Portugal has much potential to boost its role as a nearshore outsourcing destination in Europe as companies shift their attention away from the UK as it prepares to bail out of the EU, while Brazil is proving an important source of talent for the country’s software developers.
“Brexit is a great thing for Portugal,” Sónia Jerónimo, CEO and founder of Lisbon-based software development company Growin, told Nearshore Americas.
“But in the IT sector it’s a big opportunity for us, although there are two faces of the coin. The upside is that some of the great software engineers that moved to the UK are coming back to Portugal, several companies in the UK are looking at companies in Lisbon to develop their applications and software, because IT resources are source, and salaries have increased.”
“So Lisbon is becoming a center for several UK companies to create nearshore,” she said. “The time zone is perfect [on the same hour as London], we have proximity between the airport and the city’s business district, and we have very good software engineers graduated from excellent universities, and there is a high level of English-language proficiency in Portugal,” she said.
She added that Brexit may also make UK-based companies look to Portugal, but acknowledged that the country faces stiff competition from other European markets.
“We could receive some interesting companies’ HQs in Portugal, even though we know that other geographies have a better structure than Portugal,” she says, referring to large banks and financial institutions that have admitted looking to set up shop in other European countries as Brexit looms.
She says Growin is currently working with three UK companies that have outsourced software development, as well as companies from Ireland, Sweden and Switzerland.
“Portugal has very good IT talent, based on the fact that not only UK companies, but also from Germany and the US, are arriving in Lisbon to build nearshore, building their own teams, and that is creating a kind of war for talent.”
She said that, as a result, many companies in Portugal are investing in training programs to nurture talent and counteract any possible future shortage.
On January 1, the Portuguese government introduced the ‘Tech Visa’, allowing for highly qualified personnel, especially in the ITC sector and from outside the European Union (EU) and the Schengen Area, can access jobs created by Portuguese companies in a simplified way.
The visa is part of the country’s National Entrepreneurship Strategy, and which also includes the StartUp Visa, a residence visa for company founders, promoted by StartUp Portugal, an agency aimed at incubating fledgling businesses, co-financed by the EU, and which also has a €200 million investment fund managed by PME Investimentos to develop funding instruments for local companies.
“The Portuguese government is also supporting tech growth, acknowledging its contribution to GDP, and that encourages a lot of European developers to come to Portugal and establish startups,” according to Sandra Wolf, Growin’s international sales manager.
However, the ease with which foreign engineers and entrepreneurs are able to take advantage of the tech visa is also perceived by some Portuguese companies as an unfair advantage, ” CEO says.
“I think it’s a little bit unfair, as we pay all our taxes and we are in the same industry, but foreign companies have a five-year tax break, and so we are not in the same competitive market.”
Growin employs around 200 people and reported a €7 million turnover in 2018. The company has offices in Lisbon, Porto and London.
“With contribution from the nearshore, we are looking to reach €9 million this year, “ Jerónimo said.
However, Portugal needs to nurture more IT talent, she said, as the issue is not a question of a lack of university courses.
“Universities should cooperate more with companies and shorten the length of the study cycle, which is three years,” she said. “There also need to be more incentives for women to study in the IT sector.”
And, according to Wolf: “There is already a lot of initiatives among companies, such as Academia de Codigo or Le Wagon, to teach people how to code, and allowing them to start a career as a junior developer”.
The Importance of Brazil
Brazil is also an important source of talent for Portugal, and whose incorporation into projects is facilitated by the common language.
“The tech visa means that we can get more talent from Brazil, and we get great talent from there, we hire people directly, allowing us to have a bench of talent and develop projects quickly,” Wolf said.
“You can have a lot of great talent, but what if they are allocated to other projects?”
Growin is nurturing talent by training engineers in the use of Scala and Python, which are used specifically for nearshoring and are in demand in many markets, she said.
“There is a huge shortage of that particular talent in the UK, and even in the US, as they are expensive and have a tendency to migrate. Scala is a fairly new language and is not so hot in universities, and people don’t always have a chance to learn it, but we know it is used by big data companies and fintech for the scalability of applications and handling large amounts of data, and engineers have to learn it,” she added.
The investment required in nurturing talent is significant, but vital, she said.
Portugal’s ITC sector also received a boost with the transfer of WebSummit, one of the world’s largest technology conference, from Dublin to Lisbon in 2016, under an agreement in which the Portuguese capital will host the summit each November until 2026. This year’s edition of the event runs from November 4-7.
“WebSummit moving to Portugal is big news for the country,” Wolf said.
Discussing the move at the time, WebSummit’s founder Paddy Cosgrave said: “We need a new home for future growth.”
“In 2015, Lisbon became the first city to receive the European Entrepreneurial Region award. Investors from across Europe have started looking to Lisbon to capitalize on the low rents and affordable IT talent,” he added.
In 2017, Portugal led Europe in investors’ perceptions about attractiveness and their short-term investment plans for the second consecutive year, according to EY’s 2018 Attractiveness Survey Portugal report.
“Stability, telecommunication infrastructures, legal and regulatory environment, and the overall incentives offered by the government are identified as key differentiators,” the report states.
And the ICT sector is taking a large share of new investment, with foreign direct investment in the sector increasing by 291% between 2008 and 2017, from €2 billion to €6 billion, according to the Portuguese economy ministry’s strategic studies office (GEE).
Around 10% of students, some 36,000, graduate into the ITC sector annually, according to EY.
Portugal ranks in 26th and 32nd place in technology readiness and innovation, according to the World Economic Forum’s Global Competitiveness Report, and is ranks first place in Europe and third in the world in the Expat Insider ranking, which examines factors such as quality of life, ease of settling in and personal finances, and in which Portugal has climbed 24 places among 65 countries since 2016.
However, of respondents to an EY survey on what needs to be improved in Portugal to make the country more attractive, 41% said improvement in education and training in new technology, 38% said an increase in tax incentives, and 25% said investment in digital infrastructure.
Companies looking to set up operations in Europe need to be compliant with the General Data Protection Regulations, which came into effect across the EU in May 2018 and which could drive a migration of developers from India to Europe, as GDPR ensures that data remains secure, and which could be yet another factor in Portugal’s growing attractiveness.