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7 countries that love Poland as a nearshoring location and why

Michał Piątkowski 0

Back 15 years ago, when Kraków started its transition to become a prime software engineering location in Europe, the idea of establishing a remote software development lab was relatively new. Those corporations that would intend to build a remote R&D location would choose to go to India or to Ireland.

Times have changed, though and the way companies offshore has changed too. More and more firms decide to choose a location that is, in one way or another, close. This proximity can be related to geographical distance, time zone, cultural, linguistic, geopolitical or even related to past historical connections.

Now it seems Europe has split into two areas: countries that nearshore to Central and Eastern Europe and those that nearshore to Southern Europe. Due to language similarities, firms from France or Spain would often look to locations like Portugal, while DACH countries, Nordic countries or the UK often select Poland or its neighbours.

7 countries that nearshore to Poland

We have identified 7 countries that, in recent years, have showed a particular interest in nearshoring to Poland. No wonder! They are just 1.5–2.5 hours away on a direct flight.

But there are numerous factors beyond physical distance why Poland has become such an interesting nearshoring destination for them.  We’re going to look at some interesting data that help paint the picture of how these 7 countries compare to Poland: what’s similar and what differs.

Denmark
Germany
Netherlands
Norway
Sweden
Switzerland
United Kingdom

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Cost of doing business

The cost of doing business is, no doubt, the primary reason for why companies want to go to Poland. Let’s be more specific and look into the detailed cost comparison between the countries.

Software Developer Salaries

To start with, let’s use the data from PayScale to compare the median salary of a Java Developer. The data available at PayScale.com represent the salaries of currently employed programmers as self-reported. It does not, however, represent the salaries that need to be paid to new hires, which, depending on the location, can be as much as 20–30% higher than the median.

We captured the median salary of a Java Developer, except for Norway, where due to insufficient data, we used the salary of a Software Developer.

Median salary of a Java Developer

Median salary of a Java Developer  

Additional employment cost

All European countries include a certain portion of Social Security Contribution that is paid by the employer on top of the employee’s gross salary. While the economist would often talk about the tax wedge, here we’ll only focus on the extra cost that an employer has to pay. All the data comes from the OECD records for 2017.

The country where this extra cost is the lowest is Denmark, while the highest is in its neighbouring Sweden. Poland ranks just 3 points above the average, adding 16.8% on top of the gross salary.

Social Security Contribution

Corporate tax

The majority of the companies that decide to open a location in Poland operate in a model that doesn’t yield profit margin in Poland. The Polish entity sells its services to the parent entity and issues invoices to cover the cost of operations. For some companies, though, paying corporate tax in Poland appears to be a more attractive option. Out of the 7 countries listed, only Switzerland and Germany have a lower corporate tax than Poland. For companies from Denmark, Netherlands, Norway or Sweden, paying corporate taxes in Poland can be an interesting alternative to paying them back home.

Corporate tax chart

Corporate tax map

Cost of office space

For many IT businesses, office space is the second largest recurring R&D cost after salaries.

We compared the cost of office space in the capital cities of the 7 countries and Kraków. We used data from statista.com with a commercial properties lease cost for A-class buildings.

With its plethora of new office buildings and construction of over 200 000 m2 of A-class office space in the last couple of years, Kraków offers very competitive lease prices. Putting aside locations like London and Zurich where the cost is 4–5 times higher than in Kraków, other locations (except for Copenhagen) are at least twice as expensive.

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Office buildings under construction in Kraków (December 2017)

Office buildings under construction in Kraków (December 2017)

Distance

Airfare to Kraków

All the countries discussed are in close geographical proximity. What really matters, though, is how easy it is to travel from these locations to Kraków. Are there numerous direct flights to Kraków available? How competitive are the prices? The most affordable connections are from Scandinavia, with fares as low as 70 EUR. You need to pay the most when flying from Germany or Switzerland, with return tickets purchased 2 weeks before the planned travel starting at 170 EUR.

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Kraków airport terminal, built in 2016

Kraków airport terminal, built in 2016

Geopolitical proximity

When looking at the geopolitical distance, almost all the selected countries are members of the European Union and the Schengen Area. This significantly facilitates international cooperation and travel while ensuring stable and unified laws across countries.

All 8 countries, except for the UK, function in the same time zone.

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Skills

Another area worth looking at is related to people’s skills. Since we’re discussing proximity, let’s first check the linguistic similarity. All the 7+1 countries have a very high English proficiency.

English proficiency

The EF English Proficiency Index (EF EPI) attempts to rank countries by the average level of English language skills. The most recent, seventh edition was released in November 2017 and contains the results for 80 countries.

According to the latest results, all 8 locations are within the top 15 with Netherlands being ranked #1.

Country Rank English Proficiency Score
Netherlands 1 71,45
Sweden 2 70,40
Denmark 3 69,93
Norway 4 67,77
Germany 9 62,35
Poland 11 62,07
Switzerland 14 60,95

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Best software developers

Another ranking we would like to share is related to software engineering skills. The data comes from HackerRank.com and is based on a very large number of test responses.

Out of all the 8 countries, Poland took the highest position in the rank. Switzerland placed just after Poland. Other countries have very high scores as well.

Country Rank Score
Poland 3 98
Switzerland 4 97,9
Germany 14 84,3
Sweden 25 79,9
Netherlands 26 78,9
United Kingdom 29 77,7
Denmark 34 75,6
Norway 36 74,6

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Conclusions

When making a decision about where to establish a nearshore development lab, it is necessary to look beyond the cost of software developer salaries. What counts are also numerous other factors that make a specific place a better fit then others.

With nearshoring gaining popularity, we can expect the trend to continue and having more firms coming to Poland in search for business efficiency. And the more companies that come here, the more influence they will have, sharing their culture and building an even more similar environment in Kraków.

Find out more about the Kraków IT Market from our new 2018 Kraków IT Market Report.

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