How nearshoring teams in Portugal are accelerating digitalization

Many companies have not yet completed the organisational journey towards agile structures and end-to-end data architectures, which are crucial for the implementation of digital business models. Managers are facing massive hurdles – also in view of the persistent silo mentality – to digitalise processes from end to end: be it from idea to product, from order to delivery or ‘procure to cash’. Another reason is the shortage of specialised staff, which in many places actually resembles a ‘war for talent’. In Germany, even well-known companies are finding it difficult to find the right skills.

Dependence on external service providers often poses problems. Large corporations often only have an in-house development ratio of 25%, the rest is bought in. One man-year costs around 170,000 euros at large software and consulting companies. Above all, digital transformation requires speed in order to occupy the leading positions in the market. One key to this, however, is in-house software expertise in order to react quickly to changing customer requirements and deliver product updates quickly.

Why Portugal is the perfect nearshoring location

Portugal has already proven itself as a technology location in southern Europe, particularly in terms of geopolitical stability, ‘Ease of Agile Cooperation’, delivery quality and commitment. Portuguese developers have a strong engineering mindset and a high level of process and data modelling expertise, and experience has shown that they quickly take on intrinsic responsibility. In addition, Portugal has the second-highest STEM graduate rate in Europe with an above-average proportion of women. The comparison shows: In Portugal, the costs for developers in many areas are up to 70 % cheaper than in Germany. And compared to Eastern Europe, Portuguese tech companies have a significantly lower churn rate of less than 7%.

Typical challenges when setting up nearshoring capacities

Personnel costs are a decisive factor for optimisation: On average, personnel costs are around 40,000 euros per year. However, the higher in-house IT value added further increases cost benefits. ‘Speed’ is crucial: compared to external service providers, in-house development teams do away with lengthy tenders, instead starting work directly and delivering quickly. Qualified personnel are needed immediately and not in several years’ time. However, it takes a long time to build up knowledge of the labour market, taxes and contract handling, but above all to establish the important access to talent in the developer networks and to put together high-performance teams. Xelerate therefore takes on the task of setting up a software engineering location and relies on a strong local team of tech experts with in-depth experience as CTOs, product owners and software architects. They attract the best talent through direct dialogue, without going through recruiters: a key success factor.

Facilitating the leap to greater software expertise

For the facility management expert ISS Group from Denmark, Xelerate 2023 built up a sustainable team of over 70 developers who work operationally and integrated with the global ISS organisation. Simple head-hunting is not sustainable. It is not enough to simply hire 70 heads: what is needed is an experienced team that delivers. Important building blocks are an attractive corporate culture and well-functioning enabling services. To this end, Xelerate is providing an experienced local team in Porto to take on local leadership and scale the development of the new organisations. For Kühne+Nagel, a global logistics group from Hamburg, 50 experienced software engineers were set up within five months as the nucleus for a team that now has 250 members.

The software engineering specialist AVL, which specialises in embedded automotive software, and the SAP consultancy Advanced Applications also rely on nearshoring in joint cooperation with Xelerate in Portugal. The ‘turnkey’, highly integrated software teams are handed over to the customer after a predefined set-up phase. In previous projects, the ROI was achieved in just nine months. The in-house software units in Portugal also accelerated the agile transformation at the head office.