Matt Jackson: Access to Top Talent Outweighs Cost In Tech Outsourcing

In the pursuit of “the next big thing,” tech firms are now prioritizing access to talent in software development site selection. Unlike the early days of tech offshoring, when shifting operations abroad was undertaken primarily to cut costs, today the industry is scooping up and occupying commercial property in a

In the pursuit of “the next big thing,” tech firms are now prioritizing access to talent in software development site selection. Unlike the early days of tech offshoring, when shifting operations abroad was undertaken primarily to cut costs, today the industry is scooping up and occupying commercial property in a range of markets, from low to moderate to expensive, with the goal of harnessing programmer power wherever it may be.

Growing appetite for geographic diversity

The shift toward tapping into more global markets is a new one, according to new analysis from JLL. From 2003 to 2006, India and China held the lion’s share of the software development industry’s interest overseas, accounting for 57.5 percent of its financial direct investment (FDI). The other half of the investment was distributed between just seven other countries. From 2007 to 2012, however, investments in India fell dramatically, plummeting from 32.1 percent to 2.5 percent, while Canada now occupies the top FDI spot.

Rather than shifting all development activity toward this new market darling, though, software developers also began investing in a host of other countries. Now 50 other countries receive FDI. Canada, China, Ireland, France and Brazil – the top five countries in FDI distribution –account for 75 percent of world activity, with emerging markets like Vietnam, Lithuania and Kenya also gaining ground.

Understanding the industry’s location decision framework

Demand for cross-border location solutions in the software development sector is growing fast, but there is more to determining a location’s appeal to the sector than meets the eye. Here are three key factors that can help commercial property executives and brokers evaluate the appeal of a location for this niche industry:

1.    Financial: The notion that access to talent trumps cost does not imply that cost is insignificant. On the contrary, labor costs in pricier markets are an important consideration for software executives looking to expand their reach or fill talent gaps. The more knowledge you have of the potential HR impact, the stronger your ability to attract this sector will be.

2.    Non-financial: It may be more difficult to quantify in dollars, but there is clear value in markets that have already demonstrated a capacity for innovation. Indicators include a strong university and scientific research presence, a track record of R&D spending, and evidence of similar operations with a competent workforce.

3.    Risks: The software development industry is especially vulnerable to poor intellectual property protection. Markets with strong intellectual property regulation and enforcement will be a safer bet for tech firms than those without it. Knowing the local practices can help measure the viability of a location for this sector.

In the race to secure a consistent pipeline of innovation, software development firms are seeing potential in leveraging the different strengths of different markets. Commercial property owners and investors with sites in global locations may find they attract growing interest from this hot sector.

Matt Jackson is a Managing Director with JLL’s Business Counsulting Group. He is responsible for assisting companies with global strategy, cross border direct investment strategy, location strategy, site selection and incentives negotiations. Matt can be reached at matt.jackson@am.jll.com