Malaysia's IT services market reached US$601.9 million in 2003

13 May, 2004

Kuala Lumpur, May 13, 2004 – Malaysia's IT services market reached US$601.9 million in 2003. Over the next 5 years, IT Services is expected to achieve robust growth at CAGR of 17.6%. "IDC forecasts a 15% growth in 2004, with expectation that the later half of the year to perform better than the first half, mainly due to the stability achieved with the cabinet reformation after the general elections in March 2004, and overall improvements in business and consumer confidence," said Katherine Chan, Analyst, IT Services, IDC Malaysia.

In 2003, the three hot IT Services engagement types continue to be Systems Integration, Deployment and Support and Outsourcing – with 29.7%, 26.3% and 18.4% contribution. Systems integration led the IT services market, largely due to demand generated in back office solutions of integrating traditional processes with those of the new automated and cost effective systems like ERP, CRM, and SCM. "As demand grows in the security services, system Integrators have in fact venture into security consulting, implementation, support and training services, that require high expertise in networks and anti-virus applications," said Ms Chan.

Deployment and support is the second largest engagement type, in which the bulk of the revenue comes from hardware support and installation. Outsourcing is the third largest engagement type, however, its growth potential, especially IS outsourcing, is highest among all the foundations. Outsourcing by nature of contract is of large value and over an extended period of time. This has highly motivated existing players to continue to strengthen their outsourcing portfolio and for new players to enter this market.

Although large projects were fewer and far between and as companies took a back seat "wait and see" approach in 2003, government and banking sector was still the main revenue generator in the IT services market. According to Ms Chan, "High revenue generated in the banking sector was largely contributed by the US$342 million outsourcing contract awarded by Maybank to CSC/CSA. In addition, signage of US$116 million outsourcing deal between Malaysian Airlines' and IBM Global Services spurred growth in transportation sector in 2003." In 2004, IDC expects IS outsourcing market to grow at 34.2% over the next five years, supported by the nature of service being provided and they type of contracts that are being signed.

The IT services service provider market in Malaysia remains highly fragmented and provides a healthy opportunity for any individual vendor to grow. Meanwhile, companies in Malaysia are placing an increasing level of importance on identifying IT investments and business objectives. According to Ms Chan, "This awareness causes a shifts in customers’ needs and requirements, the way enterprises budget and purchase their IS spending. Hence, now is the time to take advantage of low market valuations and consolidate market share by inorganic acquisition. It is also the right time to focus on areas of existing market leadership and organically gain share for example, IT service providers are expanding their service target to the small medium enterprises (SMEs) as potential source for additional revenues and market shares."

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