Lucia Waldner is the Head of Strategy & Business Development at CC Trust Group, and former Head of Credit Suisse Research Insitute.
Finding new opportunities in the upcoming business cycle will pose a challenge for most investors. Notwithstanding uncertain economic recovery, one of the irreversible trends is the rising demand for tech talent. As organizations seek rapid solutions, tech talent nearshoring is likely to expand.
The 2020 global pandemic set in motion an unprecedented business cycle. According to The Financial Times, its early winners in terms of market cap were the pharma, cloud computing, e-commerce and gaming sectors. In real demand terms, the consumer transaction data specialist Fable Data reported that in the U.K., spending on electronics ranked among the top three segments in November and December, and in Germany, hardware alongside beer and wine were consistently among the most popular individual purchase areas.
All Things Digital
What has changed irreversibly during 2020 is how consumption takes place. The role of digital promotion and sales channels was transformed from a (pre-pandemic) support tool to a core enabler of business survival during the pandemic. Accordingly, tech-enabled businesses have performed better throughout 2020 than their less digitally savvy competitors. Among the most prominent beneficiaries are Amazon (having tripled its profit) and Apple (with revenue hitting a new record). Altogether, the world’s leading technology firms increased their market value by a combined $163 billion in the third quarter of 2020 alone.
Given the complexity of macroeconomic changes set in motion by the pandemic, I see investors increasingly look at thematic investing for guidance, notably due to this approach’s inherent capacity to identify supranational megatrends and enable investors to source local investment opportunities accordingly. Importantly, thematic investing has a particularly long-term time horizon, while allowing for a reasonably high level of both change and complexity, both of which are to be expected in the years to come.
Widening Tech Talent Gap
The push that business-enabling technologies have been given during the pandemic is likely to sustain in the long term, or even accelerate as the global economy steers out of the pandemic. One particular trend will inevitably be reinforced as a result: the growing, yet unmet need for tech talent. With tech savviness being a must and tech know-how becoming a strategic skill, organizations will increasingly need to adapt. According to the World Economic Forum’s 2020 Future of Work Report, the urgency to re-skill and upskill staff is unprecedented. The most sought-for profiles across industries include data analysts and artificial intelligence and machine learning specialists, further exacerbating the preexisting global tech talent shortage.
According to the research firm Gartner’s recent Emerging Risks Survey, the undersupply of tech talent stood as a major concern among corporate IT leaders before the 2020 pandemic. Inability to address the issue swiftly can result in substantial constraints on businesses, impairing their productivity and competitiveness. Importantly, the demand for tech talent is not cycle-related, as the new technology-enabled tools will be needed under any economic circumstances.
Exposed Supply Chains
In parallel to the expanding tech talent supply gap, the pandemic has exposed vulnerabilities within global supply chains and forced businesses to reconsider the role of some of the more sophisticated types of back office support, often historically offshored to distant low-cost jurisdictions. With tech teams becoming a strategic resource, corporations will need innovative ways to source, retain and integrate their best tech minds. As businesses face short supply of tech skills in most mature markets but need to incorporate tech talents in corporate strategy development, the likely answer for many will be nearshoring, i.e., building tech competence centers in markets offering highly skilled labor as well as cultural and geographical proximity. An example is the leading Swiss telecommunication services provider Swisscom, which in 2019 opened a Development and IT Operations center in Rotterdam, The Netherlands, and intends to grow the local team to over 250 staff in the coming years.
Nearshoring is not an entirely new trend and has proven effective in multiple areas. The two largest Swiss banks have been successfully running parts of their back office out of Poland for several years. Credit Suisse has “Centers of Excellence” in Wroclaw and Warsaw, and UBS has “Shared Service Centers” in Krakow and Wroclaw. Swiss Re, one of the world’s largest reinsurers, runs its finance, client management, business operations, asset management, IT, HR and legal functions out of Slovakia’s capital, Bratislava.
Emerging Europe Tech Hubs
Similarly, tech talent can be scouted in “emerging Europe” that is known as a tech talent hub, notably Ukraine, Belarus, Poland and Romania. Although not comparable to India or China in terms of size alone, these markets offer substantial, high-quality, geographically proximate tech workforce. According to a 2019 study, the region is home to an estimated over half a million IT professionals, with more than 60,000 graduating each year.
Within the region, Romania — one of the fastest growing economies in the EU, the report notes — stands out in particular. The country has several technical universities and a solid track record in terms of IT services offshoring to build upon. Already, an annual business services turnover of EUR 4.5 billion (approximately $5.5 billion) is generated across Romania, and with a population of nearly 19.5 million, the potential to scale is unique in the region. Interestingly, its most well-known unicorn UiPath is a tech company specialized in robotic process automation and is currently valued at over $20 billion, just prior to its expected IPO.
The business cycle launched in 2020 will be unlike any past period regarding the scale and speed of digitization. One of the resulting trends worth exploring for investors seeking long-term opportunities is nearshoring of tech talent, especially in proven tech talent hubs in Central and Eastern Europe.