What is Outsourcing?

Outsourcing non-core business processes allows companies to concentrate their resources on core, revenue-generating activities while benefiting from long-term cost efficiency. By leveraging outsourcing services, businesses can avoid the time and expense of recruiting, training, and retaining in-house staff for support functions. For companies in need of reliable outsourcing in Malaysia, this approach offers both operational relief and strategic value.

This business practice is especially impactful in a digitally connected and skilled market like Malaysia, where global companies can access top-tier talent across a wide range of industries, IT, finance, customer service, marketing, and more. With supportive government policies and a highly educated, multilingual workforce, Malaysia is increasingly recognised as a premier outsourcing destination in Asia.

Also Read: Benefits of Global Outsourcing

What Does Outsourcing Mean?

Outsourcing refers to the practice of hiring external organisations or service providers to handle certain business tasks or operations that were traditionally performed in-house. This strategic move allows companies to focus on core activities while leveraging external expertise, technology, and cost efficiencies.

Example:
A US-based SaaS company outsources its 24/7 customer support to a Malaysian BPO firm located in Penang. This allows them to provide round-the-clock support to users worldwide in English, Malay, Mandarin, and Tamil, Malaysia’s key working languages, while keeping operational costs significantly lower than if the team were based in Silicon Valley.

Malaysia is regulated by agencies like the Malaysian Investment Development Authority (MIDA) and the Malaysia Digital Economy Corporation (MDEC). These bodies offer tax incentives, funding, and support for foreign investors engaging in outsourcing and shared services.
Visit MIDA for investment policies
Visit MDEC for digital economy programs

How Organizations Use Outsourcing

Businesses across industries use outsourcing to achieve different strategic goals. In Malaysia, both multinational corporations (MNCs) and SMEs outsource operations such as:

• Information Technology (IT) – software development, infrastructure management, technical support.
• Customer Support – multilingual contact centre operations, live chat, helpdesk support.
• Human Resources (HR) – recruitment process outsourcing (RPO), payroll, and compliance.
• Finance and Accounting – bookkeeping, auditing, tax filing, and financial analysis.
• Marketing – content creation, SEO, social media management, and performance advertising.

By outsourcing these tasks, companies improve performance, cut costs, and expand capabilities without significantly increasing internal headcount.

Also Read: Guide to Payroll Outsourcing in Singapore

Reasons for Outsourcing

1. Cost Savings
Outsourcing helps reduce fixed and variable operational costs. For example, salaries and benefits in Malaysia are more affordable compared to those in the US, UK, or Australia.

2. Access to Skilled Talent
Malaysia’s workforce is highly educated, fluent in multiple languages, and experienced across global industries. You can tap into specialised skills, such as fintech developers or compliance experts, without investing in lengthy training.

3. Scalability
Outsourcing provides the flexibility to scale operations up or down quickly based on demand, without the burden of long-term contracts or hiring freezes.

4. Business Continuity and Risk Management
Delegating critical yet non-core functions to reliable partners helps businesses maintain operations during emergencies, such as economic downturns or talent shortages.

5. Focus on Core Business
By outsourcing routine or time-consuming tasks, internal teams can concentrate on strategic areas like innovation, customer experience, and market expansion.

Also Read: Benefit of Outsourcing Accounting to Malaysia

Types of Outsourcing

Type	Description	Best Use Case
Onshoring	Outsourcing within the same country.	When legal, cultural, or language alignment is critical.
Offshoring	Outsourcing to a distant country, often for cost efficiency.	Tech support, IT development, back-office functions.
Nearshoring	Outsourcing to nearby countries with similar time zones.	Real-time collaboration, regional compliance needs.

1. Onshoring

Onshoring keeps outsourced functions within the same country. While it offers cultural familiarity and regulatory ease, it often lacks cost-saving benefits.

2. Offshoring

Offshoring to Malaysia is popular among US, UK, and Australian firms due to lower operational costs, strong IP protection, and government-backed tech infrastructure.

3. Nearshoring

Singapore, Indonesia, and Thailand frequently nearshore to Malaysia due to shared business culture, overlapping time zones, and geographic proximity.

Also Read: How to Effectively Hire and Manage Remote Employees: A Comprehensive Guide

Examples of Outsourcing

1. Recruitment Outsourcing:
An Australian logistics company planning ASEAN expansion partners with FastLaneRecruit to source, vet, and onboard local logistics managers and warehouse supervisors across Malaysia, with full compliance with EPF/SOCSO regulations.

2. IT Services Outsourcing:
A European bank outsources cybersecurity monitoring to a certified Malaysian IT vendor that provides 24/7 services and adheres to both EU GDPR and Malaysia’s PDPA.

3. Customer Experience Outsourcing:
A startup from the Middle East establishes a multilingual call centre in Malaysia to manage inbound calls from English- and Arabic-speaking customers, utilising Malaysia’s diverse language capabilities.

Pros and Cons of Outsourcing

Factor	Advantages	Disadvantages
Cost Efficiency	Reduces labour, office, and operational costs	May involve hidden setup or transition costs
Expert Access	Gain access to global experts & latest technologies	Less direct oversight or control
Focus on Core Tasks	Frees time for high-value activities	Dependency on third-party providers
Speed and Flexibility	Quicker ramp-up or scaling	Cultural or communication gaps if not managed
24/7 Operations	Time zone differences enable round-the-clock services	Need for robust SLAs and monitoring

Ethics of Outsourcing

Ethical outsourcing ensures fair wages, humane working conditions, and data privacy compliance. Malaysia upholds these through:

• Employment Act 1955 – Protects minimum wages, working hours, and conditions.
• Personal Data Protection Act 2010 (PDPA) – Regulates the processing of personal data in commercial transactions.
• Minimum Wage Order 2022 – Mandates fair compensation for all workers in Malaysia.

Companies must choose outsourcing partners with ethical labour practices, transparent operations, and proper certifications such as ISO 27001 for information security.

Also Read: 5 Team-Building Tips for Your Remote Team

Insourcing vs Outsourcing

Category	Insourcing	Outsourcing
Control	High	Moderate
Cost	Higher (infrastructure & HR costs)	Lower (shared vendor resources)
Expertise	May need internal training	Access to ready experts
Scalability	Slower	Flexible, faster
Setup Time	Long	Short

While insourcing offers more control and security, outsourcing offers scalability and rapid access to expertise especially useful for SMEs and growing enterprises.

Outsourcing Trends

1. AI-Enhanced Outsourcing
   AI is streamlining BPO processes through automation, predictive analytics, and chatbot-driven customer service.
   
2. Cybersecurity in Focus
   Vendors are investing in cybersecurity certifications to handle sensitive operations like payroll, HR, and legal documentation.
   
3. Green Outsourcing
   Companies now factor sustainability into vendor selection, favouring those using renewable energy, e-documents, and green-certified data centres.
   
4. Outcome-Based Contracts
   Clients and vendors are shifting from time-based to performance-based models tied to SLAs like customer satisfaction scores or sales conversions.
   
5. Malaysia as a Growth Hub
   Malaysia’s digital economy initiatives like ,MyDIGITAL and Industry4WRD, are positioning the country as a long-term outsourcing powerhouse.

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