Abstract
IT outsourcing business tends to be the domain of large companies. However, with increase saturation of outsourcing market among large companies, the under-exploited SME market emerges as a potentially lucrative playground for vendors. SMEs, confined by limited resources, can benefit from having external services. Literature review shows a lack of outsourcing research among SMEs in Malaysia. This paper thus aims at examining IT outsourcing decisions and practices of Malaysia SMEs. Data was collected from SMEs in the manufacturing and service sectors in Malaysia. The findings show that the lack of internal competency is the primary reason that drives IT outsourcing and that SMEs prefer shorter-term contractual agreements. To attract SMEs, vendors have to establish trust prior to contract signing. This trust is critical for long-term outsourcing engagement. If resources permit, SMEs would revert to in-house IT services to minimize dependency on vendors.