSC-Status companies located within the area. The fibre-optic
backbone is directly linked to high-capacity fibre links to countries such as Japan,
USA, and South East Asia.
143
The survey showed that 90% of the companies are using internet or extranet
for their communication between the front office and the back office (Table 5.13).
This clearly shows that there is no issue or problem of low security level within the
companies. It also shows the reliability of the overall communication backbone in
the MSC which is rated at 99.9% reliable in the world.
On the other hand,
companies using WAN or VPN might have high amount of data flowing back and
forth which needs them not to be through satellite receivers in order to get the speed.
Table 5.13 : Mode of Communication Front and Back Office
Mode of Communication
Wide Area Network
Frequency
Percent
Cumulative
Percent
1
3.3
3.3
2
6.7
10.0
21
70.0
80.0
Extranet
6
20.0
100.0
Total
30
100.0
Personal Satellite
System/VPN
Internet
Source : Survey 2005
n=30
It was found from the survey that local companies use more varied mode of
communications including WAN through VPN, internet and extranet or others
facilities. However, foreign companies completely rely on both internet and extranet
only (Figure 5.14). Extranet is a way of communication which uses internet as a
base. This proves that companies do not need to install their own network facilities
as the existing connectivity infrastructure meets the requirements well enough. It
also shows the trust on such infrastructure by local as well as foreign companies.
144
No. of Companies
20
Mode of
Communication
Front/Back Off
Wide Area Network
Personal Satellite
System/VPN
Internet
15
10
5
0
Extranet
Local
Ownership
Source : Survey 2005
Foreign
n=30
Figure 5.14 : Cross Tabulation of Communication Mode & Ownership
5.5
Use of Teleworking and Arrangement with Employees
Teleworking, although, as a fundamental element of ICT intensive companies
does not apply in the same way as in the case of MSC, the reason being that, MSC
mostly consists of the company’s back-offices or back-end support systems and
businesses. As in a call centre a person has to be on the line, the same goes to back
offices where a person must be present at a terminal switching the data back and
forth. Therefore, it was expected as to the response of question that there may not be
a significant amount of teleworkers in place as in the case of MSC.
On the question of use of advanced ways of teleworking it was responded that
only 13 (43.3%) of the companies are taking advantage of teleworking (Table 5.14)
with overall 64 employees working regularly or are with flexible arrangements.
145
Table 5.14 : Use of Teleworking in Company
13
Percent
43.3
Cumulative
Percent
43.3
No
17
56.7
100.0
Total
30
100.0
Using Teleworking
Yes
Frequency
Source : Survey 2005
n=30
It was visualized that both the foreign and local companies have the same
percentile of workers teleworking, (Figure 5.15) this also proves that such
infrastructure is in place for people to work through and that the companies of the
types located in MSC are there for such a purpose as well.
12
Use of Teleworking in
Company
Yes
No
10
8
6
4
2
0
Local
Ownership
Source : Survey 2005
Foreign
n=30
Figure 5.15 : Cross Tabulation of Ownership and Use of Teleworking
It was seen that FIRE companies are taking less advantage of teleworking
then other kind of companies, such as, software development and consultancy
(Figure 5.16). FIRE companies are more information reliant companies than the
other but in this case it may be due to the fact that these companies are the ones that
are more into back-end support like filing the banking account details from all over
the world.
146
10
Use of Teleworking in
Company
Yes
No
8
6
4
2
0
FIRE
Nature of Business
Other
Source : Survey 2005
n=30
Figure 5.16 : Cross Tabulation of Business Nature and Use of Teleworking
Table 5.15 : No of Employees
No. of Employees
1
2
6.7
Cumulative
Percent
33.3
3
1
3.3
50.0
4
1
3.3
66.7
6
1
3.3
83.3
50
1
3.3
100.0
Total
6
20.0
No response
24
80.0
Total
30
100.0
Source : Survey 2005
Frequency
Percent
n=30
There has not been a significant response to the days of teleworking as it was
mostly responded that the companies in MSC assign employees to telework as per
the need (Table 5.16).
147
Table 5.16 : Days of Teleworking
No. of Employees
2
1
3.3
Cumulative
Percent
25.0
4
1
3.3
50.0
5
1
3.3
75.0
20
1
3.3
100.0
Total
4
13.3
No response
26
86.7
Total
30
100.0
Frequency
Percent
Source : Survey 2005
n=30
The mode of communication for teleworkers to keep in contact with the
principal office remains mainly internet or extranet accumulating to 93.3% of the
total (Table 5.17). This can be as internet being the cheapest and most practical way
of communication.
Table 5.17 : Mode of Communication with Teleworkers
Mode of Comunication
Frequency
Internet
24
Percent
80.0
Cumulative
Percent
80.0
Extranet
4
13.3
93.3
Other (ICQ, Yahoo)
2
6.7
100.0
Total
30
100.0
Source : Survey 2005
n=30
148
5.6
Evaluation of incentives offered by MSC as location decision
In this section of the questionnaire, the question was asked regarding the
response to the bill of guarantee provided in the MSC policy to companies that take
up the MSC status.
It has been hypothesized for this study that the main factor for companies to
take up the MSC status are the competitive and lucrative incentives offered in the
MSC bill of guarantees.
The first incentive provided of a world class physical and information
infrastructure stating speedy rail link, smart highways and international Airport
(KLIA) with a healthy living and working environment, has been ranked as being the
attraction by 66.7% of the overall population of survey being ranked as first and
second (Table 5.18).
Table 5.18 : World Class Physical and Information Infrastructure
Ranking
Highly Recommended
Frequency
13
Percent
43.3
Cumulative
Percent
43.3
Mostly Recommended
7
23.3
66.7
Moderately Recommended
9
30.0
96.7
Not Recommended
1
3.3
100.0
Total
30
100.0
Source : Survey 2005
n=30
The incentive of unrestricted employment of foreign workers, allowing
companies to employ people from anywhere in the world to fill up the technological
expertise gap is also highly ranked. Table 5.19 shows that overall percentage of this
149
incentive has been ranked by 63.3% onto the positive direction. It shows that
companies originating from other companies regard it as a probable incentive in the
direction of taking up the MSC status. This also shows that with such employment
of the foreign workers coming from different countries is to benefit Malaysia in
terms of getting skills from workers coming from different background and cultures.
Table 5.19 : Unrestricted Employment of Foreign Workers
Ranking
Highly Recommended
Frequency
10
Percent
33.3
Cumulative
Percent
33.3
Mostly Recommended
9
30.0
63.3
Moderately Recommended
7
23.3
86.7
Less Recommended
3
10.0
96.7
Not Recommended
1
3.3
100.0
Total
30
100.0
Source : Survey 2005
n=30
Table 5.20 shows the option of the companies having MSC status to be
exempted from local ownership requirements. This option allows anyone complying
with the MSC status requirements to own and run a business. This incentive has
been ranked in the low range accumulating to the total of 36.7% in all. It shows that
it has not been a very attractive incentive at least for the locally owned firms.
Table 5.20 : Freedom of Ownership
Ranking
Highly Recommended
Frequency
Percent
3
10.0
Cumulative
Percent
10.0
Mostly Recommended
8
26.7
36.7
Moderately Recommended
12
40.0
76.7
Less Recommended
4
13.3
90.0
Not Recommended
3
10.0
100.0
Total
30
100.0
Source : Survey 2005
n=30
150
International companies require dealing in international currencies. Thus in
case of Malaysia, where government controls the foreign exchange it was inevitable
to grant such freedom to companies in order to be able to market MSC globally. To
be able to transfer and borrow funds globally, is a must in global business arena, as
companies locating in the MSC mostly, will be having their subsidiaries operating in
other parts of the world. According to table 5.21 this incentive has been ranked as
46.7% in total as not being a major attraction again, for the local business companies
as far as in the case of this survey.
Table 5.21 : Global Sourcing of Funds
Ranking
Highly Recommended
Frequency
Percent
3
10.0
Cumulative
Percent
10.0
Mostly Recommended
11
36.7
46.7
Moderately Recommended
9
30.0
76.7
Less Recommended
5
16.7
93.3
Not Recommended
2
6.7
100.0
Total
30
100.0
Source : Survey 2005
n=30
Tax exemption for the maximum of 10 years, an important factor for SME’s
to grow, as mostly such companies in the ICT age, develop experimentally and do
take time to get established. In addition, it is a major benefit to companies whose
centre in the region is a cost centre and not a centre for revenue generation. This
incentive has been ranked as the major attraction by most of the companies taking up
the MSC status. This shows that only this incentive has played a major role for the
companies to take up the MSC status. It is the major benefit for the local as well as
the foreign or multinational companies. According to Table 5.22 the ranking above
the mid range accumulates at total of 86.7% in favor of this incentive.
151
Table 5.22 : Tax Exemption
Ranking
Highly Recommended
Frequency
Percent
20
66.7
Cumulative
Percent
66.7
Mostly Recommended
6
20.0
86.7
Moderately Recommended
3
10.0
96.7
Less Recommended
1
3.3
100.0
Total
30
100.0
Source : Survey 2005
n=30
Intellectual property protection and cyberlaws for the copyright protection of
the online content is meant to safeguard the new and upcoming ideas of the ICT
industry. It has been seen that piracy is one of the major concerns of today’s ICT
industries. With such laws in place it is to safeguard the interests of local SME’s as
well as foreign content developers. This incentive offered in MSC’s BOG has not
been ranked at the high level but more in the middle range of 43.3% (Table 5.23).
Table 5.23 : Intellectual Property Protection and Cyberlaws
Ranking
Highly Recommended
Frequency
Percent
4
13.3
Cumulative
Percent
13.3
Mostly Recommended
9
30.0
43.3
Moderately Recommended
11
36.7
80.0
Less Recommended
4
13.3
93.3
Not Recommended
2
6.7
100.0
Total
30
100.0
Source : Survey 2005
n=30
The same kind of response has been noted for the guarantee of no censorship
of the internet as such heavy user of internet companies also have ways to break or
penetrate firewalls as they can install them at their end. It is also of concern that
censorship of internet does restrict and slows down the access to real time market
152
reports from all over the world. This incentive has been ranked at overall 20.0%
only (Table 5.24). This may be because companies working at the higher level usage
of information technology and having intensive amount of online content have a
security system of their own with custom made firewalls at the principal’s end.
Table 5.24 : No Censorship of Internet
Ranking
Highly Recommended
Frequency
Percent
1
3.3
Cumulative
Percent
3.3
Mostly Recommended
5
16.7
20.0
Moderately Recommended
12
40.0
60.0
Less Recommended
4
13.3
73.3
Not Recommended
8
26.7
100.0
Total
30
100.0
Source : Survey 2005
Another
lucrative
n=30
financial
incentive
is
globally
competitive
telecommunication tariffs. It is a fundamental backbone to ICT companies as they
rely on telecommunications entirely in order to conduct the business, but now, the
same competitive tariffs are offered anywhere in the world as the infrastructure
becomes more sophisticated and cheaper. This incentive has been ranked in the
middle ranges i.e. 50% (Table 5.25) and the reason for it can be because such
incentive is now being offered anywhere in the world as telecommunication
infrastructure is directly proportional to information technology infrastructure as the
example of Voice over Internet Protocol (VoIP).
153
Table 5.25 : Globally Competitive Telecom Tariffs
Ranking
Highly Recommended
Frequency
Percent
8
26.7
Cumulative
Percent
26.7
Mostly Recommended
7
23.3
50.0
Moderately Recommended
11
36.7
86.7
Not Recommended
4
13.3
100.0
Total
30
100.0
Source : Survey 2005
n=30
The incentive of giving priority to participate in the tender of key MSC
infrastructure project has not been major attraction (Table 5.26) at least for the
companies having more business on the local level and has not proven to be playing
a major role in attracting the companies to take up MSC status.
Table 5.26 : MSC Infrastructure tenders for MSC Companies
Ranking
Highly Recommended
Frequency
Percent
5
16.7
Cumulative
Percent
16.7
Mostly Recommended
9
30.0
46.7
Moderately Recommended
10
33.3
80.0
Less Recommended
5
16.7
96.7
Not Recommended
1
3.3
100.0
Total
30
100.0
Source : Survey 2005
n=30
The offer of Multimedia Development Corporation as being one stop agency
for all the companies taking up the MSC status is more of an administrative
incentive, facilitating companies willing to take up MSC status to meet the MSC
requirements has not proven to be the major attraction for the companies as a whole
accumulating to the total of nearly 47% (Table 5.27) it has fallen in the middle
ranges although being playing a major role in facilitating the MSC companies to run
their business at least in the case of this survey.
154
Table 5.27 : One-stop Super Shop MDC
Ranking
Highly Recommended
Frequency
3
Percent
10.0
Cumulative
Percent
10.0
Mostly Recommended
11
36.7
46.7
Moderately Recommended
11
36.7
83.3
Less Recommended
1
3.3
86.7
Not Recommended
4
13.3
100.0
Total
30
100.0
Source : Survey 2005
5.7
n=30
Conclusion
This chapter has achieved the objective to provide background understanding
towards the characteristics of the firm chosen as sample for the survey.
The
observation in this analysis has answered the questions to the factors that have
influenced the location decision for the companies taking up the MSC status. From
the observation it is evident that although quite a comprehensive incentive has been
offered in the MSC bill of guarantee to the companies taking up the status, the
leading attractive incentives remain that of giving exemption from taxes, the second
attraction has been of provision of world class physical and information
infrastructure followed by unrestricted employment of foreign workers. Other than
that it has also been observed that better and reliable infrastructures with connectivity
are the prime concerns for the information incentive firms and for that there is no
compromise. In addition to that it was observed that companies in time are to
consider separation of offices into front and back office subdivision as the
infrastructure and thus the connectivity is improved. The fact that MSC with its
incentives and infrastructure has been a driver for offices to decentralize in the Kuala
Lumpur Metropolitan Area has been evident.
CHAPTER 6
FACTORS LEADING TO DECENTRALIZATION OF OFFICE FIRMS
6.1
Introduction
In the previous chapter, the analysis of the response of companies to the
questionnaire survey has been done using frequency tables, graphs as well as with
cross tabulation to understand the response of the companies to the questions asked
regarding their decision to locate or relocate in the technology region of MSC. In
this chapter, the research hypothesis has been tested which hypothesizes that; the Bill
of Guarantees offered in the MSC policy, as a comprehensive and lucrative
incentive, has been the main driver of shift for the companies taking up the MSC
status and choosing to locate in the MSC physically.
The hypothesis has then been tested with a non-parametric analysis technique
of Mann- Whitney U test. The result of the hypothesis is expected to verify if the
companies are taking up MSC status for incentives offered in the BOG of MSC
policy.
156
6.2
Setting up of Variables
The task of evaluation will be achieved by assessing two groups from the
same population against the choice of major incentive to relocate from the MSC Bill
of Guarantees.
This include the offer of world class physical and information
infrastructure, allowance of unrestricted employment of foreign workers, the freedom
of ownership by exempting companies having MSC status from local ownership
requirements, allowance of sourcing funds and borrowing funds globally, up to ten
year exemption of income tax, having intellectual property protection and cyberlaws
in place, guaranteeing no censorship of internet, offering globally competitive
telecommunication tariffs, offering priory MSC infrastructure tenders to MSC status
companies and Multimedia Development Corporation as one-stop agency for solving
all matters relating to the MSC status.
6.3
Factors influencing decision to locate in the MSC area
A total of ten variables have been identified as the factors that are
influencing office decision to relocate. To assess the influence of these variables on
office location the hypothesis is tested using a statistical test. It was hypothesized
that office relocation is taking place towards the MSC due to the incentives offered
in the MSC Bill of Guarantees. In the end, factors related to ICT that influence
office location decision in the Kuala Lumpur Metropolitan Area will be identified.
6.4
Analysis of response towards the Bill of Guarantees.
The response of companies to the question regarding their choice of BOG
that has influenced their decision to obtain the MSC status and thus to relocate in the
157
technology region area. Table 6.1 shows the response in the value of over all average
of the scores responded to the ranking of BOG and in addition also shows the
standard deviation to every incentive’s choice of the companies.
Table 6.1: Summary of Response of companies to the Bill of Guarantees
No.
Bill of Guarantees
Mean Value
STD Dev.
X
σ
1
World Class Physical Infrastructure
4.03
1.03
2
Unrestricted Employment of Foreign Workers
3.80
1.21
3
Freedom of Ownership
3.13
1.10
4
Global Sourcing of Funds
3.27
1.10
5
Tax Exemption
4.50
1.03
6
IPP and Cyberlaws
3.30
1.06
7
No Censorship of Internet
2.57
1.20
8
Competitive Telecomm Tariffs
3.50
1.28
9
MSC Infrastructure tenders
3.40
1.11
10
One Stop MSC Supershop
3.27
1.14
Source : Survey 2005
n=30
According to table 6.1 it is evident that tax exemption has been the most
attractive incentive for the companies to relocate in this area with the average of 4.50
and standard deviation of 1.03 (according to the standard deviation it has been
ranked at a close interval by the sample population). The attractive incentive is then
followed by the world class infrastructure provision with the average of 4.03,
proving to be up to the expectation of the technology intensive companies. The
standard deviation for this incentive remains at the same interval of 1.03. Then, the
attraction for the unrestricted employment of foreign workers has been noted with
the average of 3.80 and standard deviation of 1.21. This may be because many of
the local companies do not seek foreign workers for their companies.
158
The rest of the incentives has been ranked in the middle ranges with the
exception of “No censorship of internet” with the average of 2.57 and standard
deviation of 1.20 as it has been ranked lower by most of the companies.
6.4.1 MSC status and the Ownership of Companies
There is no significant difference in the companies’ choice of incentives and
the ownership. The incentive of global sourcing of funds, one stop MSC super-shop,
IPP and Cyberlaws and MSC infrastructure tender priority has been ranked higher on
the scale by Local companies as compared to foreign owned ones. (Figure 6.1),
therefore, the choices have not been seen effected by the companies’ origin.
World-class Physical Infrastructure
5
Unrestricted Employment of Foreign
One Stop MSC Supershop
4
Workers
3
MSC Infrastructure Tenders
2
1
Freedom of Ownership
0
Global Sourcing of Funds
Competitive Telecom Tariff
No Censorship of Internet
Tax Exemption
IPP and Cyberlaws
Average
Local
Foreign
Source : Survey 2005
Figure 6.1: Response of Foreign and Local Companies to MSC’s Bill of
Guarantees
n=30
159
6.4.2 Location Time Period and MSC Status
By the data gathered it was clearly seen that with the passage of time and
outsourcing of business to the cheaper locations world over, the attraction to the
incentives offered has differed. Companies that have taken up the MSC status before
five years have ranked tax exemption offer in Bill of Guarantees as high attraction
(Figure 6.2). Later on, for the companies choosing to locate in the MSC area it was
not that attractive. It has been noted that with the passage of time, global sourcing of
funds and freedom of ownership by exempting foreign companies from local
ownership requirements and freedom to source funds globally has become of more
higher a choice as compared to older companies.
It also concluded that more
companies have located in the MSC within last five years than before.
World-class Physical Infrastructure
5
Unrestricted Employment of Foreign
One Stop MSC Supershop
4
Workers
3
MSC Infrastructure Tenders
2
1
Freedom of Ownership
0
Global Sourcing of Funds
Competitive Telecom Tariff
No Censorship of Internet
Tax Exemption
IPP and Cyberlaws
Source : Survey 2005
Figure 6.2:
Average
1 to 5 Years
More Than 5 Years
n=30
Response of Companies to MSC’s Bill of Guarantee by time of
inception.
160
6.4.3 Private and Public Listed Companies and Location Choice
There was a significant difference seen in the attraction to the incentives
offered by the MSC between the public listed and private companies as private
limited companies are seen to be more attracted towards taking up of the special
status.
This may be due to the fact that out of 30 companies responses only 4 are
public listed or GLC and rest are private companies (Figure 6.3). Furthermore, such
difference in the response may be due to the security of business in the public sector
or due to the fact that many companies in the technology region are still in their
infancy.
It has also been observed that regardless of any characteristics of the
companies locating in this region, tax exemption has been the top attraction for
information intensive companies as it has been ranked above the provision of
suitable infrastructure in place.
World-class Physical Infrastructure
One Stop MSC Supershop
MSC Infrastructure Tenders
5
4
3
2
1
0
Unrestricted Employment of
Foreign Workers
Freedom of Ownership
Global Sourcing of Funds
Competitive Telecom Tariff
No Censorship of Internet
Tax Exemption
IPP and Cyberlaws
Average
Sendrian Berhad
Public Listed
Source : Survey 2005
n=30
Figure 6.3: Response by Public Listed and Private Companies to MSC’s Bill of
Guarantees
161
It was also observed that companies located in the MSC area highly rely on
internet as the basic mode of communication. Although having options of having
possibilities of setting up their own networks they depend on the bandwidth
infrastructure provided by the MSC. This shows companies trust on reliability of the
available telecommunication infrastructure.
6.4.4 The Location Choice of Finance, Insurance and Real-estate Sectors
As FIRE sectors have the major role in development of the economy, their
perception towards the choice of BOG offered has been noted significant.
The FIRE sector has chosen the incentives of tax exemption as the most
attractive incentive for their relocation in the area, followed by the freedom to
employ foreign workers and then the provision of good infrastructure (Figure: 6.4).
The reason for tax exemption has been to secure profits while to employ foreign
workers has been because the FIRE companies have dispersed operations all over the
world and also that this is to facilitate them to breach the gap between the local and
international labor skills. Thus such has been the expectation of the survey on the
choice of BOG by FIRE related companies.
The sample selected has been divided into two groups of FIRE sector and
other information intensive companies.
There has not been seen a significant
difference in the FIRE and other information intensive companies towards the
response to the MSC’s offered incentives. This concludes that all information and
communication intensive companies basically, have the similar needs and
requirements for the business.
162
World-class Physical Infrastructure
5
Unrestricted Employment of Foreign
One Stop MSC Supershop
4
Workers
3
2
MSC Infrastructure Tenders
Freedom of Ownership
1
0
Global Sourcing of Funds
Competitive Telecom Tariff
No Censorship of Internet
Tax Exemption
Average
IPP and Cyberlaws
FIRE
Other
Source : Survey 2005
n=30
Figure 6.4. Response of Sector wise companies towards the MSC Bill of
Guarantees
6.5
The Hypothesis of Study
In this study it was hypothesized that; “Due to advanced ICT infrastructure
and incentives provided by the MSC, global as well as local business companies are
moving from the city centre towards the MSC in order to get maximum output of the
advanced infrastructure and greater incentives offered by the MSC development
policies.” As high utilization of ICT enables these firms to operate from location
away from the city centre as well as greater financial and physical incentives offered
allow
them
to
keep
pace
with
latest
technological
advancement.
The hypothesis can further be explained that MSC with its infrastructure is
seen to be one of the best places to attract local as well as global companies to locate
163
their functions.
Furthermore, MSC should be an attractive location for such
technology companies because of its comprehensive bill of guarantees.
6.6
Method For Testing Hypothesis
In this study, for the testing of hypothesis, the statistical technique of MannWhitney U test has been used. It is a simple test of finding a significant difference
between two sample sets of data. It tests whether the two sets of data differ from
each other on ranked scores. It is a non parametric test, which means it is not
restricted by any assumption about the nature of population from which the sample
has been taken.
Mann-Whitney U test provides a valuable alternative to student’s t test in
many cases when comparing samples of normality are quite unrealistic. The t test
becomes invalid and thus, the nonparametric test of Mann-Whitney is always used.
The Mann-Whitney U test is a test significance of difference between the
medians of two samples. The null hypothesis is that the two samples are taken from
the same population and there should not be a consistent difference between the two
sets of values while the alternate hypothesis is set as that the companies have not
favored the bill of guarantees offered in MSC policy and it has no significance. The
population is then divided into two groups according to the time duration located in
the MSC consisting of companies located there, longer than five years and
companies located less than five years and then been tested on the hypothesis.
The sample has been distributed into the two groups according to the time of
location in the area. This was to understand the difference in response of companies
164
taking up the MSC status in the initial development phase and later on when it was
well into development. This was expected to show some difference in the choice of
incentives offered in the MSC policy as driver to shift office from existing location
overtime.
6.7
Factors that Drive Firms to Relocate
According to the conclusion of data analysis in chapter five, the reason for
companies to chose MSC has been its attractive BOG, especially the incentive of tax
exemption and freedom to employ foreign workers as well as that of best
infrastructure provision.
In this section, two types of drivers has been identified. Firstly, the factors
that have attracted the companies in the case of MSC and Malaysian context.
Secondly, the response that has been gathered from the companies during the survey
conducted on the factors, identified from literature, that are the driver for a shift or a
division of an information intensive company.
6.7.1 Factors Driving Companies to MSC Area
The major factor and the driving force that lured the companies to take up the
MSC status and thus to decentralize is the bill of guarantees offered in the MSC
policy. Companies with MSC status are entitled to enjoy the incentives and benefits
backed by the Malaysian Government's Bill of Guarantees.
The Malaysian
Government commits the following under the Bill of Guarantees to these companies:
165
a)
Provide a world-class physical and information infrastructure
b)
Allow unrestricted employment of local and foreign knowledge workers
c)
Ensure freedom of ownership by exempting companies with MSC status from
local ownership requirements
d)
Give the freedom to source capital globally for MSC infrastructure and the
right to borrow funds globally
e)
Provide competitive financial incentives, include Pioneer Status (100% Tax
Exemption) for up to ten years or an Investment Tax Allowance for up to five
years, and no duties on the importation of multimedia equipment
f)
Become a regional leader in intellectual property protection and cyber laws
g)
Ensure no censorship of the Internet
h)
Provide globally competitive telecommunication tariffs
i)
Tender key MSC infrastructure contracts to leading companies willing to use
the MSC as their regional hub
j)
Provide a high-powered agency to act as an effective one-stop super shop.
It is a comprehensive incentive for companies already located in Kuala Lumpur
and also for the companies outside the country to locate in the MSC area.
Malaysian government is committed to the development of the country on the
lines of knowledge based economy for which MSC has been chosen as a test bed for
nurturing the local SME’s to work in hand with international competitors in the
global market and thus get benefit of transfer of high-end technology and become
self reliant overtime.
6.7.2 Factors Identified as Driver of Shift by Respondents
After the review of international studies, in chapter two, certain factors were
identified which play a major role in company’s decision location. Thus, those
166
factors were given a choice by the companies as they decide what would be a driver
for them to move the existing setup to another location.
Table 6.2 shows that companies decide to locate office on the provision of
better infrastructure to do business followed by reliability of connectivity with major
nodes of information.
Furthermore, on the tax incentives offered by the local
government. While low telecommunication tariffs, land cost and area prestige fall in
the second phase of location decision. It showed that most important factor remains
the best possible infrastructure.
Table 6.2 : Driver to Move Office from Existing Location
Driver for Shift
Yes
No
Yes (%)
Better infrastructure
21
9
70.0
Area Prestige
10
20
33.3
Easy Access to Office
9
21
30.3
Connectivity
19
11
63.3
Labor Cost
7
23
23.3
Low Telecommunication Tariffs
13
17
43.3
Low Taxes
18
12
60.0
Security
7
23
23.3
Land Cost
11
19
36.7
Competitive Conditions
9
21
30.0
Other
1
29
3.3
Source : Survey 2005
n=30
Out of overall population, 14 companies which had the tendency to separate
the front and back offices responded that better infrastructure remains the prime
concern to locate back offices followed by better and reliable connectivity and then
low taxes offered (Table 6.3).
The high percentage of demand for better
infrastructure and connectivity in back-office location choice is because of security
167
needs and need of ample bandwidth with connection reliability with front-end office
on 24 hour a day basis.
Table 6.3 : Driver to Move Back-office from Existing Location
Yes Percentage
Driver for Shift
Yes
No
(%)
Better infrastructure
11
1
91.6
Area Prestige
3
9
25.0
Easy Access to Office
5
7
41.6
Connectivity
8
4
66.6
Labor Cost
4
8
33.3
Low Telecommunication Tariffs
4
8
33.3
Low Taxes
7
5
58.3
Security
2
10
16.7
Land Cost
6
6
50
Competitive Conditions
3
9
25
Other
2
10
16.7
Source : Survey 2005
n=30
It was expected in order to continue to make profit to the firms and remain in
competition with the global business, companies first preference will be low taxes,
labor cost and land cost. However, in opposition, it was noted that companies decide
to relocate, first, on quality infrastructure and reliability and then, they consider the
cost of doing business in terms of labor cost, telecommunication tariffs, land cost etc.
Thus it shows that the development of better infrastructure and communication
reliability and development, more local as well as international companies will be
attracted towards this region of South Asian growth.
168
6.8
Testing of Hypothesis
The hypothesis has been that; “Due to advanced ICT infrastructure and
incentives provided by the MSC, global as well as local business companies are
moving from the city centre towards the MSC in order to get maximum output of the
advanced infrastructure and greater incentives offered by the MSC development
policies”.
The basis for this hypothesis is that, MSC is offering a lot of incentives in a
very comprehensive bill of guarantees of the MSC development policy, which should
be an attraction to companies that are high level users of ICT.
The hypothesis of this study has been tested by using Mann-Whitney U test
by commonly available computer software SPSS.
SPSS is an abbreviation of
Statistical Product and Service Solutions (formerly Statistical Package for the Social
Sciences), and it is distributed by SPSS Inc. of Chicago, Illinois, USA.
The hypothesis assumes, that offices located in the MSC during different time
periods i.e. up to 5 years and more than 5 years do not have a significant difference
towards the relocation on the choice of BOG offered. It has also been assumed that
there is no difference in the response towards the BOG by local and foreign
companies as all technological intensive firms and they both have the same choices
for ease of doing business anywhere in the world.
The null hypothesis is that the two samples (divided by time duration of
location in the area) are taken from a common population having similar
characteristics and thus, there is no consistent difference in the two sets of values on
the choice of location in the MSC area with response to the BOG offered.
169
Thus, the hypothesis has been tested on the response of every incentive
offered in the Bill of Guarantees separately for any consistent or noteworthy
difference present.
The survey population has been divided into 2 groups according to the time
of location in the technology region of MSC. Out of overall population of 30, there
were 10 companies that has been located in the area since more than five years while
20 companies were located in the area since five years. The ranking of incentives
offered in the MSC policy, for the choice by them to locate in this area (Table: 6.4)
was calculated in order to prepare the data for testing by Mann-Whitney U test.
170
Table 6.4 : Ranks of Bill of Guarantees
Bill of Guarantees
World Class
Physical/Information
Infrastructure
Unrestricted Employment
of Foreign Workers
Freedom of Ownership
Global Sourcing of Funds
Tax Exemption
Intellectual Property
Protection & Cyberlaws
No Censorship of Internet
Globally Competitive
Telecom Tariffs
MSC Infrastructure
tenders for MSC
Companies
One-stop Super Shop
MDC
Source : Survey 2005
Time Located
one to 5 years
N
Mean Rank
Sum of Ranks
20
14.55
291.00
more than 5 years
10
17.40
174.00
Total
30
20
14.50
290.00
more than 5 years
10
17.50
175.00
Total
30
one to 5 years
more than 5 years
20
10
16.05
14.40
321.00
144.00
Total
30
one to 5 years
more than 5 years
20
10
17.33
11.85
346.50
118.50
Total
30
one to 5 years
more than 5 years
20
10
14.30
17.90
286.00
179.00
Total
30
20
16.03
320.50
more than 5 years
10
14.45
144.50
Total
30
one to 5 years
more than 5 years
20
10
16.80
12.90
336.00
129.00
Total
30
20
14.35
287.00
more than 5 years
10
17.80
178.00
Total
30
20
16.18
323.50
more than 5 years
10
14.15
141.50
Total
30
20
16.60
332.00
more than 5 years
10
13.30
133.00
Total
30
one to 5 years
one to 5 years
one to 5 years
one to 5 years
one to 5 years
n=30
According to table 5.18, 66.7% of the firms has ranked the incentive of world
class infrastructure provision to be the most attractive incentive offered in the BOG
for them to take decision to locate in the area. It also means that infrastructure is
171
important to the companies locating in the technology region to enable them to
conduct their businesses.
The null hypothesis is that, both samples of respondents come from the
similar distribution and there is no significance difference in their choice to locate in
the MSC. According to table 6.5 world class physical and information infrastructure
do not fall within the critical value of U which is calculated at 62.000. Thus, the
hypothesis is proven to be true for this incentive offered in MSC’s BOG.
Table 6.5: Provide a world-class physical and information infrastructure.
MannU-Critical
Wilcoxon W
Z
Asymp. Sig.
Whitney U
Value
(2-tailed)
81.000
62.000
291.000
-.891
.373
Source : Survey 2005
n=30
The population of 63.3% stated that foreign workers are key to their
development and have been the driver for their choice of location in the MSC area. It
has been shown of more a choice by the companies located in the area since more
than five years.
Earlier analysis shows that this incentive offered has been the choice of the
companies at an average of 4.03 with standard deviation of 1.21 (Table: 6.1). The
hypothesis is that the two samples of population of companies located in the area
since five years and more than five years do not have a consistent difference in the
choice of this incentive to locate in the area.
Therefore, at the level of 0.10
significance the test showed the significance of 0.360 (Table: 6.6) the null hypothesis
has been accepted.
172
Table 6.6:
Allow unrestricted employment of local and foreign knowledge
workers.
MannU-Critical
Whitney U
Value
80.000
62.000
Source : Survey 2005
Wilcoxon W
Z
290.000
-.916
Asymp. Sig.
(2-tailed)
.360
n=30
As mentioned earlier, ensuring freedom to own properties in the MSC has not
been noted as major attraction of the companies, the response to this incentive has
been same in two sets of data and thus at the significance level of 0.10 with the result
of 0.613 (Table: 6.7), the null hypothesis has been accepted that there is no
difference in choice of this incentives by the companies.
Table 6.7:
Ensure freedom of ownership by exempting companies with MSC
status from local ownership requirements.
MannU-Critical
Whitney U
Value
89.000
62.000
Source : Survey 2005
Wilcoxon W
Z
144.000
-.506
Asymp. Sig.
(2-tailed)
.613
n=30
The freedom to source capital globally is a must for companies participating
in global business. This incentive has been offered to enable companies to do
business in a more free manner. This incentive has been of more concern for the
companies locating in the area since five years as they are more high level user of
information and thus need to have transactions from different parts of world. It also
shows that the companies located in MSC are taking more part in the global business.
This incentive has shown significance of 0.094 (Table: 6.8) and has been very close
to the level of significance at the 0.10 significance but even in this case the null
hypothesis is accepted.
173
Table 6.8:
Give the freedom to source capital globally for MSC infrastructure
and the right to borrow funds globally.
MannU-Critical
Whitney U
Value
63.500
62.000
Source : Survey 2005
Wilcoxon W
Z
118.500
-1.675
Asymp. Sig.
(2-tailed)
.094
n=30
Tax exemption has been the most highly ranked incentive by the companies
locating in the MSC with an average of 3.27 and standard deviation of 1.03 (Table:
6.1). In the case of this incentive it has shown a significance of 0.205 (Table: 6.9).
This incentive is attractive because it gives companies an opportunity to secure more
profits. At the significance level of 0.10 the null hypothesis has been accepted as this
incentive has been of the primary choice of the companies locating in the MSC
regardless of the time of location in the area.
Table 6.9:
Provide competitive financial incentives; include Pioneer Status
(100% Tax Exemption) for up to ten years or an Investment Tax
Allowance for up to five years, and no duties on the importation of
multimedia equipment.
MannU-Critical
Whitney U
Value
76.000
62.000
Source : Survey 2005
Wilcoxon W
Z
286.000
-1.266
Asymp. Sig.
(2-tailed)
.205
n=30
Intellectual property protection and cyberlaws for the copyright protection of
online content is an incentive offered to safeguard the new and upcoming ideas of the
ICT industry. The null hypothesis in this case again, has been that the companies
locating in the area for less than five years and the companies after five years have
no consistent difference towards the choice of this incentive to locate in the
technology region area. According to table 6.1 this incentive has been ranked at an
average of 3.30 with the standard deviation of 1.06 as it has not been the major driver
for companies to move towards the MSC. Thus, at the significance level of 0.63
174
(table:6.10) with the level of confidence at 0.10 the null hypothesis has been
accepted.
Table 6.10:
Become a regional leader in intellectual property protection and cyber
laws.
MannU-Critical
Whitney U
Value
89.500
62.000
Source : Survey 2005
Wilcoxon W
Z
144.50
-.482
Asymp. Sig.
(2-tailed)
.630
n=30
According to the analysis in chapter five this incentive of ensuring no
censorship of internet and content has been ranked by 20% of overall sample.
Furthermore, according to table 6.1 this incentive has been ranked at 3.30 of average
with standard deviation of 1.20 on the scale of one to five with one as the lowest and
five as the highest level. This incentive offered is the one that is not offered even by
many of the developed regions as there are still reservations found to such liberty due
to the sensitivity of content available online.
In this case, at the confidence level of 0.10 in opposition to the significance of
0.231 obtained from the survey (table: 6.11) the null hypothesis has been accepted
with no consistent difference in the choice of location with reference to the BOG
offered by the MSC.
Table 6.11:
Ensure no censorship of the internet.
MannU-Critical
Whitney U
Value
74.000
62.000
Source : Survey 2005
Wilcoxon W
Z
129.000
-1.198
Asymp. Sig.
(2-tailed)
.231
n=30
175
The incentive offered to provide globally competitive telecommunication
tariffs to the companies taking up the MSC status is a lucrative financial benefit.
Telecommunication and the costs attached with it are fundamental to conducting
business in ICT sector. This incentive has been ranked at an average of 3.50 with
standard deviation of 1.28 (Table: 6.1) at the middle ranges of ranks. Hypothesizing
that there is no difference to the choice of this incentive by the two group of
companies, null hypothesis has been accepted as it showed a significance of 0.231 at
the confidence level of 0.10 (Table: 6.12).
Table: 6.12
Provide globally competitive telecommunication tariffs.
MannU-Critical
Whitney U
Value
77.000
62.000
Source : Survey 2005
Wilcoxon W
Z
287.000
-1.056
Asymp. Sig.
(2-tailed)
.231
n=30
This MSC infrastructure tender contract incentive has been offered to give
priority to the companies with the special status to participate in the tenders of key
infrastructure projects in the MSC. It has been marked at the percentage of 46.7%
(Table: 5.26) by the MSC status companies with an average of 3.40 and standard
deviation of 1.11 (Table: 6.1). Thus in this case as well with the significance of
0.537 at the level of 0.10 confidence, the null hypothesis has been accepted as the
critical value of U=62 show a greater difference from the value obtained from the
test at Mann-Whitney U= 86.5 (Table: 6.13).
Table 6.13:
Tender key MSC infrastructure contracts to leading companies willing
to use the MSC as their regional hub.
MannU-Critical
Whitney U
Value
86.500
62.000
Source : Survey 2005
Wilcoxon W
Z
141.500
-.617
Asymp. Sig.
(2-tailed)
.537
n=30
176
To facilitate the companies taking up the MSC status, an incentive has been
offered for them to have all the necessary documentation and legalities completed
from one place that is, the MDC. This incentive has been an administrative incentive
for companies. This incentive has been ranked at the average of 3.27 with standard
deviation of 1.14 (Table: 6.1). At the confidence level of 0.10 with significance
shown in the Mann-Whitney test at 0.307 (Table: 6.14), null hypothesis has been
accepted that there is no consistent difference by the companies on choice of this
incentive to taking up the MSC status.
Table 6.14:
Provide a high-powered agency to act as an effective one-stop super
shop.
MannU-Critical
Whitney U
Value
78.000
62.000
Source : Survey 2005
6.9
Wilcoxon W
Z
133.000
-1.021
Asymp. Sig.
(2-tailed)
.307
n=30
Conclusion.
Testing of hypothesis has shown a significant difference in two variables of
tax exemption and global sourcing of funds as been summarized in table: 6.15. As
tax exemption was the top choice for taking up MSC status by the companies
locating in the area before 5years of time which has become less important overtime
and it was envisaged that companies taking up the MSC status now are valuing the
allowance of global sourcing of funds and to borrow funds globally in addition to
other incentives offered. Therefore, it is concluded as that the choice to relocate
overtime is proportional to overall competition in global market for which a long
term policy is not a recommendation but there is a need of change in policies at a
certain interval of time according to the market politics.
177
Table 6.15:
Summary of Mann-Whitney U test
Mann-Whitney U @
Asymp. Sig.
Critical Value (62.000)
(2-tailed)
World Class Physical Infrastructure
81.000
0.373
Unrestricted Employment of Foreign
80.000
0.360
Freedom of Ownership
89.000
0.613
Global Sourcing of Funds
63.500
0.094
Tax Exemption
76.000
0.205
IPP and Cyberlaws
89.500
0.630
No Censorship of Internet
74.000
0.231
Competitive Telecomm Tariffs
77.000
0.231
MSC Infrastructure Tenders
86.500
0.537
One Stop MSC Supershop
78.000
0.307
Bill of Guarantees
Workers
Furthermore, on the questions of comments and suggestion asked from the
population two major factors has been identified in order to make the MSC more
attractive. One has been the rental rates in the MSC are too high and that there is not
enough space or very little space for organizations who choose to locate in the MSC
with the rates even higher than any prime location in the city centre. The other point
highlighted has been the lack of public amenities as public call booths, food outlets,
recreation spaces etc.
therefore, more public spaces should be provided for
population in the MSC to make it more attractive for the companies relocation in this
area.
CHAPTER 7
CONCLUSION AND RECOMMENDATION
7.1
Introduction
The final chapter aims to conclude the findings of the study on the impact of
Multimedia Super Corridor on office decentralization from City of Kuala Lumpur.
It underlines the impacts and contribution of this study to the field of urban planning.
The proposed policy recommendation aimed to promote office decentralization
through more attractive MSC infrastructure and the BOG. The chapter also outlined
recommendation for further research on this topic.
It has been noted that major factor for companies to take-up the MSC status
remains the lucrative incentives offered in the bill of guarantees of the MSC policy,
besides the proper infrastructure in place to complement information oriented
business setups.
179
Besides the BOG offered the other factor for companies to decentralize is
increasing congestion in the city while MSC offer open spaces as well as ‘smart’
buildings with infrastructure which is covered under the financial penalties in case of
any failure. Thus, although it was envisioned that the rental rates are higher to locate
in the MSC i.e. RM 4.00 to RM 5.00 per sq ft, the companies will choose the area to
relocate.
The objectives for this study have been set up to identify the factors due to
which the decentralization of office spaces is taking place from the CBD of Kuala
Lumpur towards the MSC area. It also aimed to identify the effects of technology on
decentralization of the city and the driver for such decentralization. The study
analyzes and assesses the effectiveness of existing (BOG) offered by the MSC for
offices to move physically to the development area and to recommend a future policy
direction for the existing development policy. All of the objectives that were setup
for this study have been achieved and are further discussed in this chapter.
7.2
Information and Communication Technologies and Office
Decentralization
The emergence of information and communication technologies in recent
years and its relationship with office location has become the focus of increased
studies.
This development is mainly due to the rapid changes experienced in
contemporary cities such as; as Ireland and Bangalore in India. For the past 20 years,
cities in developed nations have experienced massive restructuring as the economy
developed from one stage of development to the other. One of the major changes is
globalization which has prompted the intensification of competition at the global
level. This has facilitated the transformation of urban economy from primarily
manufacturing based into producers and consumer services based knowledge
180
economy. This development has shifted manufacturing activities to be shifted to the
newly industrialized and developing countries.
This transfer of activities and technologies, which involved large scale
investment, has created a variety of workers in various locations in the world. The
expansions of businesses have lead to the dispersion of markets and workers. This
has caused manufacturing giants to be replaced by more responsive global network
corporations.
In the process, flexible work arrangements and management
approaches suitable to the robust international business were being increasingly
adopted.
Global operations and the change in work style have encouraged the
emergence and wide acceptance of information and communication technologies in
all level of office activities. These technologies facilitate efficient management and
communication within or outside organization.
The improved features of these
technologies supported advance communication and transaction. This has increased
office location freedom and the possibility for offices to decentralize.
7.3
The Focus of the Study
The focus of the study was primarily to investigate the effect of MSC in
promoting the decentralization of economic activities from the City of Kuala
Lumpur. The study has assessed the relationship between office location decision
and offices decision to decentralize, the response of foreign and local companies to
the bill of guarantees offered by MSC, the market share in regional and global
economy of firms' business type and size.
An intensive study of literature on such technology regions was conducted as
briefly described in chapter two to identify the factors that play major role in
181
decision of companies to choose a region for their relocation in ever competitive
global market.
7.4
Major Findings of the Study
A sample survey of respondents was conducted to gather information on
various aspects related to the firms profile and characteristics. Furthermore, the
response was gathered to envisage the firms response towards the bill of guarantees
offered in the MSC policy to attract local and foreign companies. The survey has
successfully gathered responses from 30 samples of firms.
The purpose of the analysis is to investigate the effectiveness of bill of
guarantees offered and evaluate the office decision to relocate in the MSC.
The
result of the analysis showed that the major factor for the companies to relocate in
MSC has been the exemption of income tax for up to ten years. One of the major
concerns of the companies in the information age is to save on costs, followed by the
offer of a sophisticated infrastructure which compliments the information intensive
companies as reliability of the information infrastructure is the prime concern for the
companies dealing with the information based business.
The association is measured on the time of location in the MSC area. It was
assumed in the study that a comprehensive bill of guarantees offered has been the
major driver for the companies to move towards the MSC. The variables set for
analysis, has been the companies taking up MSC status for more than last 5 years and
the ones that have taken up the status less than 5 years.
The two groups of
companies were then analyzed against the variables of bill of guarantees offered in
the MSC policy using statistical technique of Mann-Whitney U test. It was clearly
seen that with the passage of time and outsourcing of business to the cheaper
182
locations world over, the attraction to the incentives offered has differed as
companies taking up the MSC status before five years has ranked tax exemption
offer in bill of guarantees as high attraction, later on, for the companies choosing to
locate in the MSC area it was not the major choice. Global sourcing of funds and
freedom of ownership by exempting foreign companies from local ownership
requirements and freedom to source capital globally has become of more high a
choice as compared to older companies. It also concluded that more companies have
located in the MSC within last five years then before that time. It was observed that
companies located in the MSC area highly rely on internet as the basic mode of
communication.
It has been noted that local companies participate in the business mostly in
the local context or in the south Asian region but some have quite high percentage of
export as well (Table 5.2).
Secondly, consultancy and software development
companies are more in global business participation than the companies dealing in
FIRE sector. At the same time It was seen that SME’s are taking part in local, south
Asia and global markets quite significantly which is a sign of growth in local context
and participation in global marketplace.
It has been observed that although comprehensive incentives has been offered
in the MSC bill of guarantee to the companies taking up the status, the leading
attractive incentives remain that of giving exemption from taxes and employment of
foreign workers. Other than that, it has also been observed that better and reliable
infrastructure with connectivity are the prime concerns for the information intensive
firms and for that, there is no compromise. In addition to that, it was also observed
that companies in time are to consider separation of offices into front and back office
subdivision as the infrastructure and thus the connectivity is improved. The fact that
MSC with its incentives and infrastructure has been a driver for offices to
decentralize in the Kuala Lumpur Metropolitan Area has been evident in the case of
companies taking up the status.
183
7.5
Additional Measures to Encourage Offices to Decentralize towards MSC
In the questionnaire there has been open ended questions to find out any other
reason for companies to take up the MSC status besides the bill of guarantees
offered, what other incentives should be offered to bring more attraction to MSC and
any problems that might have been encountered after taking up the MSC status.
There have been some responses gathered to these questions which conclude that;
a) MSC status is a recognition and brings confidence to companies holding the
status to deal with local and overseas companies. It was also stated that this
status gives ability to a local company to compete with the foreign ICT
companies.
Another reason has been, to be more active in research and
development as MSC is promoting activities in research and also that this region
supports companies in incubation with financial and technical support, thus,
nurturing them to develop overtime.
b) The satisfaction on the MSC incentives offered was identified but much
concern was noted emphasizing high rental, infrastructure cost as well as the
transport network and other amenities such as; restaurants, shopping centers,
petrol stations and telephone booths not being completely developed and
reluctances of client and others to travel to the MSC, for which, the designated
area was suggested to be increased or made borderless. It was also suggested
that, it should be ensured that MSC status companies are developing international
standard product, by introducing more partnerships with multinational companies
and introducing more Malaysian companies to reach out to global markets to
compete in the rapid technological changes.
184
7.6
The Implication of the Study Findings to Urban Decentralization Policy
Currently, the strategy of dispersed development is adopted in the City of
Kuala Lumpur.
This policy aims at attracting urban economic activity such as
information intensive services to the designated area.
However, the pace of
dispersal has been slow after nearly ten years of implementation.
Therefore, ICT
could be incorporated as one of the possible means to encourage office
decentralization.
The aspects that should be looked into include the level of
communication utilization, sophistication, business type and firm size.
These are
factors that influenced office location in the city.
However, in this study, the majority of the businesses are of the IT related
companies that are reluctant to locate in areas designated for them. These firms in
the long run will locate in the MSC area due to the proper and sophisticated
infrastructure.
This will help to achieve the aim of development with moderate
dispersal in the area.
To provide an alternative, back office activities, should be
encouraged to decentralize.
Back offices usually manage execution works and are
functionally the most location-free office activity. Therefore, if these activities were
decentralized, the communication between these offices and headquarter could be
easily maintained via the use of office automation supported by ICT. Thus, the cost
of maintaining back office operations in the suburban centers could become more
economical. In the United States, back offices account for the bulk of decentralized
offices that have taken place since the late 1960's.
The separation of routine and non-routine (operational) office activities to
the suburban and the city centre could create a situation where only office activities
that required frequent and instant face-to-face meeting with others for the purpose
of information exchange, discussion, business negotiation and transaction, would
locate in the CBD. While routine works that require less physical meeting or those
that are conducted on project basis and R&D could be located in areas outside the
city centre.
This would help release congestion in the city centre and reduce the
185
diseconomies of central location such as high office rent, high travel demand into
the city centre, commuting work trips and air pollution.
On the other hand, the current decentralization trend of small and medium
size firms to the urban periphery should be encouraged to continue because these
office activities would provide employment and catalyze economic growth in areas
outside the city centre.
banks,
finance,
The concentration of headquarters activities from the
insurance,
IT
and
telecommunication
sectors
and
the
decentralization of back offices and smaller real estate, property, engineering
functions and R&D to the urban periphery, the objective to achieve moderately
disperse development in the City of Kuala Lumpur could be obtained.
7.6.1 The Implementation of Decentralization Policy
For the current policy major steps need to be taken to develop a more
integrated transport network system between the MSC and the city. This can be
achieved by collaboration of the road transport via timely accurate shuttle services
with higher frequency with the KLIA transit railway link already in place. At the
same time more public amenities should be put into place in order to meet an
increasing demand as well as designating more area for companies locating in the
MSC thus bringing the occupancy cost lower.
186
7.7
The Contribution of Study to Urban Planning
In the field of urban planning, the relationship between ICT and office
development has created new interest in the study of office location and its relation
with technological determinant. This study is a value added study which provides
deeper understanding towards the influence of ICT on office location and also
decentralization in contemporary city.
This understanding is essential for urban
planners to face new challenges in the future pertaining to issues related to office
development in the information era.
The influence of ICT factors on office
location decision is expected to impose challenges to the existing planning
guidelines for economic development.
These new changes in the urban scenes
would prompt urban planners to view office development from different and multiborder perspectives.
In land use planning, the increase in office decentralization might require
planning considerations on office development in the CBD.
This could include
higher demand for compact office units and offices with smaller space to
accommodate downsizing and emerging firms.
There could also be increased
demand for ICT ready automated offices in the future when more offices begin to
use more ICT applications.
This development could prompt more companies to
locate in the technology region in the future as the requirement for office space in
reduced.
Communication infrastructures and services to the city centre and urban
periphery might rise due to increase demand in these areas and the increase in the
substitution of face-to-face meetings with reliable ICT’s. At the end, these changes
will create sustainable urban working and living environment in the city centre.
The implications of ICT on urban planning would hence be studied further to
produce more focused and relevant planning policy adaptive to the new and vital
changes in contemporary cities.
187
7.8
Recommendation for Future Studies
This study has focused on a sector of urban planning which explore the
relationship between communication technologies and office decentralization.
Nevertheless, this is only a small portion of a larger picture on the relationship
between these new technologies and decentralization in the case of MSC. In order
to provide a broader view into these two subjects, more research should be carried
out. The studies could concentrate on a few issues related to office decentralization
and communication technology.
First, it could be focused on the cost and benefit
analysis of office decentralization under the influence of ICT.
This could include
the cost and benefits of whole or partial decentralization, the pattern of office
decentralization, the role of future city and CBD under the influence of these new
technologies, the economic development of city and region in the information era,
the benefit of decentralization to employers and employees, the cost and benefits of
decentralization to transportation supply and demand, the environment, society and
community.
Secondly, future studies could also explore the impact of decentralization by
ICT on existing planning guidelines and development policies, which do not cater
for the impact of information technology on the development of city and region by
providing concrete answers to these research issues. Planning authorities at local
and national level, employers and employees, NGOs, think tank groups,
academicians and interested groups and individuals could evaluate the potential of
office decentralization under the influence of information and communication
technologies and thus can participate in more comprehensive planning strategies in
the other cities of Malaysia to achieve the vision towards the knowledge based
economy.
188
7.9
Conclusion
This study has focused on the factors contributing to office decentralization in
a rapidly expanding urban region. It is indeed an important and significant research,
especially in developing countries where the study of this nature is relatively recent.
This study has provided the urban researchers, urban planning practitioners, planning
authorities, NGO’s, think tank groups and related individuals some insights into the
relationship between office decentralization and ICT.
This study could become an important reference in the formulation of
appropriate planning policies and strategies in relation to office development in
technology based cities in this country. This study has achieved the objectives set
earlier at the beginning of this research. It has identified the varying impact of ICT
on the location decision of offices and their decisions to decentralize due to
incentives offered in the bill of guarantees of MSC policy. The research hypothesis
that the attractiveness of incentives offered is the major driver for companies to shift
towards the MSC has been proven true with difference of choice by the companies’
age of location. This study has also suggested some policy directions for the future.
189
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APPENDIX A
FACULTY OF BUILT ENVIRONMENT
UNIVERSITI TEKNOLOGI MALAYSIA.
QUESTIONNAIRE PROFILE SURVEY
Introduction
To understand the role of technology, especially the Information and Communication
Technology, in companies located in Klang Valley.
Purpose of Study
To understand the shift of offices towards the MSC and evaluate the catalyst for such shift.
Objective of Study
To measure the shift of MSC status companies in the Kuala Lumpur Metropolitan Area and
to understand the formation of offices in the MSC Area.
Information of the company.
1.
Name of the Company.
_________________________________________________________
2.
Address of the company.
________________________________________________________
3.
Owner Ship of the firm.
Private Sector
Public Sector
(a) Sdn. Bhd.
(b) Public Listed.
Local Ownership
Foreign Ownership
4.
Since how long your Office is located in this area?
____________________ Years
5.
What was the previous location of your firm?
Damansara
Bandar Tun Razak
Wangsa Maju
KL City Centre (CBD).
6.
Bukit Jalil
Nature of the business.
Real Estate
Consultancy
Other.
Your Company deals in Business:
Local_______%Approx
8.
GLC
Multi
National.
Other.______________
Financial
Investment
_____________________
7.
Joint
Venture
Global.________%Approx
Asia_________%Approx
(Excluding South East Asia)
(South East Asia)
(a) How are you to categorize your firm in terms of employees?
Small.
Medium.
Large.
(b) How are you to categorize your firm in terms of equity / Investment?
Small.
Medium.
Large.
9.
Are the Front Office and Back office functions residing in the same building or are separate?
Separate
Same Building
202
(a) Within KL.
(b) Within Klang Valley
(c) Other location. ____________________
10. What is the mode of communication for your company in between the Front Office and Back
Office?
Wide Area Network
Personal Satellite System
Internet
Extranet
Other ___________________
11. (a) Area covered for:
Front office ______________ m2
Premises:
Owner ship
Duration of Lease ____________
Rental. ____________ RM /month.
Duration of Lease. ____________
(b) Back office.________________ m2
Premises:
Owner ship
Duration of Lease ____________
Rental. ____________ RM /month.
Duration of Lease. ____________
12. No of Employees:____________________
No.
Front Office
Qualification
Nationality
No.
Back Office
Qualification
(If non-Malaysian)
SPM
STPM
Diploma
Master Deg. &
above.
Skilled Workers
Semi-skilled
Workers
Nationality
(If non-Malaysian)
SPM
STPM
Diploma
Master Deg. & above.
Skilled Workers
Semi-skilled Workers
13. How far the workers live from office
No. _________ 5km or less.No. _________ 5-10 km.
10km or more
No. _________
14. What would be the driver for you to shift your business from the current location?
Better infrastructure
Area Prestige
Easy access to office
Connectivity
Labor cost
Low Telecom Tariffs
Low Taxes.
Security
Others
Land cost
Competitive
conditions
15. Can the front office and back office be separated in your kind of business? If so what will be
the possibility / probable incentive for shifting the back office to other location?
Better infrastructure
Area Prestige
Easy access to office
Connectivity
Labor cost
Low Telecom Tariffs
Low Taxes.
Security
Others
16. Is your company taking the advantage of the latest ways of teleworking?
Yes
No
If so, how many numbers of employees are the teleworkers and
What is the number of teleworking days?
Land cost
Competitive
conditions
203
Number of Employees _________________
Teleworking Days ________________
17. What is your arrangement with the employees who are doing the work through ICT for your
company?
Wide Area Network
Personal Satellite System
Internet
Extranet
Other ___________________
18. Please rank the major incentives provided by MSC as the top 5 drivers, in priority order, for
you to obtain MSC status.
a)
Provide a world-class physical and information
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
infrastructure.
b) Allow unrestricted employment of local and foreign
knowledge workers.
c)
Ensure freedom of ownership by exempting companies
with MSC status from local ownership requirements.
d) Give the freedom to source capital globally for MSC
infrastructure and the right to borrow funds globally.
e)
Provide competitive financial incentives; include
Pioneer Status (100% Tax Exemption) for up to ten years or an Investment Tax Allowance
for up to five years, and no duties on the importation of multimedia equipment.
1st
2nd
3rd
4th
5th
g) Ensure no censorship of the Internet.
1st
2nd
3rd
4th
5th
h) Provide globally competitive telecommunication
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
f)
Become a regional leader in intellectual property
protection and cyberlaws.
tariffs.
i)
Tender key MSC infrastructure contracts to leading
companies willing to use the MSC as their regional hub.
j)
Provide a high-powered agency to act as an effective
one-stop super shop (i.e. MDC).
204
19. Any other reason besides the incentives provided in the MSC policy for you to obtain the
MSC status? Please specify.
___________________________________________________________________________
___________________________________________________________________________
20. What other incentive you think should be provided to companies with MSC status to make
MSC policy to bring more attraction?
___________________________________________________________________________
___________________________________________________________________________
21. What are the problems that you face after taking up the MSC status?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Information from Respondent.
1.
Name of the respondent.
__________________________________________________________________________
2.
Address / Contact of the
respondent._________________________________________________________________
___________________________________________________________________________
3.
Designation.
__________________________________________________________________________
THANK YOU
205
APPENDIX B
LIST OF COMPANIES SURVEYED
1)
L1-E-5B, Enterprise 4, Technology
Park Malaysia, Lebuhraya
Puchong- Sungai Besi, Bukit Jalil,
57000 Kuala Lumpur, Malaysia
is-META Next Sdn Bhd
(Malaysia)
Sector – Software Development –
Business Applications
Brief Activity
Development of integrated financial
software and systems that consists
of Integrated Back-Office System
(IBOS), Wealth Net, Online Risk
Management System (ORMS)and
MidRange ERP
3)
Brief Activity
Development of a human resource
portal (Click2HR.com), and
provision of solution
implementation services for the
above mentioned activities.
Contact Information:
Mr. Manohar Singh (Managing
Director)
isMETA Next Sdn Bhd
Suite C-09-06, Plaza Mont Kiara 2,
Jalan Kiara, Mont Kiara,
50480 Kuala Lumpur, Malaysia
2)
Contact Info:
Mr. Woon Tai Hai (Chief
Operating Officer)
11th Floor, Wisma KPMG, Jalan
Dungun, Damansara Height,
50490 Kuala Lumpur,
Wilayah Persekutuan, Malaysia.
Computer Infobase System Sdn
Bhd
Sector – Internet based Business –
E- Commerce service/ solution
providers
4)
Brief Activity
Developing Multi-Level Marketing
(MLM) Standard and Customized
System, Developing Internet Outlet
System, Developing Sponsoring
System, Providing Software
maintenance Service
Contact Information:
Mr. Jimmy Yap (Sales & Marketing
Director)
Computer Infobase System Sdn
Bhd
KPMG Technology Sdn Bhd
(Malaysia)
Sector- Internet based Business –
E- Commerce service/ solution
providers
FSBM Ctech Sdn Bhd (formerly
Collaborative Technology Sdn
Bhd) ( Malaysia)
Sector – Internet based Business –
Application Service Provider
Brief Activity
Development of software
applications and system integration
for the various flagship
applications with the Multimedia
Super Corridor and the commercial
sector.
210
Contact Information:
Mr. V.S Shanker (Senior Vice
President)
FSBM Ctech Sdn Bhd
FSBM Plaza 3539
Jalan Teknorat 7
63000 Cyberjaya
Selangor Darul Ehsan, Malaysia
5)
57000 Kuala Lumpur, Malaysia
7)
Brief Activity
Development of Hospital
Information System (Infocare),
(ProBank) fully integrated online
system for financial services as
well as NTIbe Transaction
Platform
Synergy Log-in Systems Sdn Bhd
(India)
Sector- Software DevelopmentBusiness Applications
Brief Activity
Offering products and solutions in
E-Banking solution, internet
banking solution and WAP solution
Contact Information:
Mr. Gautham S.Sastry (Country
Manager)
Synergy Log-in Systems Sdn Bhd
Lot 2-4A, Incubator 2
Technology Park Malaysia
Bukit Jalil, 57000 Kuala Lumpur
Malaysia
6)
Tekla (M) Sdn Bhd (Finland)
Sector- Software DevelopmentEngineering/ Specialized
Applications
Brief Activity
Develops software applications for
structural engineering, operators of
infrastructure, safety and network
systems.
Contact Information:
Ari Nassi (Managing Director)
Tekla (M)Sdn Bhd
L4-E-8 Enterprise 4
Technology Park Malaysia
Bukit Jalil
New Technology and Innovation
Sdn Bhd
(Malaysia/ USA/ Singapore)
Sector- Software DevelopmentBusiness Applications
Contact Information:
Jamaludin Ismail (executive
Director) New Technology and
Innovation Sdn Bhd
Lot 27, Medan Setia Satu, Plaza
Damansara, Bukit Damansara,
50490 Kuala Lumpur, Malaysia
8)
Scope International (M) Sdn Bhd
(formerly Ellinwood Corporation
Sdn Bhd) (United Kingdom)
Sector- Data Centre/ Support
Centre/ Heavy User
Brief Activity
A global hub for cross border
banking transactions processing
using web-enabled technology for
the Standard Charted Group
Contact Information:
Mr. Peter Churchman (Chief
Executive Officer)
Scope International (M) Sdn Bhd
L2-E-10, Enterprise 4
Technology Park Malaysia
Bukit Jalil
57000 Kuala Lumpur, Malaysia
211
9)
Genting Information Knowledge
Enterprise Sdn Bhd
Sector- Internet based Business- ECommerce service/ solution
providers
11)
Brief Activity
Enhancement of existing e-Home
intelligent building automation
system software
Brief Activity
To undertake development in eCommerce and Malaysian world
class solutions for travel and
hospitality industry.
Contact Information:
Mr. Sunny M.S. Chong
(Executive Director)
Prima-IT MSC Sdn Bhd
Ground Floor, Prima Avenues
Block 3507, Jalan TEknorat 5
63000 Cyberjaya
Selangor Darul Ehsan Malaysia
Contact Information:
Mr. Derrick Khoo (Chief Operating
Officer)
Genting Information Knowledge
Enterprise Sdn Bhd
19th Floor Wisma Genting
28, Jalan Sultan Ismail
50250 Kuala Lumpur Malaysia
12)
10)
Systems@Work Sdn Bhd
(Singapore)
Sector- Mobile / Wireless
Technology
Brief Activity
Provision of mobile payment
service called Telemoney which
offers unprecedented security and
convenience for online transactions
Contact Information:
Mr. Ng Fook Sun (Chief Executive
Officer)
Systems@Work Sdn Bhd
1st Floor, IRIS Smart Complex
Technology Park Malaysia
57000 Bukit Jalil
Alice Thien
Systems@Work Sdn Bhd
Unit G03, Ground Floor
2310 Century Square
63000 Cyberjaya
Selangor Darul Ehsan Malaysia
Prima-IT MSC Sdn Bhd
(Malaysia)
Sector- Software DevelopmentEngineering/ Specialized
Applications
Consolsys Technologies Sdn
Bhd
Sector- Software Development –
Business Applications
Brief Activity
Design and development of
financial automation solutions to
service the retail and financial
industries namely Business
Performance Analysis System
(BPAS), Open Systems Financial
Application (OSFA), Cheque
Processing System (CPS) as well
as Mosaic OA
Contact Information:
Mr. Ahmad Oliaei (Managing
Director)
Consolys technologies Sdn Bhd
9th Floor, Bangunan Getah Asli
148, Jalan Ampang,
50450 Kuala Lumpur
212
13)
I-System Group Berhad
(formerly known as I-Systems
Consulting Sdn Bhd) (Malaysia)
Sector- Internet based Business –
E- Commerce service/solution
providers
15)
Brief Activity
Focuses on development of
software solutions for banks
which is include suite of software
solutions for automated imagebased, Credit Card application
processing system, Fraud
detection training software and a
self-service Web based payment
solution.
Brief Activity
Provision of business process
reengineering and new technical
services for the Financial and
Insurance industries
Contact Information:
Mr. Darren Ng (Vice President,
Marketing & Business
Development)
I-Systems Consulting sdn bhd
Suite G6A, Ground Floor
2300 Century Square,
Jalan Usahawan
63000 Cyberjaya, Malaysia
14)
Axis Systems Sdn Bhd
(Malaysia)
Sector –Software
Development- Business
Application
Brief Activity:
Develop web-based desktop
banking, branch delivery system
and CRM system for financial
institution
Contact Information:
Wong Chew Ming ( Managing
Director)
Axis System Sdn Bhd
Lot 5.04, 5th Floor, Menara 1
Faber Towers, Jalan Desa
Bahagia, Taman Desa
58100 Kuala Lumpur
HITTS Research Sdn Bhd
(Malaysia)
Sector- Software Development –
Business Application
Contact Information:
Mr. Kong Khai Yeng (Director)
No 7-1-6 Blok B Danau Business
Center, Jalan 3/109F Taman
Danau, 58100 Kuala Lumpur,
Wilayah Persekutuan, Malaysia
16)
e-pay Sdn Bhd
(Malaysia/ United Kingdom)
Sector- System Integration
Brief Activity
Development and provision of
electronic payment solutions
Contact Information:
Mr. Mohd Hassan Haji Said
(Executive Director)
e-pay Sdn Bhd
3rd Floor, 16-18, Jalan PJS
11/28A, Bandar Sunway, 46150
Petaling Jaya, Selangor Darul
Ehsan
Suite F-11, 2320 Century Square,
Jalan Usahawan, 63000
Cyberjaya, Selangor Malaysia
213
17)
18)
Perot Systems TSI (M) Sdn Bhd
(Formerly known as HPS
Global Systems (Malaysia) Sdn
Bhd) (Netherlands)
Sector- System Integration
19)
Ingenuity Microsystem SdnBhd
(Malaysia)
Sector- Content Development
Brief Activity
IT outsourcing, systems
integration and business process
re-engineering
Brief Activity
Developer of software products
for financial management and
relationship management and
provider of e-commerce content
and infrastructure
Contact Information:
Mr. Rajat Sharma (Business
Development Manager)
HPS Global Systems (Malaysia)
Sdn Bhd
Level 40, Tower 2, Petronas
Twin Towers, Kuala Lumpur City
Centre, 50088 Kuala Lumpur
Malaysia
Contact Information:
Mr. Azman Ahmad (Managing
Director)
Ingenuity Microsystems Sdn bhd
17 Jalan Inai
55100 Kuala Lumpur, Malaysia
L3-I-6, Enterprise 4, Technology
Park Malaysia, Bukit Jalil
57000 Kuala Lumpur Malaysia.
Cyber Village Sdn Bhd
(Malaysia)
Sector- Internet based Business –
E- Commerce service/ solution
providers
Brief Activity
It is to develop e-commerce
software and to provide
consultancy services. It is also to
incubate high potential ecommerce and multimedia
projects to a certain level of
maturity before spinning these
projects into separate companies
for further growth.
Contact Information:
Mr. Tony Pua (Chief Executive
Officer)
D-03A-02, Plaza Mont Kiara,
Jalan 1/70C
50480 Kuala Lumpur Malaysia
20)
Mass Media Interactive Sdn
Bhd
(Malaysia/ Singapore)
Sector- Content Development
Brief Activity
Content development, electronic
commerce and kiosk
development. Premium call
services.
Contact Information:
Mr. Anwar bin Jamil (Contact
Person)
Mass Media Interactive Sdn Bhd
c/o Konsortium Multimedia
Swasta Sdn Bhd
Technology Park Mlaysia, Lot
L5-E-8, Enterprise 4, Lebuhraya
Puchong-Sg.Besi, Bukit Jalil,
57000 Kuala Lumpur Malaysia
214
21)
Solsisnet Sdn Bhd (Malaysia)
Sector- System Integration
Brief Activity
Developing Software
applications for insurance policy.
Brief Activity
Provision of network services and
commerce solutions. Focusing to
the spearhead activities as a
service provider and software
developer in the scheme of the
multimedia value chain
Contact Information:
Lim Chean Shen (Director)
Solsisnet Sdn Bhd
Level 40, Tower 2,
Petronas Twin Tower,
KLCC, 50088 Kuala Lumpur
Malaysia
Tropicana Golf & Country Resort
47301 Petaling Jaya
Selangor, Malaysia
22)
Tri Excel Systems Sdn Bhd
(Malaysia)
Sector- Software DevelopmentBusiness Applications
Brief Activity
Development of financial
software applications for banking
and financial industries.
Contact Information:
Mr. Liew Boon Yen (Chief
Operating Officer)
TRI Excel Systems Sdn Bhd
(TESS), Suite 15-3A, 15th Floor
Wisma UOA II, 21, Jalan Pinang,
50450 Kuala Lumpur,
Wilayah Persekutuan, Malaysia.
23)
AIG Software International JV
Sdn Bhd (Malaysia/ USA)
Sector- Software DevelopemntBusiness Applications
Contact Information:
Mr. Steve Snell (Chief Executive
Officer)
AIG Software International JV
Sdn Bhd, G-1, Enterprise 1,
Technology Park Malaysia, Bukit
Jalil, 57000 Kuala Lumpur,
Malaysia.
24)
Pentasoft Malaysia Sdn Bhd
(India)
Sector- Internet based Business –
E- Commerce service / solution
providers
Brief Activity
E-business (design and develop
software product for life and
general insurance for global
market). E-Learning (develop
content, presentation for IT
courses and provide distance
learning facilities for the
Insurance industry and IT
practitioner) PentaHelp (on-line
support system on the web for
extensive customer service).
Contact Information:
Mr. K. Kuppusamy (Vice
President -ASEAN Region)
Suite 3 A02 3rd Floor
Menara PJ (Block A)
Amcorp Trade Centre
18 Jalan Persiaran Barat
46050 Petaling Jaya
Selangor Malaysia
215
25)
eSmart Systems Sdn Bhd.
(Malaysia)
Sector- service/ solution
providers
27)
Brief Activity
(Formerly known as British
American Tobacco Asia Pac
Shared Service Sdn Bhd)
Regional Centre for the British
American Tobacco group of
companies providing SAP
implementation services, systems
integration and back-office
services.
Brief Activity
Research, build and develop a
Real Time Front End Desk
Management and Reservation
System for Golf-course industry
which includes an online
reservation module and Tee Time
Re-sale. Also develop a series of
market driven web.
Contact Information:
Nor Azlan Nordin (Finance
Manager)
British American Tobacco GSD
(Kuala Lumpur) Sdn Bhd
Technology Park Malaysia
L4-E-1B, Enterprise 4 (4th Floor)
Lebuhraya Puchong-Sungai Besi,
Bukit Jalil, 57000 Kuala Lumpur
Malaysia
Contact Information:
Mr Arshard Ashraf (CEO)
417, Block A
Kelana Businesss Center
97, Jalan ss 7/2, Kelana Jaya
47301 Petaling Jaya, Malaysia
26)
Intelbay Sdn Bhd (Philippines)
Sector- Software DevelopmentEngineering/ Specialized
Applications
28)
Brief Activity
Develop of multi-purpose smart
card applications and systems as a
part of a totally integrated smart
card environment. Setting up a
regional Technical Support and
Call Center for software
development and maintenance
projects.
Contact Information:
Juan Villa (Managing Director)
Interbay Sdn Bhd
Level 26, Menara IMC,
8, Jalan Sultan Ismail
50250 Kuala Lumpur Malaysia
British American Tobacco GSD
(Kuala Lumpur) Sdn Bhd (UK)
Sector- Data Centre / Support
Centre/ Heavy User
eCosway.com Sdn Bhd
(Malaysia)
Sector- Internet based Business –
E- Commerce service/ solution
providers
Brief Activity
Development of worldwide
shopping system, automatic call
back service and internet
payment system
Contact Information:
Mr Ooi Seng Chai (Finance &
Operations Manager)
eCosway.com Sdn Bhd
Lot 14.08, 14th Floor
Wisma Cosway
Jalan Raja Chulan
50200 Kuala Lumpur Malaysia
216
Ms Yoo Siew Peng (Business
Development Manager and
Customer Service Manager)
IRIS Smart Technology Complex
Mezzanine Floor,
Technology Park Malaysia, Bukit
Jalil, 57000 Kuala Lumpur,
Malaysia.
29)
Plato MSC Sdn Bhd (formerly
known as PK Teck MSC Sdn
Bhd) (Malaysia)
Sector – Software developmentBusiness Applications.
Brief Activity
Provision of high-ended banking
systems to banks and commercial
systems for manufacturing
industries
Contact Information:
Mr Oh Teik Khim (Chief
Financial Officer)
PK Tech MSC Sdn Bhd
Level 50, Tower 2
Petronas Twin Tower,
KLCC, 50088 Kuala Lumpur
Malaysia
30)
Asia-Pacific Institute of
Information Technology
(Malaysia)
Sector- Education/ Training
Brief Activity
Provider of specialized and
professional IT course. Involved
in research and development,
consulting and content creation
services.
Contact Information:
Mr. Vijay Reddy (Manager,
Special Project)
Asia-Pacific Institute of
Information Technology Lot 6,
Technology Park Malaysia, Bukit
Jalil, 57000 Kuala Lumpur,
Malaysia.