Nearshore software development is a viable strategy for businesses that want to access a broader talent pool. It is also a way for enterprises to scale their engineering capabilities fast while avoiding legal and cultural barriers often associated with offshore outsourcing. The UK, Nordic states, and some Western European countries, experience a significant shortage of tech talent. According to Nash Squared's Digital Leadership report, 57% of surveyed digital leaders from the UK believe they will never have access to enough tech workforce if hiring the traditional way.
Therefore, to foster technological innovation with new expertise or sustain their critical IT operations, more and more businesses outsource software development to neighboring countries within Europe. Let's explore the key options and opportunities for nearshore software development in Europe as well as overview the related risks and ways to mitigate them.
Key challenges that make businesses go for nearshore software development in Europe
Before diving into the opportunities for nearshoring to Europe, it's crucial to understand the key challenges driving businesses toward this strategy:
High competition for tech talent
One of the most significant issues that makes businesses nearshore software development in Europe is a scarcity of skilled tech talent and, therefore, fierce competition for it. According to the Tech Talent Charter, tech job opportunities in the UK have reached their highest point in a decade.
At the same time, traditional routes into tech fail to produce the necessary workforce. Outsourcing and nearshoring, in particular, can help alleviate this challenge by providing access to broader talent pools. By leveraging nearshore software development services, businesses can tap into the expertise of skilled experts in neighboring European countries with rich tech talent pools.
Long staffing time
Another challenge that drives organizations towards software nearshoring in Europe is the time-consuming process of hiring and onboarding tech talent. As estimated by Indeed, the average time-to-hire in the UK currently spans around five weeks. Moreover, filling highly skilled tech roles and senior management positions can often require a significantly longer time. By partnering with nearshore development teams, businesses can quickly launch their projects without the delays associated with traditional hiring processes. Additionally, nearshore software development providers typically have established recruitment processes and pipelines, streamlining the staffing process and reducing time-to-hire. For example, it takes outsourcing providers with extensive talent networks, such as N-iX, three to four weeks to fill the position. This enables businesses to allocate their resources to core activities while the nearshore partner oversees sourcing, screening, and onboarding new team members.
Regulatory compliance concerns
European countries often have stringent data security regulations to protect the confidentiality of users' personal information. One example is GDPR, which is designed to safeguard personal information related to EU residents. Non-compliance with these regulations can cause severe consequences for businesses, such as substantial fines and reputational damage. However, ensuring regulatory compliance can be complex, especially for enterprises operating in multiple jurisdictions. Nearshore software development in Europe offers advantages in this regard as it allows businesses to partner with providers who are already well-versed in local regulations and can ensure compliance throughout the development process. These providers are often familiar with GDPR requirements and have established processes to safeguard data privacy and security, mitigating the risk of non-compliance.
Nearshore software development in Europe: Options and opportunities
Nearshore software development in Europe offers a wide array of choices for companies aiming to enhance their development capabilities while optimizing costs and accessing a diverse talent pool. Here are examples of the most advantageous nearshoring possibilities in Europe:
Example 1: Nearshoring from Nordic to Baltic countries
For Nordic countries, outsourcing IT projects to the Baltic states (Latvia, Estonia, and Lithuania) stands out as a compelling option for several reasons. The regions are a perfect match in terms of nearshoring, considering cultural compatibility, favorable business environment, agility, and wide technological expertise of Baltic countries.
Estonia, Latvia, and Lithuania are known as one of Europe's most economically stable destinations for IT outsourcing. Out of 78 countries in the Kearney GSLI ranking of the best outsourcing locations, Estonia, Latvia, and Lithuania take 16th, 20th, and 35th positions, respectively. In addition, the region is well-known for its high digitalization level and robust data protection legislation, which ensures secure and efficient business operations.
Another thing that makes the Baltic region an attractive destination for IT nearshoring in Europe is a considerable number of product companies, tech startups, and outsourcing companies, which fosters an ecosystem for innovation and development. Many international enterprises, including Google, IBM, Microsoft, PwC, Accenture, and KPMG, have opened their R&D centers in the Baltic states. Also, the region is the birthplace of many renowned companies, such as Skype, Pipedrive, Click & Grow, TransferWise, Cloutex, Grabcad, and others. Why is this important for businesses that want to outsource software development? Large international enterprises usually invest in professional growth of their in-house talent, and then this workforce reenters the labor market with advanced skills.
The cultural match is another crucial factor in nearshore software development. The Baltic region has historical and cultural ties with the Nordic countries, making collaboration smoother and communication more effective. The similarities between cultures are proven by Hofstede Insights—a comprehensive guide to mentalities worldwide. The study overviews and evaluates destinations based on various dimensions such as power distance, individualism, long-term orientation, uncertainty avoidance, and others. According to the study, Norwegian and Baltic tech experts share a low level of power distance, meaning that they prefer decentralization of decision-making. In addition, specialists in both regions have a relatively high index of long-term orientation. For Nordic enterprises that nearshore to Baltic countries this translates into certainty that their outsourcing team will dedicate themselves to the project with a commitment to long-term success.
Nearshoring from Nordic to Baltic countries: Risks and challenges
Despite numerous advantages, some challenges are associated with outsourcing from the Nordic to the Baltic region. Estonia boasts one of the top-performing labor markets within the EU, but, at the same time, faces the challenge of a declining working-age population. The aging population presents risks to the country's economic growth as well as competitiveness and profitability of businesses.
In addition, many skilled Lithuanian tech experts seek employment abroad, resulting in a talent drain from the country. This leads to a skills shortage in Lithuanian outsourcing companies and, as a result, slower industry advancement than in previous years.
N-iX's tip: To mitigate the risks associated with the aging population and talent drain in Estonia and Lithuania, businesses can focus on talent development and retention initiatives within their outsourcing partners. For example, fostering a positive work culture that promotes collaboration and innovation can enhance employee satisfaction and reduce the likelihood of talent turnover. Moreover, partnering with tech vendors that offer opportunities for upskilling and training can empower employees to keep up with the latest technologies and trends, thereby enhancing their value to the organization.
Keep reading: IT outsourcing in Latvia, Estonia, and Lithuania
Example 2: Nearshoring from the UK to Western Europe and Central and Eastern Europe (CEE)
According to Nash Squared's Digital Leadership report, 68% of the surveyed digital leaders admitted that tech talent deficit is a crucial obstacle for their business. So, another popular combination for software nearshoring in Europe is the UK enterprises outsourcing their software development to the Continent. This option is also particularly favorable due to the highly developed business landscape of the region, strong education systems, good command of English among local developers, and GDPR-regulated data protection.
The IT sector of the CEE region is consistently growing. As stated in the Emerging Europe Future of IT Report, the value added of the IT industry in Central Europe constitutes more than 5% of GDP—the highest figure in the region. At the same time, Western European countries, such as Portugal and Spain, are steadily emerging as outsourcing hubs. According to Statista, the Portuguese revenue in the IT outsourcing market is projected to grow at an annual rate of 10.92%, resulting in a market volume of $1,492M by 2028.
Both Western Europe and CEE boast strong tech education systems, which, in turn, ensures a continuous influx of new tech talent and their high expertise. In recent years, the number of ICT students and graduates has steadily increased throughout Europe. For instance, as of 2021, around 37,000 and 34,800 people graduated from ICT courses in Central and Eastern Europe, respectively.
Another reason why UK businesses nearshore software development to Europe is the good command of local engineers in English, which ensures effective communication and collaboration. The EF English Proficiency Index lists many Western European countries, such as Germany and Portugal, as being in the very high proficiency category. As for CEE, most local tech experts, including Polish, Romanian, Bulgarian, and Hungarian specialists, have high English proficiency.
You might also be interested in Top software development companies in the UK
Nearshoring from the UK to Western Europe and CEE: Risks and challenges
Some of the locations in Western Europe and the CEE region have relatively small number of tech vendors that provide IT outsourcing services. For instance, Hungary is home to only around 80 IT firms, only five of which are midsize and large companies. This might result in reduced ability of your potential partner to find the right fit for specific project requirements or expertise needs, and, as a result, longer time for project launch.
N-iX's tip: We recommend rigorously researching outsourcing possibilities in several nearshoring locations before making the final decision. Opt for destinations in Western Europe and CEE with a larger pool of IT vendors and service providers, ensuring a more competitive market with various expertise and capabilities.
Example 3: Nearshoring from Western Europe to Central and Eastern Europe (CEE)
Nearshoring from Western Europe to Central and Eastern Europe (CEE) is a strategic business move that many companies opt for to leverage the benefits of high talent availability, diverse technical expertise, and cost-effectiveness.
Outsourcing IT operations to CEE is a proven way to bridge the talent gap—the region boasts a talent pool of over 5M developers and tech professionals. Most of the available workforce resides in Poland, Ukraine, the Czech Republic, and Romania. According to the Emerging Europe Future of IT Report, the countries are home to around 525K, 291.5K, 222K, and 202.5K ICT specialists, respectively. In addition, the region has between 4,500 and 6,500 IT outsourcing vendors.
Numerous skill evaluation rankings recognize the tech experts from CEE as well-qualified specialists. For instance, five countries, Slovakia, Poland, Hungary, Ukraine, and the Czech Republic, have made it to the top ten of the SkillValue list. For businesses that decide to nearshore to CEE, this will translate into high quality of delivered services.
Another element that makes nearshoring to CEE countries an optimal choice for Western European businesses is the average tech salary in the region. Let's take the average tech salary of Polish developers as an example for comparison. Software development rates in Poland are generally 20-25% lower than those in Western Europe or the UK. However, this discrepancy is also influenced by the proficiency and experience levels of tech professionals and the type of contract.
The relatively lower cost of living in the CEE region also contributes to the long-term success of your nearshored project. Engineers in such countries are more likely to be satisfied with their rates because their expenses are twice as low as in Western Europe. As a result, these specialists have fewer chances to leave the tech vendor or the country.
Nearshoring from Western Europe to Central and Eastern Europe (CEE): Risks and challenges
One of the challenges that Western European businesses might face when nearshoring to CEE is political instability in some locations that poses risks to business continuity and long-term investment viability. On 24 February 2022, russia launched a full-scale invasion of Ukraine. This led to the substantial number of tech specialists relocating abroad and development of the IT sector slowing down for a couple of months.
N-iX's tip: Regardless of location, choose a vendor that has a strong Business Continuity Plan in place to mitigate the consequences of unforeseen events like political instability. This includes comprehensive risk assessment procedures, redundancy measures for critical resources and operations, and clear communication channels to ensure continuity of service delivery. For instance, right after the full-scale invasion, N-iX successfully implemented its BCP and maintained service delivery above 95%.
Read more: Top IT outsourcing destinations of Eastern Europe: Market report
Alternative option: Partnering with a vendor that has legal entities in selected European country(ies)
An alternative to choosing only one location for IT nearshoring in Europe is partnering with a vendor that maintains one or several legal entities in multiple European countries. First of all, outsourcing companies with a presence across several locations have access to more tech talent and, therefore, can staff for projects with any required expertise.
In addition, this outsourcing option presents a strategic advantage in navigating complex regulatory landscapes and ensuring compliance across diverse jurisdictions. What does it mean for businesses? In the event of regulatory challenges or legal disputes, having legal entities registered in respective countries provides clarity and consistency in resolving issues within the unified legal framework. As a result, this minimizes compliance risks, allowing businesses to focus on their key objectives without being bogged down by legal complexities.
N-iX is a trustworthy software engineering vendor with a presence in all key outsourcing destinations throughout Europe, including Poland, Bulgaria, Ukraine, Sweden, the UK, and Malta. Moreover, the list of our delivery locations also spans Portugal, Spain, and Romania. The Europe-wide presence enables the establishment of a partnership with N-iX while complying with corporate regulations in any of those countries. Moreover, thanks to our extensive talent network in Europe, we can staff top tech experts in almost any location of the region.
Related: Nearshore outsourcing: Top 25 companies with strong tech portfolio
Nearshore software development in Europe: 5 steps to make it right
Now that we've reviewed the most popular options and opportunities for software nearshoring in Europe let's outline five essential steps that will ensure a successful nearshore software development cooperation:
1. Define your project requirements and objectives
Before starting your cooperation with an outsourcing vendor, your key task is identifying your project goals, requirements, and expectations. This step is crucial as it lays the foundation for the entire process. Here are some key aspects to outline during this phase:
- Project scope, including your product's features, functionalities, and any specific requirements;
- Key objectives to help your future partner prioritize tasks and make informed decisions;
- Budget constraints, such as development costs, maintenance expenses, and any additional expenditures.
- Timelines for project completion, considering project complexity and potential risks that may impact them.
Furthermore, it's essential to enumerate all requirements and objectives comprehensively. Neglecting any can lead to scope creep, which can cause budgetary excesses and project delays.
2. Select a nearshoring destination
The next step is to decide upon the best outsourcing destination for your nearshore software development needs in Europe. First and foremost, your choice should depend heavily on the skill availability of required experts in your potential outsourcing location. Ensure that there is a pool of developers with the necessary expertise and experience to meet your project requirements. It's also crucial to research the competition for the workforce in potential outsourcing locations, as high demand for skilled professionals can affect recruitment timelines and costs.
Another important thing to consider is cultural compatibility. We recommend choosing a destination where the work culture aligns with your own organizational culture. This fosters better understanding, communication, and teamwork between your team and the outsourcing vendor. One of the ways to get a better understanding of the countries' cultural peculiarities is the Hofstede study, which contrasts locations based on dimensions such as power distance, individualism, uncertainty avoidance, and other factors.
3. Choose the right software development partner
While selecting among vendors for nearshore software development in Europe, opt for a large or midsize company with over 250 tech experts on board. Such enterprises usually have access to a bigger number of professionals, which ensures quick staffing and prompt project launch. In addition, larger companies usually have optimized development processes and are more likely to implement industry best practices.
Another crucial thing to take into account is the expertise of your potential vendor. Before initiating collaboration, research the service offering and technological skillset of your engineering vendor.
Additionally, delve into the vendor's portfolio to assess their track record of successfully delivering projects similar to yours. This will give you confidence in their ability to meet your specific requirements and project goals. You might refer to Clutch, GoodFirms, or other rating platforms to gather objective insights into the vendor's industry experience, service quality, and business value they brought to their clients.
4. Decide upon the suitable cooperation model or service
Once you've found a trustworthy company for IT nearshoring in Europe, the next step is to determine which cooperation model or service best aligns with your business requirements. The choice will depend heavily on the project flexibility needs, the desired level of control, as well as your company objectives.
In case your goal is to bridge the talent gap in your project, go for the team extension model. This presupposes that your tech partner augments your core team with the required experts, remaining responsible for the recruitment processes. All that you need to provide is a team profile—the definition of your desired team composition and skillsets and a project backlog.
If your aim is to assemble a whole team of engineers, the managed team model is the best fit for your organization. Not only does this provide prompt access to the necessary expertise, but it also allows for resource optimization. With your tech partner handling the recruitment and coordination of your offshore testing team, you can dedicate your attention to other vital aspects of your business operations.
Custom software development is an option for businesses that need to solve a specific business issue by implementing an end-to-end solution. You provide the tech vendor with the definition of done, and completely rely on them in terms of building your tailor-made solution. At the same time, you can overview your project progress by regularly communicating with engineers and the N-iX project manager as well as participating in quarterly business reviews.
Tech consulting is a perfect choice for enterprises that want a partner to help them identify their software development requirements, devise an efficient strategy, as well as implement industry best practices to ensure successful project outcomes. For instance, N-iX's tech consultants provide two options for businesses: Product Discovery or solution assessment and design. While the first one is focused on the validation of your product concept, the latter stands for the evaluation of your current solution and designing the new one to address your evolving needs and objectives.
5. Review the vendor's data protection policy
Exposing sensitive data can result in substantial financial losses and harm to a company's reputation. Therefore, it's vital that your potential partner for nearshore software development in Europe has a robust data protection policy. An essential marker of a reliable tech company is its commitment to international data protection standards like ISO 27001 and PCI DSS. Additionally, it's crucial to check whether your vendor has a Business Continuity and Disaster Recovery Plan in place to maintain operations during unforeseen incidents.
Why should you choose N-iX as your partner for nearshore software development in Europe?
With a large number of tech vendors in the European market, it might be challenging to select a reliable vendor. Here are the reasons why N-iX is a perfect choice:
- We have delivery centers and offices in Poland, Bulgaria, Ukraine, Sweden, the UK, and Malta, offering clients an opportunity to sign contracts under a legal framework that best suits their needs.
- N-iX's global presence spans 25 countries, which allows you to tap into an extensive talent pool of skilled engineers.
- We have over two decades of industry experience and employ more than 2,200 qualified professionals.
- Our track record includes successfully delivering software development projects for enterprises and Fortune 500 companies.
- N-iX adheres to security standards and regulations such as ISO 27001:2013, PCI DSS, ISO 9001:2015, GDPR, and other relevant protocols, ensuring secure software development practices.
- N-iX boasts numerous industry recognitions, including Solution Provider 500 by CRN, Global Outsourcing 100 by IAOP, and many others.
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