cyprus it outsourcing intelligence report 2011

IT Sourcing Europe European IT Outsourcing Market

Intelligence

December 2011

European IT Outsourcing Intelligence Report 2011: Cyprus

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


Contents

Contents .......................................................................................................... 2

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

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

Profile of Outsourcers ..................................................................................... 4

IT Outsourcing Drivers & Factors ..................................................................... 8

IT Outsourcing Challenges & Problem Solving ............................................... 10

Client – Vendor Relationships ....................................................................... 11

IT Outsourcing Costs...................................................................................... 13

Impressions of IT Outsourcing ....................................................................... 15

Trends & Challenges of the In-House Software Development ...................... 16

Future Adoption of IT Outsourcing Services in Cyprus .................................. 20

Key Findings at a Glance ................................................................................ 22

Conclusions and Predictions .......................................................................... 23

Executive Summary

This Intelligence Report is based on the survey of the 229 Cyprus-based

companies that either outsource their Software Development / Information

Technology function(s) to an external service provider onshore (within

Cyprus), 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 Cyprus-based 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 Cyprus-based 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 Cyprus IT Outsourcing (ITO) and In-House Software Development (SD)

survey was conducted between November 22 and December 5, 2011, in the

frames of the All-European ITO research 2011.

Survey goals:

Explore factors that drive Cypriot 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 Cypriot companies away from outsourcing

their SD/IT function(s)

Compare and contrast the 2011 and future ITO demands across

Cypriot 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

Cyprus-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, inbound marketing initiatives were launched in order to attract

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

the following steps were taken:

Online press releases and survey announcements distribution;

Survey localization and optimization in social media such as LinkedIn,

XING, Facebook, Twitter, Google Plus as well as in IT Sourcing

Europe’s blog

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 Surveyed:

The following ‘outsourcing activity’ is referred to in the 2011 Cypriot 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)

http://www.surveymonkey.com/




Profile of Outsourcers

Do Companies Outsource Any Element of Their IT / Software

Development?

Current Outsourcing Experience




Company Size (Headcount)

Primary Industry




Size of Project Teams 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

Key IT Outsourcing Drivers




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 Vendor(s)

Vendor’s Size*

*Respondents were asked to refer to their primary vendor in case of

multisourcing




Service Delivery Models Used In the Outsourcing Engagements

Who Makes Final HR Decision / Selects Specialists To Be Involved In

the Project?




Levels of Companies’ Satisfaction with Their Current Vendors and

Quality of Services Provided

IT Outsourcing Costs

Do Companies Know Exact Salaries of Their Project Team Members

on Vendor’s Side?

*Other: partially




How Actual Annual Incurred Costs Compare to the Contracted Ones

Actual Savings from the Outsourced IT / Development




Impressions of IT Outsourcing




Do Companies Plan to Continue Outsourcing Their Projects In The

Next 12 To 24 Months?

*Other: “we haven’t decided yet”

Trends & Challenges of the In-House Software

Development

How Non-Outsourcing Companies Fulfill Their IT / Development

Tasks




Size of In-House IT Teams

Part of Corporate Budget Spent on Software Development




Level of Satisfaction with the In-House Development

Key Challenges of the In-House Software Development




How In-House Developers Respond To Challenges

Reasons Keeping Companies Away From ITO




Future Adoption of IT Outsourcing Services in Cyprus

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




Key Findings at a Glance

Over the past years Cyprus has gained recognition as a true “tax heaven” for

doing business and has therefore attracted many international companies

seeking substantial relief from domestic tax burdens and complicated

regulations. In particular, international companies move their operations to

Cyprus in order to enjoy the benefits of its double-tax treaties as well as

other offshore jurisdictions such as a 10% tax rate, 15% VAT, confidentiality,

well established infrastructure etc. However, being a European Union

member state (since 2004), Cyprus loses its cost advantage with regards to

in-house IT function management. The present survey demonstrates that

high cost of domestic IT resources and personnel is the Number One barrier

in the way of successful in-house software development / IT (reported by

almost 70% of the survey respondents). Additionally, cumulative 33% of the

respondents admitted scarce local IT resource pool and pressures from C-

suite / investors to lower down IT costs / reduce IT budgets. These and other

issues typical for the EU member states drive Cypriot companies to look

beyond local resources in search of cost effective IT solutions and access to

innovation and diversification. As the survey shows, the prevailing majority of

Cyprus companies source IT / software development resources nearshore or

multi-source nearshore, offshore and onshore.

In general, the survey allows identifying positive and negative trends in

behaviors of Cypriot companies with regards to adoption of IT / software

development outsourcing services.

The positive trends observed are:

More than 40% of Cyprus ITO buyers make final HR decisions / select

IT specialists to be involved in their outsourced project fulfillment

This generally marks the pattern when companies tend to retain control of

own projects and selectively review candidate profiles to make sure they

really match project expectations and possess the appropriate skills level.

More than 70% of Cyprus ITO buyers report general satisfaction with

their current vendors and overall quality of services provided

More than 80% of companies plan to continue with their outsourced

development in the next 12 to 24 months

Nearly 30% of today’s non-outsourcing companies in Cyprus already

consider outsourcing their development / IT function in the next 12

to 24 months, which suggests future expansion of the ITO buyers’

pool

More than 80% of companies multi-source, which generally marks

companies’ willingness to stay independent from a single vendor

engagement and back up their outsourced operations in case of

vendor’s failure to deliver on time, missing resources and/or unmet

deadlines. In addition, multisourcing allows companies to have

different areas of their IT projects fulfilled by vendors with the best

expertise in each certain domain.

However, some negative trends have also been observed in the course of the

research. Among them are:

Although a high number of companies report general satisfaction

with their vendor’s service quality, the same high number of

companies consider changing their current vendor(s) as a response

to their most critical challenges such as poor communication with

vendor’s project management, vendor’s inability to understand their

business goals, mismatch in contracted and actually incurred costs

and poor quality of project deliveries.




The readiness to change ITO service providers witnesses of the following

scenario on today’s Cyprus ITO market: driven by global business trends for

diversification, differentiation and innovation, ITO buyers currently “raise the

bar” for their service providers and challenge them with more difficult and

sophisticated tasks, both technology and HR growth related. However, as

most of ITO buyers partner with small service providers (less than 50 by

headcount), they’re less likely to get a sufficient feedback and have their

expectations met. As the practice shows, lots of small providers are only

focused on closing new deals and filling their pipelines by all means including

provision of incomplete / untruthful information in their RFP responses,

intentional overestimation of own project execution capabilities, low bidding

etc and are unable to hire /retain highly qualified specialists due to their high

cost and career aspirations. As a result, they oftentimes fail to meet their

clients’ increased technology demands, scale up project teams, ensure

project’s sustainability etc.

More than 85% of Cyprus ITO buyers engage with their providers via

project-based models (fixed-price, T&M)

This basically leads to the situations when the actual incurred costs are

higher than expected (up to 25% as well as 25% - 49%) and other issues such

as poor product quality and poor managerial control. Also, the use of this

model does not allow ITO buyers to have predictable costs and plan their

long-term use of outsourcing. As the survey shows, more than 70% of

companies do not know exact salaries of each and every IT specialist on their

vendor’s team(s), meaning they are not aware of the difference between

what the vendor charges them and what it actually pays their employees.

Due to the additional fees most of ITO buyers have to pay on top of the

official service fees, they only save 10% to 24% of operating costs from their

ITO engagements.

Conclusions and Predictions

Based on the results of the Cyprus ITO and In-House Software Development

Survey, several obvious trends were identified:

The majority of the Cypriot outsourcers are very small by headcount

(less than 5)

Cyprus-based B2B focused IT companies have the greatest demand

for ITO services among other industries and verticals

The prevailing majority of ITO projects fall under the web

development domain, require 1 to 5 IT specialists to complete and do

not exceed € 49K in value

Multi-sourcing is an obvious trend of 2011

Most of the Cyprus outsourcers transfer their development / IT

either nearshore alone or distribute them among multiple providers

nearshore, offshore and within Cyprus

Reduction of operating costs is the core driver of corporate decisions

to outsource in Cyprus

Cypriot companies look for language skills availability, low costs and

vast IT talent pool as far as ITO locales are concerned

When choosing their ITO partners, Cypriot companies pay most

attention to current experience in similar projects and low service

rates

The key challenges of the outsourced IT / software development in

Cyprus are poor communication with vendor’s project management

and executive teams and vendor’s inability to understand their

clients’ business objectives




Key steps that Cypriot companies make to respond to their ITO

challenges are ITO partner change, extension of deadlines and

dedication of additional managerial resources

Most of ITO buyers in Cyprus find their ITO partners via own online

research

Most of Cypriot companies manage to save 10% to 24% of operating

costs from their ITO endeavors

Sharing their impressions of ITO, the majority of companies believe

that outsourcing saves operating costs, but inevitably increases cost

of management

Overall, it is expected that more Cyprus-based companies will outsource

their IT solutions in the following months. This conclusion is particularly

based on the following findings of the survey of non-outsourcing companies:

Nearly 43% of in-house development companies say they are not

quite satisfied with the outcomes of their in-house development / IT

More than 66% of non-outsourcing companies complain about the

high cost of domestic IT resources and personnel and more than 33%

complain about the scarce local IT resource pool

Around 30% of companies already consider outsourcing as an option

to leverage costs and access broader resource pools in the future

More than 80% of today’s in-house developers admit the high

likelihood to adopt outsourcing in the next 12 to 24 months to

accelerate time to market, while 100% of respondents admit their

readiness to outsource in the near future to respond to pressures

from investors and share risks

Regarding the future outsourcing geography, it is not expected to alter much

from 2011: most of companies will still focus on onshore and nearshore

development, while only few will move offshore.




About IT Sourcing Europe

IT Sourcing Europe is a UK-based market intelligence company specialized in European IT Outsourcing research and advisory. 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.

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