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The IT outsourcing market has been growing continuously for years. According to industry reports, revenues in this sector will reach over $350 billion worldwide by the end of 2021, rising to $430 billion in 2025. Nearshoring is also strongly growing in popularity in Germany, Austria, and Switzerland. In contrast to the cheaper but often cumbersome and increasingly uncertain offshoring to distant foreign countries, nearshoring within the EU offers everything that businesses would also get in the country of origin only at a better and more effective price-performance ratio. This is due to the geographical proximity, uniform legal situation and barrier-free communication.
Various countries are progressing at different rates in terms of nearshoring. Some view the UK as market leaders when it comes to technological advancements, along with the USA. Yet the culture in countries like Germany is seen as more cautious, analysing trends as they happen before completely committing. Then there are the language barriers that Germany has, compared to the USA, which makes nearshoring more complex.
Cultural & Business Challenges
Each country has their own challenges when it comes to progressing nearshoring, and most of that is down to how each country handles business at different rates. Paweł Herman, Client Engagement Manager at Future Processing, currently placed in Poland working closely with US members, outlines that America must be thought about in two ways. On the one hand as a union that has some universal rules, laws, and practices from the west to the east coast, and on the other hand as a diverse mix of many differences, cultures, and habits that have a direct impact on both private and business life.
From Pawel’s experience on IT projects with companies based in the USA and American studies, there are some distinctive and recurring characteristics that are worth noting. Speed is an integral part of USA business; time is money. Therefore, they like to act quickly and talk about specifics that translate into benefits, making fast profit. People are often positioned based on performance and whether employees or partners are achieving their KPIs. They are more loyal to the concept of performance and profit. A study conducted by McKinsey & Company outlines that this method does indeed work, with organisations that focus on performance and health being more successful and delivering better financial results. A culture deeply ingrained in the fail fast, to succeed faster motto.
However, Martin Möhle, Head of Sales DACH at Future Processing, based in Germany, notes a decidedly contrasting way on how Germans conduct business. Germany’s business culture is usually marked by organisation, planning and perfectionism. When it comes to deciding new business, they take a much more methodical approach, less speed and more evaluation, backed up by facts, figures, tables and charts. Germans usually prepare cautious plans including fall-back and contingency measures, in order to avoid the unexpected. This is where they look to countries like the USA, evaluating where they are failing fast and succeeding from those areas, to generate their own successful outcome.
Similarly, the UK focuses on true partnerships based on strong relationships and the ability to deliver on time. Britons are entrepreneurial and have the ability to flex and change as the markets develop and progress, especially in today's uncertain world. When choosing partners the Brits look for firms that are easy to work with, have a sense of flexibility and creativity and can develop and succeed together over the long term.
Global Nearshoring Similarities
Though all three of the main countries that have been outlined have different ways of doing business and adopting nearshoring best practices, there are similarities that they share. Each country is seeing continual growth in the tech industry, which is only predicted to increase entering into 2022. Yet the major similarity between all three countries, and additional areas across the globe is a serious skill shortage. The most important pillar of any tech revolution isn't a specific technology, it's the people.
67% of global senior technology decision-makers say that a skills shortage is preventing their companies from keeping up with the pace of change, according to the latest Digital Leadership Report. The UK tech skills shortage mirrors the global problem, with 66% of digital leaders in Britain saying that the lack of talent is responsible for slower digital transformation in their organisations. The current tech skills shortage is the highest on record.
With the pandemic highlighting the success in remote working, people are finding they can work in any home, place or country and still be able to do their job to the best of their ability. This is an aspect that the nearshoring industry knew well, having been skilled in remote working with partners as their main USP. Yet, with employees now able to do the same, businesses are finding that their skilled employees are being offered higher salaries with the added benefit of remote working, placing more strain on an already increasing skill shortage. This will continue to become a challenge for businesses hiring their own skilled employees, having to compete with higher competition for an already scarce commodity among the tech industry.
Though each country has their own way of working, yet they all suffer the same challenges, and nearshoring is predicted to continue growing in all regions over the coming year. As an industry with the necessary skilled workforce and ability to work at the pace for a variety of businesses, countries will look to nearshoring to further progress their projects and organisations in the future.