Offshore outsourcing (offshoring) is one of the most significant forces shaping today's business environment. It is the process whereby one company delegates the responsibility for performing a function to another company based in another country. In its simplest form, outsourcing can be described as the act of obtaining some sort of service from an external organisation.
The types of services that will be outsourced offshore in the future will go far beyond the traditional call centres, software development and back-office operations. There is a growing trend which includes investment and financial services, human resources, health services, retail functions, logistics and customer support functions.
The phenomenon of IT offshore outsourcing has been around for many years, but it is currently enjoying a renewed level of interest. This is partly due to the current economic conditions, which encourage the exploration of low-cost options, as well as the increasing maturity of offshore suppliers. Recent improvements in the worldwide telecom industry have also led to a substantial reduction in costs, as well as the increased digitisation of services, text, figures, and other media.
On the local scene, the ICT sector, considered one of the sectors with most potential for Malta's economic development, has also had its fair share of activity. There is now a significant presence of software development companies, some of which are foreign owned and have set-up base here to capitalise from the cultural and economic advantages Malta has to offer. Strategic alliances exist with HP, Microsoft, Cisco, Oracle and SAP.
One of Malta's strengths as a potential offshoring destination lies in the fact that it has a good sized IT resource pool readily available in an effective and efficient cost structure. Malta also offers some specific advantages, not just to EU companies, but also to non-EU operations that want to set up in Europe in a friendly, safe, business and cost-effective environment. Malta is within three hours of most European cities but offers so much more: Greater cultural alignment than many near shore and most far shore locations; low political, economic, security and legal risks; modern ICT infrastructure; educated workforce renowned for its technical aptitude, adaptability, flexibility and fluency in English; competitive salaries for IT-related personnel; major e-government investment.
Through a combination of dynamic economic, social, cultural, political and human resource factors, Malta is positioning itself to become an ever more attractive location for service providers and companies considering outsourcing.
To be a viable option, Malta's software industry has to be more export-oriented to achieve economies of scale. With a number of companies having geared their efforts to serving a saturated local market, there is a need for expansion into other markets, particularly in Europe and North Africa. Malta's export potential in developing knowledge-based high-tech products and services is evident on the international scene and has already made its presence felt in some globally competitive software products such as Crimsonwing's Supplier Exchange, successfully implemented in a leading UK retail giant. There are a number of companies that are seen as 'national champions' in the ICT sector, among which Crimsonwing continues to be a success story.
Government and various entities need to provide increasing incentives to encourage the private sector to invest in the ICT industry. The telecommunications sector has seen rapid growth in Malta, but the IT products and services market is still relatively lacking.
Smooth regulatory environment is the pre-requisite to any foreign investment. And while Malta does not suffer from bureaucracy, faster decision-making is required to encourage foreigners to participate in our country's IT development process.
Malta needs to continue to focus on developing a strong ICT workforce. The Ministry for Infrastructure, Transport and Communication's recent National ICT Careers Awareness Campaign is definitely a step in the right direction.
While the government's strategy is extremely proactive in developing the ICT sector, it is very important to allocate the necessary resources to support the educational systems which are required to improve the skilled IT human resource availability. The government must make the necessary investments to substantially improve IT graduation rates, and the University of Malta and MCAST will not be able to cope with a sustained demand. This is one of the most important factors that the country will need to prosper as an offshoring destination - a critical mass of IT workers to attract foreign investment. Both vocational and private sector ICT education must follow proper guidelines and they require the government's monitoring.
The multilingual capability of Maltese citizens should be another priority for the government's educational agenda.
The government should continue to make financial resources and financial mechanisms accessible to local companies by providing grants or subsides for companies in strategic areas which might include financing, marketing and training initiatives. This will help local IT companies to undertake international marketing programmes and work with foreign partners to attract investment.
Without going into detail about the eco-tax on key IT hardware and fuel surcharge, the departure tax inflicted on travel originating from Malta is particularly damaging to export-oriented software companies.
Local ICT companies need to make more of an effort to implement internationally-recognised quality certification methodologies (e.g., CMM and ISO standards for software development) and encourage software developers to qualify for various professional certifications.
Another important function that is lacking in Malta is a professional association among the software producing companies, although there has recently been some movement in this respect. The high costs of international market research and marketing, and the implementation of quality certification methodologies, can be shared among the members of a strategic sector through sector-specific professional associations.
Participation in associations can benefit members by giving them increased influence when lobbying for favourable legislation, and also the government by giving it a single source to talk to when considering new legislation.
The accession to the EU comes with threats and opportunities. On one hand, it opens up new opportunities for Maltese companies to expand their businesses, on the other, it makes Malta easily accessible to global competition. Being a small economy, Malta is prone to wage inflation from even modest foreign investment and competitive pressure leading to imbalances in the supply-demand situation. However, Malta's integration into the EU results in a more homogeneous business environment which continues to attract both clients and investors.
Much has been said about Smart City and the number of jobs it is expected to generate. The choice of Malta was made after extensive market research and according to Tecom's CEO "because we view Dubai and Malta as being very similar in many respects, in terms of strategic location, size, connectivity, access to key markets and high tourism dependence. This resulted in a natural level of affinity." Smart City will provide Malta with a challenge and at the same time an opportunity to excel, putting us on the ICT map.
In the coming years I am confident that the ICT sector in Malta will become a significant force in the economy. However, there is work to be done. As Minister Gatt rightly said in the Smart Island's 2010 Vision: "There is much to look forward to. Also truly, there is much yet to do."
Mr Bonello is managing director of Crimsonwing, joined Crimsonwing in 1999. Crimsonwing has sales offices in the UK, Netherlands, Austria, the US, and an ISO-certified Solution Centre in Malta with a group headcount of 250.