Malta IT Outsourcing Intelligence Report 2011

IT Sourcing Europe
European IT Outsourcing European IT Outsourcing Market

Intelligence Report 2011: Intelligence

Malta

June 2011

European IT Outsourcing Intelligence Report 2011: Malta

European IT Outsourcing Intelligence Report 2011: The UK

Contents Executive Summary

This Intelligence Report is based on the survey of the 154 Maltese companies
that either outsource their Software Development / Information Technology
Executive Summary ...........................................................................................2 function(s) to an external service provider onshore (within Malta), nearshore
Survey Overview ................................................................................................3 (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 Key Takeaways From The Survey ...............................................................4
The Report aims to help Maltese outsourcing companies:
Profile of Outsourcers .......................................................................................5
Get an in-depth understanding of the current IT Outsourcing demands
IT Outsourcing Drivers & Factors.................................................................... 10 and trends
IT Outsourcing Challenges & Problem Solving ............................................... 12 See what challenges are facing their market peers / competitors and
how they respond to them
Client – Vendor Relationships ........................................................................ 13
Revise / improve their current IT Outsourcing engagements / business
IT Outsourcing Costs ....................................................................................... 15 models based on the industry best practices
Impressions of IT Outsourcing ........................................................................ 17 The Report aims to help Maltese non-outsourcing companies:
Future Adoption of IT / SD Outsourcing in Malta........................................... 18
Better understand modern software development/IT costs optimization
Key Findings’ Discussion ................................................................................. 23
and/or reduction strategies
Conclusions ..................................................................................................... 25 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

2|Copyright IT Sourcing Europe 2011 | All Rights Reserved



Survey Overview Additionally, outbound marketing initiatives were launched in order to
attract more companies to participate in the survey. In the frames of this
The Maltese IT Outsourcing (ITO) and In-House Software Development (SD) initiative, the following steps were taken:
survey was conducted between April 26 and May 31, 2011, in the frames of
Online press releases and survey announcements distribution;
the All-European ITO research.
Survey localization and optimization in social media such as LinkedIn,
XING, Facebook, blogs ( Twitter, Word Press, IT Sourcing Europe’s
Survey goals:
Blog), event management systems (Amiando), and B2B web portals
Explore factors that drive Maltese companies to outsource their (Europages, Hoovers)
SD/IT functions in 2011
All data obtained were analyzed in the form of industry aggregates. The
Explore challenges associated with offshore/nearshore outsourcing
answers to the open-ended questions were organized by their relativity to
and the most effective problem solving techniques
the study goals and displayed as the option “all other responses” in charts
Explore the use of different business models in ITO engagements and and graphs further in the Report.
find out which model works best for what type of companies and
industries Outsourcing Activity & Categories Surveyed:
Explore factors that keep Maltese companies away from outsourcing
The following ‘outsourcing activity’ is referred to in the 2011 Maltese ITO
their SD/IT function(s)
Report:
Compare and contrast the 2011 and future ITO demands within
Maltese industries Software Development / Information Technology Outsourcing (SD/ITO) is
the process of transferring part of/entire software development function
The survey was available online and hosted by SurveyMonkey, the world’s
and/or other Internet related work to the execution by the external IT
leading provider of web-based survey solutions. In order to reach as many
services provider(s)
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).




The following categories fall under this activity: The Key Takeaways From The Survey
Application (app) development and maintenance;
Website / ecommerce systems;
Most of the Maltese companies have been
Data warehousing;
IT security;
outsourcing their solutions for 12 to 24 months
Data / voice network operations; Software development companies have the biggest
Remote IT infrastructure management demand for external IT resources, followed by gaming
These categories further fall under the five key areas of expertise: companies
Most of the Maltese outsourcers have 1 to 3 IT
Web (Web 2.0, .NET, Java, PHP, open source etc);
Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc);
specialists on their outsourced teams and value their
Mobile development (J2ME etc); projects at €0-49K
Embedded development; Web and mobile solutions are most outsourced, while
Software as a service (SaaS) and Cloud Computing 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 Current Outsourcing Experience
Development?




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?




IT Outsourcing Drivers & Factors

Drivers of Corporate Decisions to Outsource
Outsourcing Destinations

10 | 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



Factors’ Rating In Terms of Their Importance In the Choice of the Factors’ Rating In Terms of Their Importance In the Choice of the
Outsourcing Destination 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 Levels of Companies’ Satisfaction With Their Current Vendors and
On Vendor’s Side? 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 / Where Current Non-Outsourcers Would Transfer Their IT /
Development In The Next 12 To 24 Months Development In The Future




Factors’ Importance In The Future Choice of The Outsourcing Factors’ Importance In The Future Choice of The Outsourcing Partner
Destination




How Companies Would Search For Their Outsourcing Partners If They
Make A Decision To Outsource Their IT / Development In The Future




Key Findings’ Discussion 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
According to the European Center of Offshore Development (eCODE) Global media and financial services are the least outsourced segments on the island.
Outsourcing Location Report on Malta (2011), Malta is an emerging This finding actually supports Malta’s stance as a Business Process
nearshore and offshore destination for Call and Contact Center, business Outsourcing (BPO), Knowledge Process Outsourcing (KPO) and Accounting
process, knowledge process, HR and payroll administration outsourcing Administration Outsourcing (AAO) center with sufficient resources and
services. Due to the vast range of tax incentives that Malta offers to foreign English language skills capable of satisfying other nations’ outsourcing
companies, it has become a hub of the densely concentrated innovative demands.
enterprises. These companies locate both their business and technology
functions on the island to not only increase margins, but get access to other Regarding the outsourced projects’ value and resource pool, the survey finds
forms of assistance that Malta is able to offer to prospective investors: that almost 67% of the Maltese outsourcers have 1 to 3 specialists employed
innovation grants, SME support and training, access to loans etc. in project’s execution on vendors’ side and almost 87% of the Maltese
companies value their outsourced projects at EUR 0-49K.
However, although Malta proudly proclaims itself a world leader in the
adoption of ICT-related advances in commercial properties, it is still largely The biggest outsourcing demand in Malta comes from Web and Mobile areas
constricted by a very small number of domestic IT graduates and shrunken IT of technology expertise.
pool available.
The survey finds that the prevailing majority of the Maltese companies
The present IT Outsourcing survey was initiated for the purpose of identifying transfer their IT / development functions offshore as a response to the
the current demand for IT resources across different Maltese industries and shortage of domestic IT skills and resources. Three other important drivers of
determining the most commonly used sourcing strategies, related challenges decisions to outsource in Malta are: search for faster time to market (TTM),
and problem solving best practices. reduction of operating costs and focus on core competences.

According to the survey findings, almost 52% of the Maltese companies As seen from the survey responses, most of the Maltese companies single-
currently outsource some element of their IT / software development source their solutions rather than distribute them among several vendors.
function. Of these companies, 40% have been outsourcing for 12 to 24
The survey underscores the highest rated ITO destination selection criteria in
months and 20% - for more than 37 months now. This finding shows that IT
Malta. They are: available foreign language skills (English), positive
outsourcing is not a new practice within the Maltese business community.
references from peer companies and available IT resource pool. Regarding
the ITO partner selection criteria, the most valued ones are: sound




experience in similar projects, ability to successfully complete pilot / test Fixed-price projects are incapable to meet rapidly changing requirements of
projects and, again, positive references from peer companies. today’s projects, especially those that come from lucrative high-tech niches
such as mobile development, online betting/gaming, casual gaming and
The research further allows identifying the most critical challenges facing IT digital media. Additionally, they open an ample way for IT outsourcing
outsourcing companies in Malta in 2011. They are poor communication with service providers to use some “dirty tricks” in order to make clients pay extra
vendor’s project management (PM), poor PM on vendor’s side, cultural
beyond the contractual price. One of such tricks is to bid low at the bidding
difference, poor quality of project deliveries and vendor’s inability / stage and to intentionally omit some of the non-critical project features in
reluctance to understand client’s business goals and overall concept. the project estimate and then to charge extra for the project scope change at
The most popular ways to resolve the critical outsourcing issues include the production stage.
dedication of more management and IT resources, extension of project
Still, according to the survey results, the hidden agenda does not prevent the
deadlines, increase in face-to-face communication with vendor’s project majority of IT outsourcers from saving 40% to 59% of operating costs via the
managers and engagement with new outsourcing vendors. More than 25% of outsourced development and being satisfied with their ITO vendors and the
companies look at multi-sourcing as a way to overcome their challenges and
quality of the provided services.
only less than 10% choose to back-source.
Based on the responses highlighting the future IT outsourcing plans of the
Almost 64% of the Maltese companies partner with small IT outsourcing current outsourcers, most of the companies plan to continue with the
vendors (less than 50 in headcount), while only slightly more than 9% - with outsourced development in the next 12 months, although planning to change
the large ones (1,000 and more). their outsourcing destinations. Almost 37% of companies plan to multi-
Regarding the business models that the Maltese companies use in their ITO source to the geographically dispersed locations, i.e. nearshore, offshore and
engagements, the fixed-price project model is the most popular one, within Malta and almost 27% plan to transfer their operations nearshore.
followed by the Managed/Own Team model. In view of this, it is not Only 9% of companies plan to continue offshoring in the future, which is
surprising that almost 46% of the Maltese outsourcers are never involved in down 31% from the actual ratio of outsourcers.
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).




Conclusions 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
Based on careful analysis of the data obtained in the course of the Maltese IT their future decisions
Outsourcing survey 2011, it is possible to summarize some of the key trends • The demand for external IT resources and/or outsourcing services is
among / make forecasts for the future scenarios of adoption of the ITO expected to increase from digital media and entertainment/media
services by the Malta-based companies: companies focused on a more extensive use of mobile technologies
and their integration into products’ portfolio
• Most of software development and gaming companies currently
• Future Maltese outsourcers will have to revise their engagement /
outsource due to the shortage of domestic pool of IT specialists and
service delivery models and look for more price-transparent and
will continue to do so in the months to come to be able to increase
flexible ones to have predictable outsourcing costs and easier
their margins and better satisfy pressing customers / end users of
scalability which are essential for effective long-term IT /
their products
development strategy planning
• Most of outsourcing companies anticipate their annual revenues to
increase by 10% to 19%, while the majority of the in-house Almost 70% of today’s non-outsourcing companies in Malta say they are
development companies expect only 1% to 9% revenue growth in very likely and likely to consider outsourcing their IT/software
2011 development in the future in order to get access to skills and resources
• Maltese outsourcers are expected to multi-source more in the outside the island.
following months to secure risks associated with a single vendor
network With the Maltese fiscal regime being the key driver in attraction of the
• Although the majority of companies currently outsource offshore, foreign investments, more companies from the European Union and
they think it is important to have their outsourced teams located in North America are expected to set up their back-offices here for the
the same/close time zone as Malta and, therefore, will most likely purpose of leveraging costs via the outsourced business and accounting
back-source their operations nearshore in the following months processes, R&D and technology. To be able to satisfy such an ample
demand, Maltese IT outsourcing service providers will have to look at
• Most of current outsourcing companies did online research to find
other locations to source resources from. Therefore, re-outsourcing (i.e.
their ITO partners and not a single company surveyed reported hiring
sourcing extra resources from other locations to better serve own
an outsourcing consultancy to assist with their vendor selection
outsourcing clients) is quite likely to become the next “hot” trend in
process. In the future, companies are expected to change their
Malta in the years to come.
partner search practices: more companies will rely on the positive



About IT Sourcing Europe
Our Contacts:
IT Sourcing Europe is a UK company specialized in nearshore IT
Outsourcing consultancy, market research and analysis. The Meridian, 4 Copthall House, Station Square
Coventry, West Midlands,
IT Sourcing Europe provides:
CV1 2FL United Kingdom
• Top quality quantitative and qualitative IT Outsourcing market Email: info(at)itsourcing-europe.com
research and fieldwork services Tel.: +44(0)2476992505
• Evaluation of Central and Eastern Europe's IT Outsourcing Web: www.itsourcing-europe.com
services providers and their factual capabilities to deliver Blog: http://itsourcingeurope.wordpress.com
innovative technological solutions on time and on budget Follow our tweets @ITSourcingEurop
• Free consulting services for European companies planning to
outsource IT / software development functions and / or change
their current IT Outsourcing strategy / engagement Registration at the UK Companies House: 07217899
• 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.

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Malta IT Outsourcing Intelligence Report 2011

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