Exploring the supply-side IT outsourcing practices models from service providers in Malaysia

Abstract: - This paper presents the analysis from literature and document reviews, roundtable discussion of expert practitioners and result of open-ended interviews on IT outsourcing practices and other emerging issues in the Malaysian context. Even though Malaysia is considered as a developing country, the presence of many world-class and blue-chip ITO service providers in the country raised the standards of practices and value propositions as compared to other low-cost competitors. The study employed literature and document reviews, roundtable discussion and key informants‘ open-ended interviews from service provider firms. The analysis results revealed the four main ITO models adopted by the key informants‘ firms. Among the established ITO models in Malaysia include Asset or Infrastructure outsourcing, Software/systems Developments, Global Service Delivery model, Business Process Outsourcing and Partnership models. In addition, a few emerging models such as application service provider (ASP), Utility demands, Managed services and Offshore outsourcing were also identified to be the trends in Malaysia ITO industry. It is interesting to note the increasing numbers of local companies acquiring higher capability maturity models (CMM) certifications. We interviewed seven senior executive management from ITO service provider firms. In addition, data were also collected from secondary sources like firms‘ websites, consulting firms‘ reports and relevant bodies governing ITO industry and practices in Malaysia. The paper contributes to the literature and body of knowledge on supply-side IT outsourcing particularly in the Malaysian context.

1 Introduction
IT outsourcing (ITO) models continue to evolve despite some predictions claiming the near maturity of ITO practices. ITO has experienced a considerable growth in recent years, so much so that some authors suggest we find ourselves in the outsourcing era. It‘s growth seems to be guaranteed at least in the near future (Yankee Group, 2006). According to the 2002 Gartner report, global ITO market is claimed to grow from USD180.5 billion in revenue in 2003 to USD253.1 billion in 2008 at an annual growth rate of 7.2 percent.

In 2003 report, Gartner predicted the global outsourcing market continues to grow at a steady pace, with a forecast growth rate of 8.1 (higher than 2002 forecast) percent in 2008. The firm also expects to see some early adopters of multi-sourcing to consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers in 2008 (Gartner, 2008). According to estimates in Frost & Sullivan (2005) study, the global outsourcing markets growth was USD758.1 billion in 2005. And this will continue to grow at a steady compound annual growth rate (CAGR) of 12 per cent.

In another report, the global worldwide Shared Services and Outsourcing (SSO) market is expected to grow at a CAGR of 15 per cent over the next few years, reaching USD1.43 trillion by 2009 as compared to USD930 billion in 2006. Malaysia government arm responsible for promoting ICT and SSO, Multimedia Corporation (MDec), claimed that ICT services like SSO contributed RM2.8 billion to the Malaysia Gross Domestic Product of RM495.6 billion. Private-sector bodies, Outsourcing Malaysia and PIKOM, cited that the local SSO industry is currently worth USD300 million growing at a CAGR of 30% year on year, compared with the current global IT outsourcing size of USD24 billion. In 2012, the Malaysian SSO industry is targeted to be worth USD2 billion providing 300,000 jobs.

Malaysia has promoted intensely to position herself as a hub for services and technology innovation and this has resulted in a number of multinationals locating some of its global or regional operations in Malaysia," (AT Kearney, 2006). However, compared to India and China, Malaysia is still lagging behind this duo in exploiting opportunities associated with information technology. This unpalatable situation of Malaysia occurs despite all the efforts made by the government in building several world-class information technology infrastructures in the country. This prompts us to investigate and assess the ITO practices and models and assess competency levels of ITO service providers in Malaysia.

In addition, despite numerous researches conducted on IT outsourcing worldwide, studies which focus on ITO in developing countries and Malaysia specifically has been scarce (Ismail, 2006; Suhaimi et al., 2007, Birks et al., 2007). This is a plausible justification for us to undertake further researches. Hence, we attempt to get in-depth understanding from the service providers‘ perspective: (a) The ITO practices in Malaysia?; (b) current and emerging ITO models or trends offered by service providers in Malaysia; and (c) Assessment on service provide competency level and challenges. This paper presents the analysis of literature and document reviews, expert roundtable discussion and open-ended interviews on the research questions and fill the gap which is widely recognized as missing in the IT outsourcing literature (Hui and Beath, 2002; Dibbern et al., 2004; Ismail, 2006).

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