Speech by Lim Guan Eng at ACCA Accountants for Business Forum "Finance Transformation: Expert Insights on shared services and outsourcing" at G Hotel, Penang on Thursday, 22^nd March 2012: 

Penang made the largest contribution to Malaysia's Foreign Direct Investments with RM17.7 billion between 2010-2011  

Before I begin I would like to admit that I am a failed accountant. I graduated in economics and accounting in Australia and chose to practice as an accountant. Somehow it was more difficult for me to get a auditing position in a Big 8 accounting firm in 1984, as compared to my classmates. But I was delighted after months of failed interviews with top accounting firms, to have finally landed a position with a Big 8 firm.

However my delight was short-lived as I was unceremoniously sacked without any professional reason after less than a week when they found out who my father was. For some of you who may not know, I am the son of the DAP leader Lim Kit Siang.

Obviously I was deemed not qualified to be an accountant as I was feared to share my father's unhealthy passion for integrity, transparency, full disclosure as well as giving a true and fair view. This definitely disqualified me as an accountant with the Big 8firm as the 1980s was a time of financial hanky-panky and cover ups such as the massive Bank Bumiputra losses scandals.

Needless to say I was devastated when I found I could not get a job as an accountant. But all's well that ends well. After failing to make the cut as an accountant, I had no choice but to join politics and became the Penang Chief Minister. I would therefore wish to congratulate all of you for making the grade as an accountant. And if you do not make it as an accountant, do not despair. You can always be like me and hope to become the Penang Chief Minister.

I take this opportunity to thank ACCA for inviting me to speak at the Accountants for Business Forum on the topic of shared services and outsourcing as a crucial finance transformation tool. Today's topic of discussion is high in the Penang state's agenda, especially since Penang has been recognized by United Nation Industrial Development Organisation as one of the top 10 industrial destinations in the world, with a reputation as one of the locations to watch for the next outsourcing boom. With such obvious potential, it is fitting that Penang is host to this thought-provoking forum.

Further in 2009, KPMG's Exploring Global Frontier Report identified Penang as one of the 31 emerging Business Process Outsourcing (BPO) hub cities in the world. To date, prominent multinational corporations (MNCs) such as AMD, Agilent Technologies, Citibank, Dell, Intel, Jabil, Motorola, Mattel and Seagate have already set up their shared services and outsourcing activities in Penang encompassing financial services, human resources, trade bills processing, call centre, information technology outsourcing services, data intelligence, design and development as well as supply chain management.

The concept of shared services and outsourcing ¨C or SSO ¨C first came up about 30 years ago, and back then, it was a radical idea viewed with both optimism and scepticism. Fast forward to today and SSO is now a mainstream business function which has delivered strategic value.

The Penang state government is also keen on delivering strategic values in financial management. CAT governance based on competency, accountability and transparency has resulted in surplus budgets every year since we took power in 208. Penang managed to reduce our government debts RM 630.13mil in 8.3.2008 to RM 29.66 mil at end 2011. This marks a reduction of 95% over a period of three years, the highest record ever amongst all states in Malaysia.

Some sceptics dismiss our success in reducing growth by 95% as a mere restructuring in transferring our debt to the Federal government. Under standard financial literature, debt restructuring is a process that allows a private or public company or a government facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations. Replacement of old debt by new debt when not under financial distress is referred to as refinancing.

There is no debt restructuring in Penang¡¯s case as Penang has no delinquent debts that are in arrears, suffers no cash flow problems and is not under financial distress. In fact, Penang has increased our cash reserves by nearly 50% to RM1.2 billion. Neither is there refinancing as Penang is not replacing the old RM630 million debt with new ones.

This is simply just a case of debt reduction from RM630 million to RM 30 million, where the state government now no longer needs to pay RM600 million. Penang's singular success in debt reduction is certified even by the Auditor-General's Report. Certain quarters claim that the same transfer of debts is done in other states. Then why is it that the debts of these states are not reduced by 95% like Penang?

Penang's economy is growing strongly. Penang topped investment in Malaysia in 2010 and repeated that historic feat in 2011. For two years in a row, Penang has been tops in manufacturing investment in Malaysia. In 2010, we attracted RM12.2 billion worth of investments while we received RM9.1billion last year. Penang contributed to 28% or RM 17.7 billion of Malaysia's FDI in 2010-2011. Credit must be given to the people of Penang and former Penang Chief Minister Tun Dr Lim Chong Eu.

Penang's success can be traced to the state's industrial manufacturing revolution which has transformed Penang's economy to what it is today. The next step in progression is to grow our state into a knowledge-based economy so we can be an intelligent and international city that is a location of choice for investors.

For Penang to succeed as an international city, our civil service must also be internationally rated to help facilitate the growth the services sector. Penang has adopted a forward looking and long-range vision of transforming Penang into an international and intelligent city. Apart from increasing Penang's attractiveness, the Penang state government has also taken pro-active steps in improving infrastructure including the 4 major road infrastructure projects of RM 5-8 billion.

These physical infrastructure building are further supported by favourable Malaysian Government policies in the form of cyber laws, financial and non-financial incentives and appropriate strategic policies. Clearly, these attractive features have been the main reasons behind the success of the SSO industry in Malaysia. To date, there are over 200 companies which have made Malaysia their preferred choice, including global brands such as Intel, AMD, BMW, DHL, HSBC, Nokia, Shell.

Growing our services sector to be the main engine of economic growth exceeding manufacturing can only succeed with contributions from tourism, shared services and outsourcing. However, that does not relegate the importance of manufacturing as without manufacturing, there is no platform to develop our services sector. The key word is convergence of both manufacturing and services sector or of product, technology and direct consumer services.

The SSO trend has great untapped potential, and from all accounts, SSO is set to be the next business phenomenon. The latest report from ACCA has stipulated that there is no turning back from using shared services and outsourcing as a finance transformation tool, not if we want to drive business excellence. It is no longer a question of it but rather of when and how.

Ladies and gentlemen,

The global demand for SSO centres have risen dramatically in recent years. It was estimated that the SSO market in Malaysia will be worth USD2 billion with 300,000 high value jobs this year. Globally, this worth is multiplied hundred fold. Clearly, the benefits of engaging in SSO are plenty, not least of which are the cost savings and improved efficiency.

I believe Malaysia, and Penang in particular, is well-positioned to be a major player in the SSO industry because of the many attractive features offered here. At the top of the list is the fact the Penang has world-class infrastructure, including a high-capacity digital fibre-optic network in business hubs and cities. This is complemented with a pool of highly skilled workforce with cultural adaptability, efficient transportation system and a comfortable living environment, clean administration with open tenders and good governance based on CAT of competency, accountability and transparency.

Our country has been enjoying an enviable position where SSO is concerned. According to the latest A.T. Kearney Global Services Location Index 2011, Malaysia is ranked third in terms of attractiveness as a destination for outsourcing activities, behind only to two of the world¡¯s economic power houses: India and China.

While this recognition is an honour, we must be reminded that complacency is the antithesis of leadership. It is the collective responsibility of both the Government and Corporate Malaysia to strengthen our competitive position even further.

The Penang government is committed to making our state into the best outsourcing hub in Malaysia. We aim to provide quality infrastructure and widen the talent pool by finding cost effective ways associated with the training and certification of knowledge-based workers as well as setting up the industry-driven Penang Science Council and the Penang Tech Center.

We do not doubt that there will be many questions on how businesses can achieve the economies of scale promised by the SSO initiative. In fact, it is better to ask questions first before jumping on the bandwagon. Today's ACCA forum provides you with the perfect opportunity to understand more about the SSO industry and the role it plays in your company's future.

Remember to understand well or else you will be repeating the accountants¡¯ joke of "There are two sides of the balance sheet: the left side (comprising of assets) and the right side (which should be the owners). On the left side of the balance sheet, there is nothing right, and on the right side, there is nothing left!"

On that note, I wish everyone a fruitful forum this morning. Thank you.

*Lim Guan Eng, Penang Chief Minister