KUALA LUMPUR, Malaysia--More organisations are choosing to outsource, a trend that will see the local IT outsourcing market grow at a compound annual growth rate of 27.2 percent over the next five years to reach almost US$350 million in 2008, predicted market researcher IDC.

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

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

Chan attributes this huge interest to organisations 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 excitement in other industries--in particular, government--no contracts have been awarded yet.

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

"During the transition period, scope and time line may come under pressure from adjustments to requirements and 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 told CNETAsia that the government is exploring the possibility of outsourcing its IT infrastructure.

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

She added that IS outsourcing contributed 44 percent to Malaysia's total IT outsourcing market, which was mostly generated from the mega deals signed by BCB, Maybank and MAS.

"There are still organisations that prefer to opt for maintenance and technical support than to outsource for reasons such as information confidentiality or concerns over security and losing control over the maintenance and management of applications," she commented.

Still, some of the bigger firms are now seriously looking to outsource their desktop and network management to a service provider. Such organisations, according to Chan, insist that their service provider owns and manages all its information infrastructure and operations.

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