Is Poland the next great IT outsourcing hotspot?

by Andy Nguyen
Outsourcing to Poland

Poland is a country in central Europe that has become a popular outsourcing destination, especially for Information Technology (IT) outsourcing. Businesses choose Poland for its lower labor costs, convenient geographical location, and educated workforce. 

Wondering if you should consider outsourcing to Poland?

In this article, we’ll discuss the benefits of outsourcing IT to Poland and compare Polish outsourcing to other countries. We’ll also cover key industries outsourcing to Poland and some challenges of Polish outsourcing.

Let’s begin.

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6 key reasons to outsource IT services to Poland

The IT sector in Poland currently makes up 3.3% of its total Gross Domestic Product (GDP). Poland has an IT industry bustling with outsourcing, technological development, and startups.

Some of the services a software development company in Poland can provide include:

Here are six key reasons to consider outsourcing IT to a Polish software company.

1. Compatibility with Europe

Poland is well-positioned for nearshore outsourcing of IT from a European country, particularly Western European countries like Germany, Belgium, etc. 

Nearshoring entails moving some of your business operations to a nearby country. This process has many benefits compared to offshore software development, such as similar time zones and work cultures.

Poland’s proximity to Europe is beneficial in many ways.

Poland is also a member of the European Union (EU), which allows for:

  • Less paperwork.
  • Fewer trade restrictions.
  • A similar work culture.
  • Adherence to EU regulations, such as the General Data Protection Regulation (GDPR).
  • Visa-free travel and short flights to Poland for most European countries.

Furthermore, Poland is in the same timezone as most of Europe and is only one hour ahead of the United Kingdom (UK), making way for convenient team communication.

In addition, Poland ranked 16th for English fluency in the 2021 EF English proficiency index. Around 90% of Polish developers can speak English, and many speak other languages such as German.

2. Cost-effectiveness

According to Eurostat, the average labor cost is €28.50/hour (33.88 USD) in the EU and only €11/hour (14.44 USD) in Poland. This means labor costs in Poland are less than half the EU average. 

Regarding IT, a Polish software developer earns around €16/hour (21.00 USD) on average, still far below the average EU labor cost.

The cost of hiring a software developer at a Polish company will likely be higher than in places like India, China, and Latin America. 

However, this limitation is countered by a European work environment (EU-compatible work weeks, work hours, holidays, etc.) and highly qualified developers.

Besides labor costs, Poland has a business-friendly tax regime. For example, Research and Development businesses may qualify for tax relief. Poland also has tax treaties with 85 countries.

Learn more about the pay structure in Poland.  

3. Large skilled workforce

Poland’s talent pool is the largest in Central and Eastern Europe (CEE), with most being under the age of 34. The country also has the most software developers in Central Europe. The German Outsourcing Association estimated over 300,000 developers are working in Poland.

Poland offers free education at public institutions. Computer science is popular with university students in Poland. Each year, around 75,000 students apply to study IT, and approximately 15,000 IT graduates enter the workforce.

A Polish software engineer or developer is likely to be skilled in many programming languages, including:

  • Python.
  • Java.
  • Javascript.

Here are a few of Poland’s IT accolades:

4. Major IT companies outsourcing to Poland

Many international companies are leveraging the Polish IT outsourcing potential. For example, several have opened Research and Development (RD) centers in Poland.

Some notable companies with an RD center in Polish cities include:

  • Microsoft (Warsaw).
  • CISCO (Krakow).
  • IBM (Wroclaw).
  • Kroll (Katowice).
  • Capgemini (Poznań).
  • Amazon (Tricity).

The presence of prominent tech businesses in Poland points to the country’s high-quality IT expertise.

5. Technological advancements in IT in Poland

Poland is also a frontrunner for technological advancements like cloud computing and Artificial Intelligence (AI).

Let’s look at Poland’s activity in these two fields.

A. Cloud computing

The “cloud” is a service on the internet that allows accessing, processing, and storing data online. Software as a System (SaaS) is an important example of a cloud service.

The IT outsourcing industry in Poland is shifting away from traditional outsourcing to cloud-based outsourcing and SaaS. 

Traditional IT outsourcing dropped by 19% in Poland in 2020. Meanwhile, the market value for SaaS in Poland is projected to double from 255.8 million USD (United States dollar) in 2019 to 536.4 million USD in 2024.

B. Artificial Intelligence (AI)

Artificial Intelligence enables computers to do tasks that usually require human capital.

Over 200 Polish companies are developing AI solutions, particularly in Warsaw. Poland ranked 7th out of 27 in the EU for AI development in Digital Poland’s 2021 State of Polish AI Report.

6. Laws and regulations for IT in Poland

The laws surrounding offshore outsourcing in Poland are beneficial and align with EU standards.

The General Data Protection Regulation (GDPR) is a key regulation for IT in the EU. This regulation legally obligates outsourcing companies to handle personal data securely. This helps companies stay compliant with the necessary standards for EU outsourcing.

In addition, Poland also frequently provides outsourcing services to the United States (US) and other leading economies. A Polish outsourcing company will likely be aware of the outsourcing regulations, often concerning data security, copyright, and intellectual property.

Now let’s look at some other sought-after IT outsourcing destinations and how they compare to Poland.

IT outsourcing in Poland vs. other countries

Here’s how Poland compares with four popular destinations for software development outsourcing:

1. Poland vs. India

Thanks to its English-speaking population and low labor costs, India is a significant player in outsourcing software development services. 

Compared to Poland, India’s main downfall is its distance from Europe and America.

Here’s how many hours India is ahead of Europe and America:

  • Europe: 2.5 hours (in Russia) to 5.5 hours (in the UK).
  • US: 9.5 to 12.5 hours.

Significant time differences like these can complicate communication. Poland has a smaller time difference with both Europe and America.

2. Poland vs. China

China is also a top IT outsourcing destination due to its low labor costs and high levels of education. However, businesses outsourcing to China may experience cultural differences, language barriers, and time zone differences.

China ranks 49th in the EF English proficiency index, 33 places below Poland, meaning a greater language barrier for US and European businesses.

In addition, many Polish people speak multiple European languages. For example, 26% of Poles speak Russian and 19% speak German.

3. Poland vs. Ukraine

Ukraine, in Eastern Europe, is a popular destination for outsourcing software development. Around 35% of university students in Ukraine choose IT-related subjects. There are over 200,000 Ukrainian developers, compared to 300,000 in Poland

Besides the workforce, the main difference between Polish and Ukrainian outsourcing is their customer base. Ukraine exports 80% of its IT services to the US. 

Poland mainly outsources to Western Europe and some Eastern European outsourcing destinations like Romania and Belarus.

Note: We stand in solidarity with Ukraine during this difficult time. Here is a list of charities to donate to if you wish to help Ukraine.

4. Poland vs. Hungary

Hungary is an often overlooked outsourcing destination, yet the IT sector contributes 10% of its total GDP.

The population of Hungary is around 9.6 million, compared to 37.7 million in Poland. Approximately 6000 IT graduates enter the workforce in Hungary annually. Although the IT professionals in Hungary are also well educated, there are far more highly-skilled Polish IT specialists.

Let’s also explore some of the other outsourcing industries in Poland.

3 other key sectors outsourcing to Poland

Other than software outsourcing, let’s look at three additional industries outsourcing to Poland.

1. Financial services

Services in the financial outsourcing sector in Poland include accounting, investment banking, and payment services.

Poland was a testing ground in the last 30 years for cutting-edge banking technology, such as contactless banking. This is a testament to the innovation in the financial sector, which can be tapped into through outsourcing.

All activity in the financial services industry, including outsourcing, must be approved by the Polish Financial Supervision Authority (FSA). These regulations protect individuals and mitigate risk in the sector.

2. Business Process Outsourcing (BPO)

BPO is the process of contracting a third-party service provider to take on some of your business operations.

This can include the outsourcing of:

  • IT services like technical or service desk support.
  • Knowledge processes like content creation and web design.
  • Legal services like creating legal contracts or doing legal research.
  • Research services like analytics and market research.

BPO in Poland is subject to the EU’s national strategy on the security of network and information systems. This directive protects cybersecurity in “key services,” including BPO, energy, mining, etc.

3. Shared Service Centers (SSC)

Like BPO, a shared services model involves outsourcing business operations to a third party at a centralized location. However, in the case of SSC, businesses, and outsourcers share responsibility for things like funding, resourcing, and staffing.

Poland is one of the world’s business service leaders. In 2021, an estimated 350,000+ people worked in about 1,600 SSCs in Poland. Additionally, the university town of Krakow has 85,000 employees in BPO and SSC, making it the biggest hub in Europe.

Next, let’s explore some of the main obstacles to Poland’s outsourcing.

3 challenges of outsourcing to Poland

Here are three main challenges of outsourcing to Poland:

1. Shrinking population

The population of Poland shrank by around 192,000 between 2020 and 2021. This was due to a low birth rate and high death rate, likely caused by the COVID-19 pandemic.

This indicates a loss of human capital for outsourcing, and projections see the situation worsening in the coming years.

However, the Polish government is trying to combat the problem. For example, the government is offering support grants for new parents.

2. Relatively low R&D investment

R&D is the process of designing or enhancing products or services. Investing in R&D can help companies increase their participation in the market, keep up with trends, and manage costs.

Despite its booming IT and outsourcing industries, Poland’s R&D investment is among the lowest in Europe.

According to Eurostat, in 2020:

  • Poland spent around 1.3% of its GDP on R&D investment.
  • The average total for Europe was 2.3%.
  • The highest expenditure was in Belgium and Sweden with 3.5% each.

Poland is actively working to improve its IT sector by investing more in R&D.

3. Vast time difference for the US

While Poland has no trouble with European time zones, the time zone difference between Poland and the US ranges from five to nine hours. This can make communication for outsourcing tricky.

However, many Polish companies start their workday at midday and finish later to combat this.

In addition, the time difference between the US and Poland is still less than it is for Asia.

Another obvious challenge was the Coronavirus pandemic. However, it may also have created opportunities. Let’s take a look at how the pandemic affected the outsourcing market in Poland.

Effects of the pandemic on outsourcing to Poland

The 2020 COVID-19 pandemic led to millions working remotely to contain the spread of the virus.

Although COVID-19 had many unfortunate consequences, the world became more open to digital and remote solutions such as outsourcing and offshoring.

The Polish economy showed remarkable resilience in the aftermath of COVID-19. The country’s Gross Domestic Product (GDP) had dropped by 8.3% in the second quarter of 2020 but was up by 10.9% by the second quarter of 2021.

Polish companies quickly adapted to remote solutions, which contributed to their stable economy. According to Financial Times, Polish outsourcers moved 95% of their employees to remote working within the first week of lockdown.

The demand in the Polish IT market increased as the world relied more on digital solutions. Poland’s revenue in the IT outsourcing sector grew steadily through the pandemic, from 2.2 billion USD in 2019 to 3.1 billion USD in 2021.

Wrapping up

Poland is an excellent choice for software outsourcing in Europe, thanks to its low labor costs, western work environment, and abundant agile IT professionals. You could join world-class companies outsourcing to Poland, such as IBM and Google.

If you’re considering a partnership with a polish software development team, you can use this guide to help you make your decision.

Head over to the Time Doctor blog for more tips and resources on outsourcing.

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