IDC Predicts The Malaysian Services Market Will Brave Troubled Waters in 2009 With Innovative And Cost-Saving Services

Kuala Lumpur, February 16, 2009 – In its annual Top 10 Predictions of the IT services market for Malaysia, IDC predicts that innovative and cost-saving services will keep the services market afloat in troubled economic times. IT services vendors that can adapt quickly to meet the changing demands of customers will be in a stronger position to exploit the niche opportunities that still exist.

"There will still be opportunities in the IT services market in Malaysia despite the economic situation, as companies continue to align their business and IT priorities. Organizations cannot afford to completely freeze spending on services but they will be prudent and spend only on services that will increase efficiency and lead to cost savings," says Hailey Chan, Associate Market Analyst, IT Services Research, IDC Malaysia.

The following are the top 10 key predictions that IDC believes will shape the IT services industry in Malaysia in 2009:

1. Services Will Regain Double-Digit Growth in 2009

The IT services market in Malaysia is expected to increase from US$1.2 billion in 2007 to US$2 billion in 2012 with a compound annual growth rate (CAGR) of 11.1%. IDC predicts that spending on IT services in 2009 will grow between 11% to 12% over the previous year. The business services market is also expected to increase from US$1.32 billion in 2007 to US$2.68 billion in 2012 with a CAGR of 14.1%. IDC forecasts that spending for business services will grow between 17% to 18% in 2009.

The Malaysian IT services market is more resilient to the global IT market downturn as it continues to see demand for services that will optimize business functions and sustain long-term growth. In addition, IT services projects that were launched towards the end of 2008 are expected to spill over to 2009. The economic pressure has also become a driver for services that can help reduce costs and improve efficiencies for businesses, opening up pockets of opportunities in key areas such as service oriented architecture (SOA) and Green technologies, the small and medium-sized business (SMB) sector, and maintenance services.

2. Outsourcing Will Shift from Manufacturing Based to Services Based

Malaysia is becoming a strong competitor in the global outsourcing market, as organizations not only seek affordable locations, but also better value and skills. Malaysia, traditionally strong in the contract-manufacturing arena, will see a shift to more service-based outsourcing engagements. The availability of affordable skilled labor is expected to support this shift. Local service provider (SPs) can benefit by focusing on building the skill sets necessary to enable more in-depth offerings such as research and development (R&D), and design work, as opposed to simply transferring technology from overseas into the country for production only. While there has been considerable talk of establishing federal guidelines or limitations on commerce to control the offshoring of U.S. manufacturing, IDC expects that no drastic steps will be taken to limit the current trend, despite continuing concerns.

3. Cost Savings Will Drive Service-Oriented Architecture

Although companies are expected to tighten their budgets in an economic downturn, they will also look for services and solutions that help to save costs. One such solution is Service-Oriented Architecture (SOA) which enables business process standardization across multiple clients at a lower price. IDC predicts that 2009 is the year that vendors will start to take notice of the vast opportunities in the SOA market and step in to educate customers about the long-term benefits of SOA. The trend in future IT investments, considering the economy, will focus on the latest technology that integrates well with the existing systems infrastructure, bringing higher returns on both existing and new investments. This will spur interest in exploring the SOA technology that offers seamless IT and business integration in the end users' space.

4. Network Consulting and Integration Opportunities Will Increase for Network Integrators

Vendors will have ample opportunities in 2009 to strengthen their position in the network consulting and integration services (NCIS) market. In addition to tax deductions, the government has committed to invest RM400 million (US$100 million) to kick start the High-Speed Broadband (HSBB) project, targeted to increase the nationwide broadband penetration rate to 50% of households by 2010. Service providers are also upgrading their infrastructure to meet the growing demand for larger bandwidth. Most SPs will continue to invest in the next-generation network (NGN) in addition to the HSBB project. This investment is expected to continue in 2009, since it will provide long-term cost savings. Additional market drivers for NCIS will be led by new technologies and broadband services such as multiprotocol label switching (MPLS), third generation (3G), wireless networking, and asymmetric digital subscriber line (ADSL) network services.

5. Virtualization Will Gain Momentum in the Enterprise Space
The benefits of virtualization cannot be ignored in the era where time means money. The adoption of virtualization technologies is expected to gain traction as companies look for flexibility in their IT infrastructure on top of the existing pressure to cut energy cost and maintain high ROIs. IDC foresees the adoption of server virtualization in Malaysia to grow over the course of 2009 as organizations explore virtualization solutions for their businesses. According to IDC’s Asia/Pacific Continuum survey in 2008, 60% of the Malaysian respondents had already deployed some form of virtualization in the x86 server environment. However only 13% had virtualized more than 50% of their x86 servers. Hence, opportunities for SPs to offer virtualization solutions are readily available.

6. The Government Will Adopt Web 2.0 Applications

The government has always been an advocate of growth in the IT services industry in Malaysia. In a financial crisis, the role of the government as a growth catalyst becomes even more prominent. The government is expected to be one of the largest spenders of IT services in 2009. IDC sees Web 2.0 applications as a viable option for the government to adopt in 2009.

The myGovernment Portal serves to link all government agencies' websites in order to provide end users with a single point of entry to available information and services. In addition to portals, IDC believes that the government will also look for other Web 2.0 technologies that promotes collaboration and information management such as RSS feeds, Webcasts, blogs and wikis. Web 2.0 is about making the Web more collaborative and functional, and thus can enable the government to better respond to the needs of citizens.

7. Small and Medium-Sized Businesses Will Move Back to Traditional Ways of Doing Business

IDC predicts a trend in the smaller startups (typically less than 20 personnel) to revert to the traditional way of doing business by using equipment, infrastructure, and services from a third-party outsourcing firm. These small and medium-sized businesses (SMBs) do not operate from an office, therefore requiring a P.O. Box address and professionally manned phones for business dealings. When required, desk space and conference rooms can also be rented for face-to-face meetings with clients. Most of these SMBs are run as a side business to supplement the income from the owner's day job. As business owners look to downscale operations in a tight economy, IDC sees this form of hosted business services as an innovative solution that provides attractive market opportunities for SPs.

8. Green IT to Walk the Walk in 2009

The past couple of years has seen the term “Green IT” being promoted across Malaysia to generate awareness of the concept and the benefits that it can bring. IDC believes that 2009 will finally be the year where companies convert awareness into execution. The economic situation will become the catalyst of such initiatives and accelerate adoption of Green IT as companies become more desperate to save costs, rather than a push from the government. IDC also expects that IT companies will start small in their investment in Green IT, by investing in lower cost and energy efficient PCs rather than costlier options like blade servers in the short run.

9. Vendors With a Strong Verticalization Strategy Will Lead the Market

Businesses have shown a marked preference for vendors that understand their business and can deliver solutions or services specific to their business environments. CIOs prefer industry-specific solutions so that they can see the business benefits of investing in specific technologies and services. As CIOs increase scrutiny of the value of IT spending to their businesses, IT vendors need to focus more on communicating the vertical-specific benefits and the differentiators they can offer.

10. Software as a Service Will Provide Opportunities for Vendors

The concept of offering alternative delivery and deployment methods for software has a long-standing history. IDC predicts that Software as a Service (SaaS) will make greater strides in Malaysia in 2009 due to the changing market dynamics. Trying times such as this will be a push factor for organizations to adopt the SaaS model because of its low upfront cost compared with traditional licensing. "Big-name" SPs are also pushing the concept of SaaS in the region. Malaysia customers trust these key SaaS providers, traditional software companies that offer the applications, local vendors, as well as telecommunications companies. Vendors will have to be aggressive about offering SaaS or risk being ignored by customers and prospects that now expect to be able to opt for this platform.

IDC’s annual Predictions for the Malaysian IT services market draws upon latest IDC research and a worldwide brainstorming exercise among IDC’s 900+ analysts. This was followed by an extensive regional review to weigh in on key industry events, user trends, vendor strategies and economic measures, that promises to uniquely define the technology trends which would impact and drive the IT services market in Malaysia for 2009. Across the globe, following the release of IDC’s global top ten and IDC’s APEJ top ten, geographic and technology teams will be releasing their own specific predictions in the up coming months. Visit http://www.idc.com.sg/Predictions09/ often for updates.