Malaysia's IT outsourcing market is expected to expand at an annual growth rate of more than 27 percent over the next five years, according to a new study.

In fact, the market should reach $349 million by 2008, market research firm IDC announced. The first big IT outsourcing deal in Malaysia took place between Electronic Data Systems and Bumiputra Commerce Bank in late 2002, sparking a wave of long-term contracts, according to the Sun, Malaysia's biggest English language newspaper.

“The willingness to pay for outsourcing services is high especially among players in the banking, insurance, manufacturing, health care, and government sectors,” said Katherine Chan, services research analyst at IDC Malaysia.

Last year, several large IT outsourcing contracts were signed within the banking and transportation industries, but IDC foresees smaller outsourcing deals with a broader range of companies in the future.

Chan said Malaysian companies that are capable of covering networks, applications, data centers, desktops and systems will have a competitive edge over companies that are not as well-equipped.

“In order to tap the new wave of outsourcing, especially with the emergence of 'on-demand' and utility computing services, players with limited outsourcing capabilities have to start expanding their service offerings to cover a wider range of technologies,” Chan told the Sun.

IDC surveyed the top five IT outsourcing service providers in Malaysia for its study. Their research shows two main groups in the field—technology companies, such as IBM Global Services, Unisys and Hewlett-Packard, and consulting firms, including Accenture, HeiTech Padu and Innovation Associates.

Outsourcing has become a controversial issue in the U.S. Both presidential candidates have said outsourcing should be limited to save American jobs.