IT outsourcing is on the agenda of most large enterprises. Firms have to decide which IT functions to outsource and which to retain in-house, and they also have to decide whether to use a service provider in the UK or one based further afield.

Before signing any outsourcing deal, firms need to identify and manage security risks, said Kelly Kavanagh, senior analyst at research firm Gartner. He pointed out that offshore outsourcing requires even greater care in several areas, including the degree of control over customer data.

Kavanagh added that to deal with these issues, IT staff should be involved in the outsourcing process from the earliest stages. This means that they should be included in operations management, as well as the strategic planning phase.

Firms should audit prospective service providers to ensure policies and controls meet the required standards, said Kim Rajah, vice-president of European operations at outsourcing specialist Cognizant.

"The more educated buyers will visit the proposed location, look around the facility, look at the infrastructure and security and see if the processes are being adhered to," said Rajah.

He stressed that the location of an offshore partner is important. "Buyers tend to do a lot of due diligence, looking at political stability, the size of the labour pool and technical capabilities," he said. According to Rajah, few countries apart from India can meet the required standards.

Rajah predicted that offshore IT outsourcing would increase as the economy improves. "Companies will be picking up on new development spend and running new projects and they won't have enough IT people in-house to do it," he said.

Another trend could see more companies handing over day-to-day responsibility for their IT operations to third parties. "There's a strong likelihood that more and more firms will see IT as a utility and outsource their entire function," said Rajah.

But companies will still keep certain key IT personnel, he added: "Firms will look for hybrid IT managers who know IT and the business, and project management skills will also be required in-house."

Businesses requiring a high level of security may be attracted by a new scheme called Outsource2NewZealand, designed to encourage UK firms to outsource high-level, business-critical systems to New Zealand. The scheme includes a coalition of 20 vendors, supported by the New Zealand government and managed by the IT Association of New Zealand (Itanz).

Outsource2NewZealand members said they were not interested in competing with mainstream outsourcing companies in India, China or Eastern Europe, but instead would offer top-end, niche solutions. "We are pitching our skills at a much higher level," said Jim O'Neill, executive director of Itanz. He added that New Zealand should be a good choice for data privacy. "Our regulations and laws are [comparable] to those in the UK. New Zealand is a very safe destination for outsourcing."

Another attraction of New Zealand may be its time zone, which is 12 hours ahead of the UK. This could speed up projects, because when one territory stops work, the other could continue it without requiring night shifts.

For example, one of the group's members, Jade Software, provided UK building society Skipton with a complete branch automation system in less than three months, working with Skipton for what were essentially 24-hour days.