Skill gap in Germany – Is outsourcing a solution?
In Germany, there is an immense shortage of skills in the ICT industry. According to study from Handelsblatt.com, the skill gap has gone up 3 times from 2014 to 2019, to 60000 experts. In addition, the stationary nature of workforce makes the gap even more acute. For e.g., an IT employee in Bonn would rather prefer to have a job in Bonn or neighbouring areas, rather than in Bayern. Around 81% of the Mittelstand companies consider workforce scarcity as one of the problem areas for their company. This problem is more acute for SME companies that are based out of towns or villages, since the young generation prefers moving to cities and working for bigger and well-known companies with better career development options.
The immense shortage of skills become even more accentuated when it comes to skills related to the new, digitalization technologies. In areas such as Data Analytics, Internet of Things, Robotic Process Automation, API based integrations, the skill availability is far more pronounced in SME companies compared to the DAX companies. Skills availability is one of the reasons the German MIttelstand is lagging behind expectations, according to several reports and studies. One such study comes from Bertelsmann Stiftung, that mentions that lack of digitalization capabilities not only damages a company’s profile, but poses a potential and massive threat to the whole company.
One effective way to overcome this challenge is by using global talent. Although immigration of educated foreigners can work towards changing the skill situation in Germany, it is a slow process. A quicker but definitely more complex way to tackle the skill gap is to take the work to the educated experts abroad, i.e. by using offshoring or nearshoring. Offshoring or nearshoring if done properly, can actually yield rich dividends. Consider USA. More than 80% of companies USA outsource their IT services to nearshore/offshore IT providers or have set up their own teams in low cost countries. India as an example is the recipient of more than 65% of all offshored IT jobs. According to Nasscom reports, India has at least 450K FTEs with experience in Digital technologies. This number will reach 2 Million FTEs in 2025, according to their own estimates. India remains the number one destination for outsourcing IT and BPO, followed by China, Philipines, etc. Some of the Eastern European Countries such as Poland, Ukraine and Hungary could also prove to be an attractive destination for IT outsourcing.
In most of these countries vast majority of the ICT services are delivered to clients abroad. As a result the companies there well-versed in working with foreign companies of various sizes, sectors and complexities. This can become a value enabler for our companies in Germany, since the companies can bring this kno-whow to our companies here. Another core benefit is that by offshoring we can leverage from the agility and scalability of workforce. A new FTE could be added within a matter of a couple of days, to cater to a new surge in demand. Similarly, an FTE can be easily phased out, without worrying about layoffs, or any other legal aspects. This helps companies to quickly turn ideas into reality and check for itself, whether the idea is worth exploring further.