Nearshore Study Part II. Netherlands - European leader in IT innovation

The Nearshore Blog is pleased to present the second part of the study series “Nearshoring to Eastern Europe as solution to EU labor shortage”.

The study is conducted by the Nearshoring Blog in conjunction with Levi9 Global Sourcing to analyze the issues of the EU leading economies associated with the lack of qualified IT specialists as well as existing labor restrictions and multicultural problems that slowdown countries innovation and post-recession recovery.

The issue of this series coincides with the first international report on shortage of IT specialists published by UNESCO in October 2010. The report features escalating demand for engineering talent across the EU as well as indicates serious shortage of engineers in most sectors.

The Nearshore study. Part II Netherlands - European leader in IT innovation

The second part of study concentrates on the Netherlands. The Dutch economy is among leaders in innovative activity and highly relies on the hi-tech sector. From this point the ability of Dutch economy to supply businesses with highly-qualified resources seen as a crucial prerequisite for post-recession recovery and further economic growth.

With this aspect in mind we decided to concentrate the second part of our study on the potential of Dutch IT service market, its needs in terms of supply of highly-qualified IT specialists and current labor regulations and multiculturalism issues preventing Dutch businesses from immigration of foreign work and as a result slowdown in growth and post-recession recovery.

Please note: The following chapters present the first part of the study content providing details of the analysis of Dutch IT service market as well as current trends and issues on the labor market, and its ability to meet the demand for hi-tech specialists.

The full paper can be accessed by following this link or in “researches” section of our blog.


Major trend

In the last decade, an increasing demand for high skilled hi-tech workers and engineers could be observed in most the EU leading economies. This development has been associated with the development of increasingly integrated labour markets and the appearance of skill-biased technological change which is often ascribed to the acceleration of technological developments in the information and communication technology (ICT).

In the first chapter of this series we examined the current situation on IT labor market in Germany - the EU largest economy and world’s leading exporter along with its effect on further economic growth.

The study confirmed that German economy and labor market experience rather opposite trends:

• from one side there is a booming demand for German goods and services, particularly from Asia, which result in growing trade surplus and customer confidence
• from another part Germany experiencing a real labor crisis. Market surveys indicate that the country is in desperate need for skilled specialists and engineers with overall 400 000 positions unfulfilled only in IT

The survey conducted for famous German IT sector magazine revealed that a high percentage of businesses questioned for the poll said they had declined contracts during the first half of 2010 because they did not have enough staff to take on the extra work.

Businesses cannot fill open jobs with suitable candidates and the lack of labour is developing into a dangerous brake on growth, particularly for small and medium-sized companies,” said Marie-Christine Ostermann, chairwoman of the employers’ association Young Businesses-BJU, which co-commissioned the survey.

Data on similar trends has been observed in other EU developed economies such as France, UK and the Netherlands. Especially the latter, as the Netherlands is one of European leaders in technological innovation and world’s largest exporter of IT services and chip manufacturing.

Netherlands - European leader in IT innovation

The Netherlands can fairly be considered as a hi-tech engine of the European Union. The following facts just prove this statement:

• Some 70 percent of all innovation in the Netherlands is IT-related. The country is a world’s leader in ICT patent applications with more than a half of all patents submitted by Dutch companies and organizations are related to hi-tech sector.
• The country is a world’s fourth-largest exporter of IT related services with software sector contributes annually 17.3 billion euros to the Dutch economy
• Netherlands is a world’s leader in embedded systems and a world leader in chip manufacturing equipment
• The country is one of the most 'wired' countries in the world, with broadband network is the second-highest in Europe and over 90% of Dutch households have a computer

Apart from all this the country boasts of the region’s most advanced infrastructure and hosts a number of high-capacity networks used for R&D purposes, thereby providing platforms for global software developers, hardware companies and IT consultancies.

Shift to Service Model

Such progress in information technology along with increasing role in Europe’s business and scientific areas contributed to the further shift of Dutch economy from the production to the service based.

IT services became more tradable and Dutch IT sector achieved a record growth of 4.2 percent in 2007, exceeding GDP and average European IT industry growth of 2.9 percent, with the software sub-sector showing growth of 9.5 percent. IT market in the Netherlands experienced a fast growth over last decade developing in a 30 billion market already in 2007.

Demand for hi-tech specialists

Rapid technological advances and increasing use of information and communications technology (ICT) have increased demand for skilled labour dramatically. Before the crisis, Dutch IT industry employed over 255,000 people; or 3.5 percent of the total workforce.

Demand for information technology workers in the Dutch services sector continued to grow despite the crisis. The industry labor market surveys showed that IT specialists have become a hot property in the Netherlands because too few young people entered the field over the last decade and national educational system cannot meet the demand for hi-tech specialists.

As it was indicated in the first part of the study the Netherlands follows similar to Germany trend where hi-tech and engineering trades falling in popularity. Contrary to

the country’s growing role in Europe’s IT innovation young population in the Netherlands is not rushing to get IT education.

“The decline in engineering’s popularity among students is apparently due to a perception that the subject is boring and hard work, and engineering has a negative environmental impact, and may be seen as part of the problem rather than the solution,” explains Tony Marjoram, the Report Magazine editor.

Despite the high salaries in the sector the image of hi-tech professions still stays at the relatively to other sectors low rank in the Netherlands. As result local institutes and universities do not produce enough qualified graduates while at the same time aging generation of old-school engineers comes to retirement.

With overall shortage of hi-tech specialists and engineers comes to 1.2 million in the EU - based on data provided by European Round Table of Industrialists - the Netherlands together with Germany, France and UK responsible for a lion share of that shortage.

Please note: The previous chapters presented only the first part of the study content. The full paper can be accessed by following this link or in “researches” section of our blog.

Nearshore Study Part II. Netherlands - EU leader in IT innovation

Dear Readers,


The Nearshore Blog team is extremely pleased to announce about the completion of the second part of our "Nearshoring to Eastern Europe as a solution to the EU labor shortage" studies series. The work is almost finished, and the study is in the pipeline :)

Hot on the heels of welcoming reception of the first part of the studies "Germany - EU largest economy needs 400,000 high-tech specialists" we concentrated our investigative efforts on analyzing another European leader in IT sphere - the Netherlands yet native land for Nearshore blog!

The Dutch economy is among world leaders in innovative activity and highly relies on the hi-tech sector. From this point the ability of Dutch economy to supply businesses with highly-qualified resources seen as a crucial prerequisite for post-recession recovery and further economic growth.


With this in mind we dedicated the second part of our study on the potential of Dutch IT service market, its needs in terms of supply of highly-qualified IT specialists and current labor regulations and multiculturalism issues preventing Dutch businesses from immigration of foreign work and as a result possible slowdown in growth and post-recession recovery.

As a solution to the growing shortage of IT talent the study considers nearshore outsourcing and staff augmentation services from Eastern Europe.


The study paper is expected to be accessible within the weeks and Nearshore Blog is thankful for all your support and help!

Lineke Sneller CIO of the Year 2010

Lineke Sneller, CIO van Tele2, heeft de CIO of the Year Award van 2010 gewonnen. Een zeskoppige jury, onder voorzitterschap van Bernhard van Oranje (founder Levi9), heeft haar gekozen als opvolger van Arjen Dorland, VP en CIO van de Downstream-organisatie binnen Shell. De bekendmaking vond plaats tijdens de zesde CIO Day in Noordwijkerhout.

It's Time to Nearshore - Letter from Authors

First of all, it's our greatest pleasure to see an increasing interest in nearshoring from business and academic communities across the world. It became apparent that Nearshore community is growing at a fast pace and more people became interested in nearshoring day by day.

We've seen a growing membership in our Nearshore Group on Linkedin as well as growing demand for information from business and academic representatives across the world, who are willing to raise the standard of management knowledge in the field and explore nearshoring benefits.

It also became clear that our active position in investigating nearshoring at both corporate and governmental levels became critical into providing a specialists means on what works and what does not, so helping businesses to make the right choice for their business engagement models.

Today, it is crucial as never, as European businesses are under the growing pressure of labor shortage from one side, and escalating discontent with traditional offshore model from another. Businesses in largest EU states such as Germany and France show signs of reluctance towards globalization of their sourcing strategies, while there is a growing labor gap with shortage of 400 000 IT specialists and engineers only in Germany.

A survey conducted for the leading German magazine revealed that a high percentage of the German businesses questioned for the poll said they had declined contracts during the first half of 2010 because they did not have enough staff to take on the extra work.

This lack of labour is developing into a dangerous brake on growth, particularly for small and medium-sized businesses and at this point it can only be reversed by companies looking for staff augmentation services abroad.

Serious immigration problems, strict labour policies and tax regulation together with the low-popularity of hi-tech specialities in countries such Germany, France, Netherlands make filling the gap for the account of internal training or immigration programs highly unrealistic.

From other side, outsourcing and, especially nearshoring proved to be a viable alternative to complement existing resources with highly-qualified yet less expensive workforce.

Being not only a cost-reduction mechanism, as with its closeness and cultural advantages nearshoring opens up perfect possibilities for various outsourcing models and approaches, from multi-sourcing to captive centers, it is also a prefect entering strategy for Western European companies to advance to economically growing Eastern European market, as the partnership with local providers not only provides access to less expensive and developed labor market and skills, but also enhance local market knowledge and expertise.


Conclusion

With this crucial aspects in mind we conducted a series of studies to discuss the current issues of the EU largest economies associated with the lack of qualified hi-tech specialists and labor restrictions.

We also want to update the perspective of Eastern European countries for providing nearshore outsourcing and staff augmentation services, and their possibilities to fill the gap in increasing labor shortage inside the European Union.

The first part of the study can be accessed here or in “Publications” section.

Nearshoring to Eastern Europe as solution to the EU labor shortage

“Outsourcing to Eastern Europe as solution to EU labor shortage”, is a study prepared by “Nearshoring Blog” to discuss the current issues of the EU largest economies associated with the lack of qualified hi-tech specialists as well as labor restrictions and multicultural issues that prevent countries from immigration of foreign work.

Another part of study updates the perspective of Eastern European countries for providing nearshore outsourcing services, and their possibilities to fill the gap in increasing labor shortage inside the European Union.

The study consist of the following sections:

1. Germany - EU largest economy needs 400,000 high-tech specialists
2. Economic Recovery
3. Lack of specialists
4. Immigration - not welcomed
5. Offshore Outsourcing? No, look closer!
6. Why outsource? Why just don’t attract people from other EU member states?
7. Nearshore Outsourcing. Win-Win solution

and provides latest statistical data and trends on Germany labor market in general, and IT specialists market in particular. In this post we presented a part of the study, while the full version is available in PDF format here


Part I. Germany – EU largest economy

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Germany - EU largest economy needs 400,000 high-tech specialists

In the first chapter of series we decided to start from Germany - the EU largest and most technological economy. The country which has been crying out for skilled hi-tech specialists and engineers for years, yet opposing to the idea of attracting foreign labor.

Economic Recovery

The country steadily emerges from the crisis and sees record growth of 3.3 percent. Booming demand for Germany cars and technologies from Asia, particularly China - world’s largest consumer market strengthen country’s export indicators.

The experts confirmed that Germany is one the raise. The third quarter of 2010 indicated a massive trade surplus, grew nearly 9 percent. German consumer confidence shows stabilization as well. The index is set to come in at high 4.9 points for November, which is almost in line with economists’ forecast of 5.2 points.

However, according to latest labor market surveys the EU largest economy and world’s major exporter is in desperate need for skilled specialists and engineers across sectors, with greatest need in hi-tech sphere with overall 400000 positions unfulfilled in the field.

A survey conducted for the sector WirtschaftsWoche magazine revealed that a high percentage of the 450 businesses questioned for the poll said they had declined contracts during the first half of 2010 because they did not have enough staff to take on the extra work.

“The lack of labour is developing into a dangerous brake on growth, particularly for small and medium-sized companies,” said Marie-Christine Ostermann, chairwoman of the employers’ association Young Businesses-BJU, which co-commissioned the survey.

Please access the full version of the study in PDF format here