Malta IT Outsourcing Intelligence Report 2011

IT Sourcing Europe

European IT Outsourcing Market

Intelligence

June 2011

European IT Outsourcing

Intelligence Report 2011:

Malta

European IT Outsourcing Intelligence Report 2011: The UK

2 | C o p y r i g h t I T S o u r c i n g E u r o p e 2 0 1 1 | A l l R i g h t s R e s e r v e d

European IT Outsourcing Intelligence Report 2011: Malta

Contents

Executive Summary ...........................................................................................2

Survey Overview ................................................................................................3

The Key Takeaways From The Survey ...............................................................4

Profile of Outsourcers .......................................................................................5

IT Outsourcing Drivers & Factors .................................................................... 10

IT Outsourcing Challenges & Problem Solving ............................................... 12

Client – Vendor Relationships ........................................................................ 13

IT Outsourcing Costs ....................................................................................... 15

Impressions of IT Outsourcing ........................................................................ 17

Future Adoption of IT / SD Outsourcing in Malta ........................................... 18

Key Findings’ Discussion ................................................................................. 23

Conclusions ..................................................................................................... 25

Executive Summary

This Intelligence Report is based on the survey of the 154 Maltese companies

that either outsource their Software Development / Information Technology

function(s) to an external service provider onshore (within Malta), nearshore

(within/close to the same time zone) and/or offshore (more than 2 time

zones away), or develop their software/IT solutions in-house.

The Report aims to help Maltese outsourcing companies:

Get an in-depth understanding of the current IT Outsourcing demands

and trends

See what challenges are facing their market peers / competitors and

how they respond to them

Revise / improve their current IT Outsourcing engagements / business

models based on the industry best practices

The Report aims to help Maltese non-outsourcing companies:

Better understand modern software development/IT costs optimization

and/or reduction strategies

See what challenges are facing the in-house software development and

how their market peers / competitors respond to them

Evaluate own readiness to adopt the outsourced / distributed

development

Find out what their market peers think about software development /IT

Outsourcing and how they are / will be preparing for adoption of the

outsourced development in the future




Survey Overview

The Maltese IT Outsourcing (ITO) and In-House Software Development (SD)

survey was conducted between April 26 and May 31, 2011, in the frames of

the All-European ITO research.

Survey goals:

Explore factors that drive Maltese companies to outsource their

SD/IT functions in 2011

Explore challenges associated with offshore/nearshore outsourcing

and the most effective problem solving techniques

Explore the use of different business models in ITO engagements and

find out which model works best for what type of companies and

industries

Explore factors that keep Maltese companies away from outsourcing

their SD/IT function(s)

Compare and contrast the 2011 and future ITO demands within

Maltese industries

The survey was available online and hosted by SurveyMonkey, the world’s

leading provider of web-based survey solutions. In order to reach as many

Malta-based companies as possible, IT Sourcing Europe used its own

database of business contacts and sent out a survey invitation email to each

company’s decision maker(s) (C-level executives, IT / Outsourcing Managers,

Directors, Heads of Software Development etc).

Additionally, outbound marketing initiatives were launched in order to

attract more companies to participate in the survey. In the frames of this

initiative, the following steps were taken:

Online press releases and survey announcements distribution;

Survey localization and optimization in social media such as LinkedIn,

XING, Facebook, blogs ( Twitter, Word Press, IT Sourcing Europe’s

Blog), event management systems (Amiando), and B2B web portals

(Europages, Hoovers)

All data obtained were analyzed in the form of industry aggregates. The

answers to the open-ended questions were organized by their relativity to

the study goals and displayed as the option “all other responses” in charts

and graphs further in the Report.

Outsourcing Activity & Categories Surveyed:

The following ‘outsourcing activity’ is referred to in the 2011 Maltese ITO

Report:

Software Development / Information Technology Outsourcing (SD/ITO) is

the process of transferring part of/entire software development function

and/or other Internet related work to the execution by the external IT

services provider(s)

https://www.surveymonkey.com/




The following categories fall under this activity:

Application (app) development and maintenance;

Website / ecommerce systems;

Data warehousing;

IT security;

Data / voice network operations;

Remote IT infrastructure management

These categories further fall under the five key areas of expertise:

Web (Web 2.0, .NET, Java, PHP, open source etc);

Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc);

Mobile development (J2ME etc);

Embedded development;

Software as a service (SaaS) and Cloud Computing

The Key Takeaways From The Survey

Most of the Maltese companies have been

outsourcing their solutions for 12 to 24 months

Software development companies have the biggest

demand for external IT resources, followed by gaming

companies

Most of the Maltese outsourcers have 1 to 3 IT

specialists on their outsourced teams and value their

projects at €0-49K

Web and mobile solutions are most outsourced, while

Cloud solutions are least outsourced in Malta

Offshoring is the most preferred ITO destination for

the Maltese companies

Shortage of domestic IT skills and personnel is the key

driver of decisions to outsource and the biggest

challenge facing Maltese non-outsourcers

Poor communication with ITO vendor’s project

management is the key challenge facing Maltese

outsourcers

Future Maltese outsourcers will be focused on

nearshore multi-sourcing




Profile of Outsourcers

Do Companies Outsource Any Element of Their IT / Software

Development?

Current Outsourcing Experience




Company Size (Headcount)

Primary Industry




Revenue Growth Expectations

Outsourcers

In-House Development Companies




Size of Project Team on Vendor’s Side (Headcount)

Value of the Outsourced Project(s)




The Outsourced Areas of Expertise

Do Companies Multi-Source?




Outsourcing Destinations

IT Outsourcing Drivers & Factors

Drivers of Corporate Decisions to Outsource




Factors’ Rating In Terms of Their Importance In the Choice of the

Outsourcing Destination

Factors’ Rating In Terms of Their Importance In the Choice of the

Outsourcing Partner




IT Outsourcing Challenges & Problem Solving

Key Challenges of the Outsourced IT / Software Development

Key Responses to the ITO Challenges




Client – Vendor Relationships

How Companies Found Their ITO Vendors

Vendors’ Size




Service Delivery Models Used In the Outsourcing Engagements

Who Hires IT Talent To Be Involved In the Outsourced Project

Execution?




IT Outsourcing Costs

Do Companies Know Exact Salaries of Their Project Team Members

On Vendor’s Side?

Levels of Companies’ Satisfaction With Their Current Vendors and

The Quality of Services Provided




How Actual Annual Incurred Costs Compare To the Contracted Ones

Actual Savings From the Outsourced IT / Development




Impressions of IT Outsourcing




Future Adoption of IT / SD Outsourcing in Malta

Do Companies Plan to Continue Outsourcing Their Projects?

Future Outsourcing Destinations




Key Challenges of the In-House Software Development

How In-House Developers Respond To Challenges




Circumstances In Which Companies Would Consider Outsourcing IT /

Development In The Next 12 To 24 Months

Where Current Non-Outsourcers Would Transfer Their IT /

Development In The Future




Factors’ Importance In The Future Choice of The Outsourcing

Destination

Factors’ Importance In The Future Choice of The Outsourcing Partner




How Companies Would Search For Their Outsourcing Partners If They

Make A Decision To Outsource Their IT / Development In The Future




Key Findings’ Discussion

According to the European Center of Offshore Development (eCODE) Global

Outsourcing Location Report on Malta (2011), Malta is an emerging

nearshore and offshore destination for Call and Contact Center, business

process, knowledge process, HR and payroll administration outsourcing

services. Due to the vast range of tax incentives that Malta offers to foreign

companies, it has become a hub of the densely concentrated innovative

enterprises. These companies locate both their business and technology

functions on the island to not only increase margins, but get access to other

forms of assistance that Malta is able to offer to prospective investors:

innovation grants, SME support and training, access to loans etc.

However, although Malta proudly proclaims itself a world leader in the

adoption of ICT-related advances in commercial properties, it is still largely

constricted by a very small number of domestic IT graduates and shrunken IT

pool available.

The present IT Outsourcing survey was initiated for the purpose of identifying

the current demand for IT resources across different Maltese industries and

determining the most commonly used sourcing strategies, related challenges

and problem solving best practices.

According to the survey findings, almost 52% of the Maltese companies

currently outsource some element of their IT / software development

function. Of these companies, 40% have been outsourcing for 12 to 24

months and 20% - for more than 37 months now. This finding shows that IT

outsourcing is not a new practice within the Maltese business community.

The vast majority of IT outsourcing companies in Malta have 6 to 19

employees on staff and provide software development services. Gaming is

the second most outsourced segment, while entertainment/media, digital

media and financial services are the least outsourced segments on the island.

This finding actually supports Malta’s stance as a Business Process

Outsourcing (BPO), Knowledge Process Outsourcing (KPO) and Accounting

Administration Outsourcing (AAO) center with sufficient resources and

English language skills capable of satisfying other nations’ outsourcing

demands.

Regarding the outsourced projects’ value and resource pool, the survey finds

that almost 67% of the Maltese outsourcers have 1 to 3 specialists employed

in project’s execution on vendors’ side and almost 87% of the Maltese

companies value their outsourced projects at EUR 0-49K.

The biggest outsourcing demand in Malta comes from Web and Mobile areas

of technology expertise.

The survey finds that the prevailing majority of the Maltese companies

transfer their IT / development functions offshore as a response to the

shortage of domestic IT skills and resources. Three other important drivers of

decisions to outsource in Malta are: search for faster time to market (TTM),

reduction of operating costs and focus on core competences.

As seen from the survey responses, most of the Maltese companies single-

source their solutions rather than distribute them among several vendors.

The survey underscores the highest rated ITO destination selection criteria in

Malta. They are: available foreign language skills (English), positive

references from peer companies and available IT resource pool. Regarding

the ITO partner selection criteria, the most valued ones are: sound

http://www.ecode.org.uk/outsourcing-resources/outsourcing-report-sample-malta.pdf

http://www.ecode.org.uk/outsourcing-resources/outsourcing-report-sample-malta.pdf




experience in similar projects, ability to successfully complete pilot / test

projects and, again, positive references from peer companies.

The research further allows identifying the most critical challenges facing IT

outsourcing companies in Malta in 2011. They are poor communication with

vendor’s project management (PM), poor PM on vendor’s side, cultural

difference, poor quality of project deliveries and vendor’s inability /

reluctance to understand client’s business goals and overall concept.

The most popular ways to resolve the critical outsourcing issues include

dedication of more management and IT resources, extension of project

deadlines, increase in face-to-face communication with vendor’s project

managers and engagement with new outsourcing vendors. More than 25% of

companies look at multi-sourcing as a way to overcome their challenges and

only less than 10% choose to back-source.

Almost 64% of the Maltese companies partner with small IT outsourcing

vendors (less than 50 in headcount), while only slightly more than 9% - with

the large ones (1,000 and more).

Regarding the business models that the Maltese companies use in their ITO

engagements, the fixed-price project model is the most popular one,

followed by the Managed/Own Team model. In view of this, it is not

surprising that almost 46% of the Maltese outsourcers are never involved in

the process of selecting and hiring IT specialists to work exclusively on their

software project(s). Most of those who are fully or partially involved in the

candidates’ selection process do not know exact salaries of their project

executors on vendor’s side. It can in part explain another survey finding that

the actual incurred costs are up to 25% higher than expected (in almost 55%

of engagements).

Fixed-price projects are incapable to meet rapidly changing requirements of

today’s projects, especially those that come from lucrative high-tech niches

such as mobile development, online betting/gaming, casual gaming and

digital media. Additionally, they open an ample way for IT outsourcing

service providers to use some “dirty tricks” in order to make clients pay extra

beyond the contractual price. One of such tricks is to bid low at the bidding

stage and to intentionally omit some of the non-critical project features in

the project estimate and then to charge extra for the project scope change at

the production stage.

Still, according to the survey results, the hidden agenda does not prevent the

majority of IT outsourcers from saving 40% to 59% of operating costs via the

outsourced development and being satisfied with their ITO vendors and the

quality of the provided services.

Based on the responses highlighting the future IT outsourcing plans of the

current outsourcers, most of the companies plan to continue with the

outsourced development in the next 12 months, although planning to change

their outsourcing destinations. Almost 37% of companies plan to multi-

source to the geographically dispersed locations, i.e. nearshore, offshore and

within Malta and almost 27% plan to transfer their operations nearshore.

Only 9% of companies plan to continue offshoring in the future, which is

down 31% from the actual ratio of outsourcers.




Conclusions

Based on careful analysis of the data obtained in the course of the Maltese IT

Outsourcing survey 2011, it is possible to summarize some of the key trends

among / make forecasts for the future scenarios of adoption of the ITO

services by the Malta-based companies:

• Most of software development and gaming companies currently

outsource due to the shortage of domestic pool of IT specialists and

will continue to do so in the months to come to be able to increase

their margins and better satisfy pressing customers / end users of

their products

• Most of outsourcing companies anticipate their annual revenues to

increase by 10% to 19%, while the majority of the in-house

development companies expect only 1% to 9% revenue growth in

2011

• Maltese outsourcers are expected to multi-source more in the

following months to secure risks associated with a single vendor

network

• Although the majority of companies currently outsource offshore,

they think it is important to have their outsourced teams located in

the same/close time zone as Malta and, therefore, will most likely

back-source their operations nearshore in the following months

• Most of current outsourcing companies did online research to find

their ITO partners and not a single company surveyed reported hiring

an outsourcing consultancy to assist with their vendor selection

process. In the future, companies are expected to change their

partner search practices: more companies will rely on the positive

references from their peers and more companies indicate plans to

hire outsourcing consultants. It generally denotes companies’

readiness to source strategically and focus on long-term benefits in

their future decisions

• The demand for external IT resources and/or outsourcing services is

expected to increase from digital media and entertainment/media

companies focused on a more extensive use of mobile technologies

and their integration into products’ portfolio

• Future Maltese outsourcers will have to revise their engagement /

service delivery models and look for more price-transparent and

flexible ones to have predictable outsourcing costs and easier

scalability which are essential for effective long-term IT /

development strategy planning

Almost 70% of today’s non-outsourcing companies in Malta say they are

very likely and likely to consider outsourcing their IT/software

development in the future in order to get access to skills and resources

outside the island.

With the Maltese fiscal regime being the key driver in attraction of the

foreign investments, more companies from the European Union and

North America are expected to set up their back-offices here for the

purpose of leveraging costs via the outsourced business and accounting

processes, R&D and technology. To be able to satisfy such an ample

demand, Maltese IT outsourcing service providers will have to look at

other locations to source resources from. Therefore, re-outsourcing (i.e.

sourcing extra resources from other locations to better serve own

outsourcing clients) is quite likely to become the next “hot” trend in

Malta in the years to come.



About IT Sourcing Europe

IT Sourcing Europe is a UK company specialized in nearshore IT

Outsourcing consultancy, market research and analysis.

IT Sourcing Europe provides:

• Top quality quantitative and qualitative IT Outsourcing market

research and fieldwork services

• Evaluation of Central and Eastern Europe's IT Outsourcing

services providers and their factual capabilities to deliver

innovative technological solutions on time and on budget

• Free consulting services for European companies planning to

outsource IT / software development functions and / or change

their current IT Outsourcing strategy / engagement

• Ad-Hoc IT Outsourcing strategy development and full-cycle

support

IT Sourcing Europe cooperates with several European ICT and

Outsourcing organisations in terms of free analytics / information

exchange. Amongst its major information partners are Outsourcing

Verband, Das Outsourcing Journal, Outsourcing Portal, Ngi and others.

Our Contacts:

The Meridian, 4 Copthall House, Station Square

Coventry, West Midlands,

CV1 2FL United Kingdom

Email: info(at)itsourcing-europe.com

Tel.: +44(0)2476992505

Web: www.itsourcing-europe.com

Blog: http://itsourcingeurope.wordpress.com

Follow our tweets @ITSourcingEurop

Registration at the UK Companies House: 07217899

You are free to use, share and/or remix any part of this work as

long as you attribute it to IT Sourcing Europe.

www.itsourcing-europe.com

www.itsourcing-europe.com

http://itsourcingeurope.wordpress.com/

https://twitter.com/itsourcingeurop

https://www.ngi.nl/

http://www.outsourcing-verband.org/

http://outsourcing-journal.org/

http://www.outsourcingportal.pl/

Malta IT Outsourcing Intelligence Report 2011

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