Malaysia takes centre stage for data operations - Derek Webster

With internet use showing no signs of slowing down, the data centre sector is attracting considerable attention from investors. But where is the best bet to see a return on your investment? Derek Webster, a UK-based consultant on data centre strategy, pinpoints Malaysia as having the potential to be the next hotspot.

In 2010, the Malaysian Government introduced an Economic Transformation Programme that it hoped would bring the country up to high-income status. "We have no time to lose," Idris Jala, the Malaysian politician, said at the time. "We need a complete, radical economic transformation."

It was bold statement, an attempt to move away from 'the old engines of growth' that Malaysia and so many other South-East Asian countries have become known for.

"The Malaysian Government is aware it needs to move into the digital knowledge economy," says Derek Webster, a UK-based consultant on data centre strategy. "It is aiming to and succeeding in positioning itself as a high-tech hub, adding the value and skills for sustainable growth in the future."

Ripe for growth

One sector that fulfils many of the qualities the Malaysian Government is looking for is that of data centres. It's a high-growth industry - many of the most visited websites in the world, such as Facebook, Google and Yahoo, use cloud-based models for the storage and processing of data - that fits well with the country's geographical location. It was no surprise, then, that the industry was included in one of the 12 different designated National Key Economic Areas identified by the government in 2010.

"It's a strong investment proposition," Webster says. "The data centres of the dot-com boom are coming to the end of their life, and we are approaching a refresh cycle for facilities. The sector also expands on the back of growth in internet use, broadband penetration and internet speed.

"As that happens, there is a big impact on gross domestic product; for every 10.0% increase in broadband penetration, there is a measurable 0.9-1.5% increase in gross domestic product," he points out. "These countries understand that this is a very economical and quick way to increase wealth within your nation. It's not going to disappear; it's just going to keep on growing."

Recipe for success

So what makes Malaysia such an ideal place for inward investors looking to put money into the data centre sector? "There are a lot of factors," Webster says. "As a hub location, Malaysia is well positioned for market reach to potential growth opportunities in Vietnam, Thailand and Myanmar to the north, and to other large growth nations, such as Indonesia and the Philippines. There's available powered land and lower operational costs.

"There's the fact that if you build there, you are dealing with a stable government for the region. You have skilled staff - around 5,000 high-tech companies have already invested in Malaysia as a foreign direct investment location, and it has basic infrastructure in place.

"It does need to spend a bit more on fibre broadband," he adds, "but if you were looking to the future, you may get a better return on investment to market risk ration in Malaysia than other nation in the region.

Right on message

There are also factors of risk to consider. In South-East Asia, there is the potentially disruptive hurricane season to contend with, as well as other geological problems such as earthquakes and volcanoes - but Malaysia doesn't have that. For the region, it is geologically incredibly stable.

But perhaps the most important point is just how much the country's government wants this to take off.

"It's hard to find anyone else in the region that has such a bold message," Webster says. "They have openly stated that they want the sector here and are doing everything possible to help people set up shop.

"They are making it easy to do business, and are offering a huge amount of investment and resources to help make that investment work."

Derek Webster, a UK-based consultant on data centre strategy.