The supply-side IT outsourcing competencies and relationship exchange in Malaysia

Abstract: - IT outsourcing (ITO) has experienced a considerable growth in recent years, so much so that some authors suggest we find ourselves in the outsourcing era. ITO growth seems to be guaranteed at least in the near future. Many past researches on IT outsourcing were done in North America, Europe and Australasia contexts with little evidence from developing countries perspectives. Participant competencies are under-researched in Malaysia IT outsourcing context. In addition, IT outsourcing relationship researches revealed its importance in improving the success of IT outsourcing arrangements. Many researches on relationship, however, were investigated from demand-side perspectives. Hence, it is the aim of this study to complement these one-dimensional findings by investigating the IT outsourcing relationship exchange from service providers’ perspectives in Malaysian context. This report presents the first phase qualitative findings of an on-going research on IT outsourcing competencies and relationship. The study comprises three major phases: 1) literature reviews, a focus group and in-depth interviews; 2) mass survey; and 3) final group discussion. To answer the research question, we reviewed scholarly journals, proceedings and dissertations, and websites. In order to understand the issues from practitioners, we have arranged an expert focus group deliberating on the topic and a few key variables were identified. We subsequently interviewed five senior executive managements in the service provider firms to explore further on the key variables. The unstructured interviews were recorded and transcribed and analysed based on Miles and Huberman (1994) recommendations. The study found that all the variables are, in practice, important determinants of successful outsourcing projects as claimed by many other researches in the western context. The ranking of the determinants or factors, however, were of varying disputes depending on the types of ITO configurations the parties entered into.

Introduction
IT outsourcing (ITO) has experienced a considerable growth in recent years, so much so that some authors suggest we find ourselves in the outsourcing era. ITO growth seems to be guaranteed at least in the near future. [49] projected significant growth for the managed services market which will grow at a compound annual growth rate (CAGR) of 8% from 2005 to 2008, exceeding USD25 billion by 2008. According to estimates in [6] 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.

According to the 2002 [7] 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 that 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. “In 2008, we expect 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,” said Mr. Potter (Gartner, 2008)i.

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. “The outsourcing need is growing and we intend to fully leverage on our achievements to meet this need,” said Badlisham of Multimedia Development Corporation’s (MDec) Chief Executive Officer. He added that ICT services like SSO contributed MYR2.8 billion to the nation’s Gross Domestic Product of MYR495.6 billion. David Wong, Outsourcing Malaysia and PIKOM chairman, 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.ii

Extant ITO researches indicate the growing complexities of IT outsourcing arrangement. As a result, many studies or news reported project failures. Literature reviews reflect the near maturity of ITO practices in Europe and United States. Despite this, meta-analyses by [3], [10] and [25] alerted us on various research gaps for future undertakings. Among those are researches on ITO competencies and relationship exchange from both service receiver’ and providers’ perspectives in less-developed countries context which is lacking. Studies on ITO relationship are mostly done in North America, Europe and Australia context with little emphasis on developing countries.

This study is a response to fill the gaps from service providers’ perspectives and developing countries especially Malaysia environment compared to previous researches done in developed countries and from the service receivers’ perspectives [see 5, 8, 14, 20, 22, 21, 31, 32, 40 and 43]. We attempt to explore and investigate the impact of service receiver-service provider competencies, relationship exchange factors and strength on ITO project success from supply-side perspectives in Malaysia.