Nearshoring in DACH – trends and predictions
Digitalisation and globalisation are increasingly forcing the optimisation of conventional corporate management strategies. It is particularly seen in the IT sector where companies are increasingly deciding to outsource entire company processes and leave their handling to IT partners.
The IT outsourcing market has been growing continuously for years. According to market analyses, revenues in this sector will reach over $350 billion worldwide in 2021, rising to $430 billion in 2025(1). This process is also strongly on the rise in Germany, Austria and Switzerland.
Offshoring to distant foreign countries is often cumbersome in practice. According to a McKinsey study from 2020, it is to be expected that nearshoring, i.e., the transfer of in-house processes to nearby EU countries, will be the continuing trend(2). It is predicted(3) that the Central and Eastern European markets will increasingly gain importance.
Nearshoring – your IT Partner located next door
In contrast to the cheaper but often cumbersome and increasingly uncertain offshoring to distant foreign countries, nearshoring within the EU(4) offers everything that one would also get in the country of origin, only at a better and more effective price-performance ratio due to the geographical proximity, uniform legal situation and barrier-free communication.
How to choose a nearshoring partner
To first evaluate and select a potential IT nearshoring supplier(5), it is recommended to go through a checklist that can be used to identify in-house requirements and compare the most important criteria, such as the scope of services offered, competences, legal security, and actual costs. It is recommended to start with a pilot project and test the cooperation to assign the overall management of the IT software projects to the selected nearshoring business partner.
Nearshoring – advantages for DACH companies
Thanks to their favourable geographic location, companies in the DACH countries in particular have access to a broad range of nearshoring services in the EU region, which they are increasingly keen to take advantage of.
- Staying in Europe
Especially in joint projects, where company employees interact with each other, it is extremely relevant that both sides share not only similar values, but also the same work culture. With specialists and highly qualified employees from the nearby EU countries, you can firmly assume that they will share your idea of professionalism, punctuality and work methodology. This solid technical-social basis promotes a relaxed communication and leads your joint project to sustainable success.
Your nearshoring partner is available to you at all times during normal working hours as well as in case of emergency, just as if they were sitting in the building next door. This is not only important for day-to-day business, but also extremely relevant in case of emergencies.
- Partner next door
Even though you will be working primarily online with your nearshoring partner, face-to-face meetings – whether for training, project meetings, or problem-solving – may be necessary, and these can be easily arranged in a timely manner at your site or at your nearshoring partner’s premises. The drive from the neighbouring federal states and Austria takes only a few hours, and the flight time from any major German, Austrian or Swiss city usually takes no more than an hour and a half.
- Lingua Franca
The majority of the Polish population speaks English well, especially in the big cities. Among college graduates and in the IT field, it is a must anyway because the lingua franca in software development is English. So, you can expect a smooth communication with your nearshoring partner. Especially in regions bordering German-speaking countries, you will often find nearshoring partners with whom you can easily communicate in German.
- Competent and experienced developers
According to Tholon’s Services Globalization Index, Poland is among the Top 20 Digital Nations (4) and Polish programmers are among the recognized world class. For years, they have been conquering the most demanding labor markets and their projects receive high recognition from clients and international competitors. According to HackerRank, Polish IT developers are among the absolute world top class (5) as well as in the Topcoder ranking (6). There are currently more than 250,000 programmers working in Poland which accounts for about 25% of all Central and Eastern European IT professionals.
- Best value for money
EU nearshoring countries such as Poland are not low-wage countries like China and India, but salaries and living costs are still significantly lower here than in Germany or Switzerland, for example, where developers’ labour costs range from 2.5 to 4.5 times higher (7). Nearshoring can therefore save costs significantly without sacrificing quality, sustainability and safety.
EU nearshoring offers not only legal security and smooth accounting and banking services. The crucial topic of data protection is also legally covered equally in all EU countries(8). Companies that use IT services outside the European Economic Area, on the other hand, must check whether adequate data protection is guaranteed, and this is considered inadequate in popular offshore countries such as India, Serbia, Belarus or Vietnam in particular (9). With EU nearshoring, on the other hand, you do not need to worry about data protection and compliance because exactly the same protection rules apply here as in the entire EU legal area and now, with the new Swiss Federal Privacy Act, also in Switzerland.
Solution to skills shortage
There is a skills shortage in Germany, especially in the IT sector. According to a Statista study, the number of vacancies for IT specialists currently is 86,000 (10). Not only does the lack of qualifications of applicants play a role here, but also their high salary demands (11). To fill this gap, the German economy has already hired hundreds of IT specialists from Poland. This experience and the resulting networking are probably also responsible for the fact that German companies are increasingly choosing Poland as a popular nearshoring location.
Austria is also increasingly relying on nearshoring. Decades ago, programming tasks were outsourced from Germany to the less expensive Austria. Now, according to the WKÖ Trade Association for Business Consultancy, Accounting and IT (UBIT), there is a shortage of approx. 24,000 IT specialists (12). According to another study by Ernst&Young, 83% of Austrian SMEs complain about the shortage of skilled workers and 40% report a drop in sales as a result(13). The shortage of IT specialists is the most impressively, which is why 26% of vacancies are already unfilled (14).
Swiss companies are traditionally somewhat more cautious and prefer onshoring locally, but face major challenges due to cost pressure and the availability of IT specialists. According to a study by the Institute for Economic Studies Basel (IWSB), a total of almost 120,000 new ICT specialists will be needed in Switzerland by 2028 (15). This is why nearshoring is increasingly becoming a signpost(16) here as well, and increasingly not only within the German-speaking region, but also to other EU countries.
Entrepreneurs know that quality and sustainability in the it area, legal certainty in data protection, and institutional and social factors at work are crucial when choosing nearshoring locations. Nearshoring within the EU area secures both at the same time: cost efficiency and the smooth flow of work across borders.
Do you want to discuss how nearshoring can help your company develop?