The best location for your Software Development

Why the right mix matters and which aspects should definitely be verified

Establishing your own software development with a sourcing partner in the long term opens up many business opportunities. Even more so if you as a company want to rely on nearshoring. In order to write a success story, it is absolutely advisable to validate critical factors when selecting a partner and location.

In today’s interconnected and globalized world, the choice of a partner for software development is literally limitless. Especially in the current situation, it is almost irrelevant if the collaboration is virtual and independent of the location, rather than classical with on-site presence and physical contact.

Companies with a need for software development can therefore re-evaluate their decision-making factors. In doing so, quality, efficiency, availability and security should be highly valued. This opens the door for so-called “shoring models”, i.e. outsourcing to nearby or remote software partners.

At Riwers, we rely on the nearshoring model for our customers, i.e. the relocation of operational activities to nearby or remote locations. This means nothing other than that we provide software services for our customers there in our own development center in Bratislava, the capital city of Slovakia. 

But which is the ideal location, the ideal partner for my planned software projects? There are thousands of answers to this question and dozens of articles with recommendations and advice as a maze for decision making if you are new to the topic. We clear up, name the criteria and what makes our location in Slovakia.

One thing in advance: Basically, it is not about being primarily inexpensive or being located in a “nice” city (it is amazing how high these two factors are often weighted). It is about the mix of a bunch of relevant criteria which is the baseline for a successful and long-term partnership.

 

High economic efficiency

Nearshoring locations have the advantage that the respective structures of salaries, living costs and other costs of daily life are priced much lower than in Switzerland, for example. As a result, significantly lower hourly rates can be offered for software services while employees still receive above-average incomes. Suddenly, the senior developer from Slovakia is competing with the senior developer in Switzerland. Both are top trained and deliver top quality, but the price difference can make factors and tip the scales.

Salop said, I get double performance for the same cash out from a business economist’s point of view. Of course, this is provocative and not entirely accurate, but it is indeed the case that as a company in nearshoring, I get a much larger package of goods delivered for the same money (read also our article “High cost-effectiveness through clever software partnership”).

But be careful. Contrary to what many studies and articles suggest, the cost/price structures in Southern, Central and Eastern Europe are actually closer than you think or generally perceive. If prices drop or exceed comparable offers, a second look is advisable. Is the service provider deliberately charging low rates to keep his team busy and correcting this intentional imbalance at the next opportunity? Is he doubling his target rate because he is playing poker with you or because he has to cross-subsidize internally and is actually not optimally organized?

With Riwers, customers get a 30 to 40% cost advantage compared to building their own software teams. In the nearshoring comparison, we are in the upper midfield. But as mentioned below, it’s the mix that counts, not the price!

 

Many high quality education facilities

It is essential that the country of the nearshoring location continuously transfers new talent into the labor market to ensure the supply of skilled workers and thus the scaling of the development teams. Only one university in your favorite location? Not a good sign.

In Slovakia, 7 faculties of information technologies at 6 technical universities ensure a lively supply of young talent in software development. A big difference and advantage here is that students can gain a lot of practical experience in companies on their way to a master’s degree, which pays off when they are hired from day one.

 

Intact ICT labor market and skilled labor network

If the labor market does not play and a provider has an insufficient network, a toxic mix for the future of your software team may be created. Besides the inexhaustible pool of new specialists from universities and technical colleges, the entire ICT labor market in Slovakia can be described as healthy. Of course, depending on the technology, professionals are also in hot demand in Slovakia. At Riwers, thanks to our modern setup, attractive customers and projects, and modern technologies, we are always able to hire top people on a long-term basis within a short period of time. 

This is in contrast to the situation in Switzerland, where for example small and medium-sized companies (!) have considerable problems to recruit specialists within a reasonable period of time, who have the necessary experience to quickly develop top-quality software.

In addition, Slovakia has established itself as an international IT shared service center with over 90 companies and 30,000 employees. Currently, about 70,000 people are employed in software development.

Another important aspect is that Slovakia as a society is comparatively very developed and established compared to other countries in Central and Eastern Europe. This leads to a high attractiveness and quality of life and in turn attracts the best talents from surrounding countries.

Last but not least, the churn rate, i.e. the rate of employee departure, is record low. At Riwers, we have had one departure so far. Never underestimate the value retention in the team. There are labor markets in Eastern Europe where job hopping among software developers is normal and sometimes takes on grotesque features. Not so in Slovakia and at Riwers, where we care for our employees and mutual appreciation counts.

And because our on-site manager has almost 10 years of experience as a people manager in Bratislava, we have all these aspects under control.

 

Stable salary structure

The level of wages or the salary structure ultimately determines the prices on the market. It is highly recommended to analyze the salary development of the country. Countries in Central and Eastern Europe have undergone rapid development due to history and have caught up with Western countries. However, the development is subject to very large differences. Some countries (like Slovakia) have the big growth spurts behind them, while others are in the middle of it and going through inflation.

Overall wage growth in the four Visegrad countries (Poland, Slovakia, Czech Republic, Hungary) is about the same from 2009 to 2017, averaging 15-25% over that period, with Slovakia at 17%. For comparison, the wage increase in the same period in Romania is about 30%, in Bulgaria even about 50%.

Wages in the IT sector in the four Visegrad countries are on average 150% higher than the national average. In Romania and Bulgaria it is over 200%!

Conclusion: The wages in countries like Romania and Bulgaria but also in Ukraine, Serbia, etc. have a percentage higher wage increase than e.g. the Visegrad countries or additionally comparable Croatia and Slovenia. This is a long-term development in the last 20 years and we believe it will continue. 

In other words, the situation in Slovakia is very stable and predictable. Large jumps in wages are not to be expected (Statistics “Wage Development in the Central and Eastern European Member States of the EU”, Vienna Institute for International Economic Studies wiiw)

 

Healthy economic development

If the economy prospers, the technological sector, i.e. the ICT market relevant to us, also moves forward. It is always advisable to look at the development of the country over the last 10 to 20 years in order to recognize and understand anomalies and trends.

After 1993 and the change of the old system (from Czechoslovakia), Slovakia has shown a strong economic growth, especially in the years from 2001 to 2008. This is mainly due to a well-educated workforce, liberal reforms and a stable political situation, which also causes many foreign tech companies to invest in Slovakia, e.g. T-Systems, Deutsche Telekom, Siemens, Accenture, IBM, etc. The gross domestic product is developing positively with an annual growth of 2-4% (GDP growth since 1993, source IMF).

 

Cultural proximity

There are classic, and sometimes exaggerated, anecdotes about communication from offshoring with Far Eastern companies or the “spirited” cooperation with Southern European locations. Whatever the truth of the matter, common understanding, work ethic or, more commonly, the mindset for collaboration is a very crucial success factor. If the work culture is compatible, the “modus operandi” does not need to be adjusted significantly. If there are differences, one must at least be aware of them and ideally communicate and collaborate in an adapted manner.

Slovakia was part of the Hungarian kingdom for 800 years starting in the Middle Ages, and became part of the Habsburg monarchy in 1526. Bratislava was even the capital and coronation city of Hungary for almost 50 years. As in Switzerland, there was a reformation movement and Slovakia was an early economic center of Hungary. Despite conflicts and wars, such as with the Ottoman Empire, Czechoslovakia was later formed together with the Czech Republic after the First World War. After the intervening period of socialism, the independent Republic of Slovakia emerged in 1993. 

This long kinship in history and development may contribute considerably to the fact that people in Slovakia “tick” in a similar way to people in Switzerland, Austria, Western Europe, etc. This is reflected, for example, in the values of the people in Slovakia. This is noticeable in values, work ethics, communication behavior during cooperation and projects. For example, in the analysis and focused feedback in the project briefing or in the self-image of the completion of tasks that the job entails, without having to draw attention to it each time. This automatically leads to a higher quality level and to the conservation of resources and energy.

 

Stability

A stable environment is indispensable for working in peace. This includes an intact political system, integration into international alliances and an economically solid foundation (as just explained) with a predictable currency. If these factors are not in place, external factors can quickly jeopardize the business model. Where is authoritarian Belarus headed? How will the relationship between Ukraine and Russia develop? Will Serbia with its own currency, the dinar, become an EU member in the foreseeable future? How is Romania coping with bureaucracy and corruption? What is the economic development of southern European countries such as Italy or Portugal? These are all valid nearshoring locations with latent uncertainty.

Such questions do not exist in Slovakia. It has been a member of the EU since 2004, in the Schengen Agreement since 2007, and part of the Eurozone since 2009. Moreover, in the “Human Development Index” of the United Nations, Slovakia ranks 39th out of 189 evaluated countries and is thus in the group with “very high human development”. It is ahead of almost all other countries that are considered for nearshoring.

 

Rule of law

The rule of law is a particularly important cornerstone of stability. After all, we make contracts with customers and employees and thus also regulate the flow of funds. An unpredictable legal system, which may even be characterized by corruption, poses considerable risks to the orderly conduct of business.

Slovakia is an established constitutional state with a judicial system. In the corruption perception index, Slovakia is ahead of most nearshoring locations, some of which fall significantly, not to say alarmingly, behind.

 

Accessibility

Nearshoring works primarily virtually and remotely. Nevertheless, a regular exchange on site at the customer or at the development center is recommended in order to benefit from direct communication. At Riwers we establish this exchange between customer and team from the beginning (covid situation excluded). A trip to a city or the province of an Eastern European city quickly takes 6 to 7 hours. Time in which one is blocked for the most part and cannot work. This is true for customers but also for developers. One has to consider that the offices of the nearshoring providers are by far not located in the internationally developed metropolises. And even then, intact transportation systems are essential. If the accessibility is not optimal, this can quickly cost time, capital and patience and fuel the frustration level of the cooperation.

This does not apply to Slovakia: Bratislava is more ideally accessible via Vienna/Schwechat airport than almost any other nearshoring location. There are between 10 and 12 daily flights from Zurich, with a flight duration of around one hour. The airport transfer to the Riwers office takes around 30-40 minutes. Costs for flight and transfer are manageable thanks to the high frequency and short distance. It is not unusual for important workshops to be completed spontaneously with a day’s travel. This value is highly appreciated by customers and teams.

 

On-site presence of the partner

This point may seem paradoxical in the context of nearshoring, since the aim is to build up remote competencies and benefit from this setup. However, it is an eyewasg to claim that successful projects can always and exclusively be implemented remotely. Of course it is possible, but there are phases, topics and roles that are better addressed locally.

For example, during the foundation phase, where the collaboration is designed together and you logically know (and trust) each other little, face-to-face meetings are essential. Workshops in requirements engineering or meetings during a “hot” delivery phase will also be much more successful if they are held quickly and easily on site. Especially because direct communication is crucial and you don’t want to have many misunderstandings.

Riwers is a Swiss company with local employees and a development center for value-added development. Thanks to the dual approach, we can respond flexibly to both predictable and spontaneous customer needs and provide expertise where it makes sense and is beneficial. We know our customers and the market and know or anticipate which is the best setup. For example with business analysis, requirements engineering or project management at the customer’s site. Can a supposedly inexpensive “nearshorer” without a footprint in Switzerland do that? Exactly.

 

Partner expertise

Software houses and nearshorers are a dime a dozen. Do you know this flood of more or less creative LinkedIn messages or mails that land in your inbox every day in a questionably personal way? They are clumsy attempts to hawk an essentially complex and trust-based service construct like mass-produced goods.

At Riwers, we understand: Complex-Sales needs trust-building and requires a lot of contact and listening to the customer. And as a foundation for this, we need a wide range of experience. As a young company, we build on the individual experience of the Leadership Team. We know both sides, customer and contractor. We know what it means to bring misguided projects back on track, we know how it feels to award a contract to a service provider in nearshoring for the first time. We know the pitfalls that can threaten a partnership and have models that are needed for a success story. We know what it is like to work with teams from Spain, Romania, Ukraine, Russia, Poland, Serbia, India, etc.. And we know why we rely on Slovakia to build our development center from the ground up.

 

Taking these relevant factors into account, we at Riwers are firmly convinced from experience that Slovakia with Bratislava is the ideal location for your software development.

We are happy to help if you want to learn more about software development with Riwers or have specific questions about Slovakia.

Curious for more?

Markus Guggisberg
Markus Guggisberg
Chief Delivery Officer, Co-Owner

looks forward to explaining and introducing you to the benefits with Riwers.