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Outsourcing picks up in Malaysia

More Malaysian companies are tapping third parties to take care of IT. It could be a $350 million market in five years.

KUALA LUMPUR, Malaysia--More organizations are choosing to outsource, a trend that will see the local IT outsourcing market grow to almost $350 million in 2008, IDC predicts.

The market research firm said outsourcing by Malaysian companies will rise at a compound annual growth rate of 27.2 percent over the next five years.

"The willingness to pay for outsourcing services is high, especially among players in the banking, insurance, manufacturing, health care and government sectors," Katherine Chan, IDC Malaysia's analyst for services research, said at a press briefing on Thursday.

Last year alone, several large IT outsourcing deals were signed, mainly by banks and transportation companies such as Maybank and Malaysian Airlines (MAS).

Chan attributes this huge interest to organizations requiring access to a more reliable infrastructure that can ensure smoother business operations at lower costs and with greater flexibility.

Since the signing of the first large deal in Malaysia, between Electronic Data Systems (EDS) and Bumiputra Commerce Bank Berhad (BCB) in late 2002, many vendors have been actively pursing similar business opportunities.

But while there seemed to be equal interest in outsourcing from other industries--in particular, government--no contracts have yet been awarded.

Chan stressed that outsourcing requires a lengthy negotiation phase, with a lot of time and effort expended on working out the terms and conditions of a case contract. This is especially true of government deals, she said. Furthermore, the integration of old and new workflows could cause initial business disruption, she added.

"During the transition period, the scope and time line may come under pressure from adjustments to requirements and (from) challenges in change management. And finally, the cultural differences between the agency and outsourcing services providers will likely create tension in the work environment," she explained.

Nevertheless, based on key observations, Chan said the Malaysian government is exploring the possibility of outsourcing its IT infrastructure.

IDC segments IT outsourcing into five major markets: information systems outsourcing, application management, network and desktop outsourcing, application service providers and system infrastructure service providers.

She noted that information systems outsourcing contributed 44 percent to Malaysia's total IT outsourcing market, which was mostly generated from the megadeals signed by BCB, Maybank and MAS.

"There are still organizations that prefer to opt for maintenance and technical support (rather) than to outsource, for reasons such as information confidentiality or concerns over security and losing control over the maintenance and management of applications," Chan said.

Still, some bigger companies are now seriously looking to outsource their desktop and network management to a service provider. Such organizations, Chan said, insist that their service provider owns and manages all its information infrastructure and operations.

Cordelia Lee reports for CNETAsia.