Malta IT Outsourcing Intelligence Report 2011

IT Sourcing EuropeEuropean IT Outsourcing European IT Outsourcing MarketIntelligence Report 2011: IntelligenceMalta June 2011

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKContents Executive Summary This Intelligence Report is based on the survey of the 154 Maltese companies that either outsource their Software Development / Information TechnologyExecutive Summary ...........................................................................................2 function(s) to an external service provider onshore (within Malta), nearshoreSurvey 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 demandsIT Outsourcing Drivers & Factors.................................................................... 10 and trendsIT Outsourcing Challenges & Problem Solving ............................................... 12 See what challenges are facing their market peers / competitors and how they respond to themClient – Vendor Relationships ........................................................................ 13 Revise / improve their current IT Outsourcing engagements / businessIT Outsourcing Costs ....................................................................................... 15 models based on the industry best practicesImpressions 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 optimizationKey Findings’ Discussion ................................................................................. 23 and/or reduction strategiesConclusions ..................................................................................................... 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 future2|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKSurvey Overview Additionally, outbound marketing initiatives were launched in order to attract more companies to participate in the survey. In the frames of thisThe 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’sSurvey 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 functionThe survey was available online and hosted by SurveyMonkey, the world’s and/or other Internet related work to the execution by the external ITleading 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 owndatabase of business contacts and sent out a survey invitation email to eachcompany’s decision maker(s) (C-level executives, IT / Outsourcing Managers,Directors, Heads of Software Development etc).3|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKThe 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 gamingThese 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-sourcing4|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKProfile of Outsourcers Do Companies Outsource Any Element of Their IT / Software Current Outsourcing Experience Development?5|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK Company Size (Headcount) Primary Industry6|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK Revenue Growth Expectations Outsourcers In-House Development Companies7|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK Size of Project Team on Vendor’s Side (Headcount) Value of the Outsourced Project(s)8|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK The Outsourced Areas of Expertise Do Companies Multi-Source?9|Copyright IT Sourcing Europe 2011 | All Rights Reserved

European IT Outsourcing Intelligence Report 2011: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK IT Outsourcing Drivers & Factors Drivers of Corporate Decisions to Outsource Outsourcing Destinations10 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK 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 Partner11 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKIT Outsourcing Challenges & Problem Solving Key Challenges of the Outsourced IT / Software Development Key Responses to the ITO Challenges12 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKClient – Vendor Relationships How Companies Found Their ITO Vendors Vendors’ Size13 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK Service Delivery Models Used In the Outsourcing Engagements Who Hires IT Talent To Be Involved In the Outsourced Project Execution?14 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKIT 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 Provided15 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKHow Actual Annual Incurred Costs Compare To the Contracted Ones Actual Savings From the Outsourced IT / Development16 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKImpressions of IT Outsourcing17 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKFuture Adoption of IT / SD Outsourcing in Malta Do Companies Plan to Continue Outsourcing Their Projects? Future Outsourcing Destinations18 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK Key Challenges of the In-House Software Development How In-House Developers Respond To Challenges19 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKCircumstances 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 Future20 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UK Factors’ Importance In The Future Choice of The Outsourcing Factors’ Importance In The Future Choice of The Outsourcing Partner Destination21 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKHow Companies Would Search For Their Outsourcing Partners If TheyMake A Decision To Outsource Their IT / Development In The Future22 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKKey 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, digitalAccording 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 Processnearshore and offshore destination for Call and Contact Center, business Outsourcing (BPO), Knowledge Process Outsourcing (KPO) and Accountingprocess, knowledge process, HR and payroll administration outsourcing Administration Outsourcing (AAO) center with sufficient resources andservices. Due to the vast range of tax incentives that Malta offers to foreign English language skills capable of satisfying other nations’ outsourcingcompanies, it has become a hub of the densely concentrated innovative demands.enterprises. These companies locate both their business and technologyfunctions on the island to not only increase margins, but get access to other Regarding the outsourced projects’ value and resource pool, the survey findsforms of assistance that Malta is able to offer to prospective investors: that almost 67% of the Maltese outsourcers have 1 to 3 specialists employedinnovation 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 theadoption of ICT-related advances in commercial properties, it is still largely The biggest outsourcing demand in Malta comes from Web and Mobile areasconstricted 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 companiesThe present IT Outsourcing survey was initiated for the purpose of identifying transfer their IT / development functions offshore as a response to thethe current demand for IT resources across different Maltese industries and shortage of domestic IT skills and resources. Three other important drivers ofdetermining 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 inmonths and 20% - for more than 37 months now. This finding shows that IT Malta. They are: available foreign language skills (English), positiveoutsourcing 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: sound23 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKexperience in similar projects, ability to successfully complete pilot / test Fixed-price projects are incapable to meet rapidly changing requirements ofprojects 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 andThe research further allows identifying the most critical challenges facing IT digital media. Additionally, they open an ample way for IT outsourcingoutsourcing companies in Malta in 2011. They are poor communication with service providers to use some “dirty tricks” in order to make clients pay extravendor’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 biddingdifference, poor quality of project deliveries and vendor’s inability / stage and to intentionally omit some of the non-critical project features inreluctance to understand client’s business goals and overall concept. the project estimate and then to charge extra for the project scope change atThe 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 thedeadlines, increase in face-to-face communication with vendor’s project majority of IT outsourcers from saving 40% to 59% of operating costs via themanagers and engagement with new outsourcing vendors. More than 25% of outsourced development and being satisfied with their ITO vendors and thecompanies 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 theAlmost 64% of the Maltese companies partner with small IT outsourcing current outsourcers, most of the companies plan to continue with thevendors (less than 50 in headcount), while only slightly more than 9% - with outsourced development in the next 12 months, although planning to changethe 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 andengagements, 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 issurprising 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 theirsoftware project(s). Most of those who are fully or partially involved in thecandidates’ selection process do not know exact salaries of their projectexecutors on vendor’s side. It can in part explain another survey finding thatthe actual incurred costs are up to 25% higher than expected (in almost 55%of engagements).24 | 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: MaltaEuropean IT Outsourcing Intelligence Report 2011: The UKConclusions 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 inBased on careful analysis of the data obtained in the course of the Maltese IT their future decisionsOutsourcing survey 2011, it is possible to summarize some of the key trends • The demand for external IT resources and/or outsourcing services isamong / make forecasts for the future scenarios of adoption of the ITO expected to increase from digital media and entertainment/mediaservices 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 positive25 | 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: MaltaAbout IT Sourcing Europe Our Contacts:IT Sourcing Europe is a UK company specialized in nearshore ITOutsourcing 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 Europes 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 supportIT Sourcing Europe cooperates with several European ICT andOutsourcing organisations in terms of free analytics / informationexchange. Amongst its major information partners are OutsourcingVerband, Das Outsourcing Journal, Outsourcing Portal, Ngi and others. You are free to use, share and/or remix any part of this work as long as you attribute it to IT Sourcing Europe.26 | 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

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Malta IT Outsourcing Intelligence Report 2011

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