Top 5 Locations To Set Up Your Next Center Of Excellence

By Amita Goyal, Partner, Zinnov; Deepa Menon, Project Lead, Zinnov; Ankit Mishra, Project Lead, Zinnov; Avanti Adivarekar, Marketing & Communications, Zinnov

The Great Reshuffle and the Need for Globalization
The Great Reshuffle served as the biggest eye opener for the global talent problem. While companies are increasingly having to deal with the long-term effects of attrition, businesses have been forced to rethink their talent strategy with a new lens. Teams across the globe are faced with a lack of reliable, long-term talent and steady declines in team sizes.
However, as technology enterprises continue to need skilled engineers, even more so as digital transformation accelerated in the wake of the pandemic, companies are now considering more sustainable and scalable solutions to solving this problem. Our extensive research and experience of working with global MNCs over the past two decades have shown that an effective strategy to combat the global talent problem is to globalize operations, which ensures de-risking of business as well as steady innovation.
Current geopolitical tensions have just added to the existing problem and changed business decisions drastically. Companies have tried to either divest or pull back from certain countries, as they are becoming risky to continue with their business operations. As we see this unravel, globalization into locations with stable political situations, mature ecosystems with ample start-ups, Service Providers, and universities, that can provide a steady pipeline of talent at affordable costs – has become a winning strategy.

Our latest COE Hotspots of the World 2021 report, which evaluated 15 locations across North America, LATAM, Central and Eastern Europe, and APAC, identified the top five countries that have proven software engineering capability to build world-class Centers of Excellence: India, Canada, China, Poland, and Mexico . These countries were assessed on numerous factors including Ease of Doing Business, Tax Implications, Availability of Skilled talent, Government Regulations, Cost of Living, and Cost of Center Setup.
The criteria by which these were assessed provide a holistic view on scalability and long-term objectives of software engineering teams. Here are the key parameters:

  1. Cost: The most important factor when building teams while preparing for the future is cost implications. When certain functions become more specialized and scale steadily, the need for talent keeps increasing, often without a check on the net cost. The cost, right from incorporating a new entity to hiring fresh talent, is one of the major reasons why companies explore globalization – the top 5 countries have affordable, skilled talent which ensures faster innovation and scale for the business in the long run.

To provide a better understanding of the scale possible in these locations, we have analyzed the cost of setting up a 100-member software engineering team, across such roles as Software Engineer, a DevOps Engineer, a Quality Engineer, Database Administrator, an Architect, an Engineering Manager, a Product Manager, a UI/UX Designer, and a Technical Writer. This is then extended for a 1000-member software engineering team in each location, relative to costs in USA, as the baseline country. As teams scale from 100 to 1000, the talent pyramid becomes bottom-heavy due to an increase in the number of junior engineers. Salary costs for a 1000-member team also doesn’t increase in proportion to a 100-member team because economies of scale are achieved due to consolidation of multiple engineering roles such as QA/DevOps, etc.

  1. Mature Ecosystem: How robust or mature the ecosystem is in a country contributes a great deal to the availability of talent and scope for growth of an organization. If the existing landscape is conducive to operate businesses in, with a steady pipeline of talent at affordable costs, an ecosystem with vibrant technology start-ups, a dynamic and mature Service Provider community, and a higher number of universities and research institutes to further the skill levels across different roles, a company has a better chance of growing faster, expand its offerings, and accelerate innovation. Our research indicates that India, Canada, China, Poland, and Mexico have healthy, mature, and vibrant ecosystems and conducive environments for new and existing technology companies to thrive and excel. We also went deeper to evaluate the locations on the innovation levels of existing companies, number of unicorns present, and general trends in the tech community that will further propel the maturity of that particular ecosystem.
  1. Ease of Doing Business: Geopolitical stability, regional trade agreements, security threat assessment, IP and data privacy index, Cybersecurity index, tax implications, English language proficiency, availability of amenities and infrastructure, and favorable government regulations – are all critical factors that a company needs to evaluate before choosing a location to set up their global center. Central and Eastern European countries as well as Canada have a high Ease of Doing Business scores thanks to favorable government incentives and data protection, as well as trade agreements and global English-speaking population. However, the top five countries that have emerged in our analysis, rank higher across software engineering maturity, cost index, availability of tech talent pool, and above average in Ease of Doing Business scores.
  2. Talent: When costs escalate, the instinctive reaction of companies is to find talent in other locations, where it is affordable. However, talent availability is dependent on external ecosystem factors, including research maturity of the country, quality of universities, start-up ecosystem, and the overall technology landscape. A mature ecosystem assures reliable, skilled software engineering talent that can ensure long-term growth for companies. From top-notch academic institutions to industry relationships and a vibrant tech start-up ecosystem – all play a significant role in making a location attractive for global center setup.

Top 5 Locations to Build Scalable COEs
But what makes each of the top 5 countries attractive from a globalization perspective, and across all these factors?

India

India has historically been one of the prime destinations for skilled engineering talent with its numerous engineering colleges, globally connected population, and a dynamic as well as mature technology ecosystem. Additionally, India is home to over 100 unicorns, with the landscape currently valued at USD 332.7 Bn. A higher quantum of unicorns make more skilled talent readily available, and the ecosystem equipped to deal with global tech problems. India is the 2nd largest English-speaking country in the world, which is an added factor for global companies to have fewer cultural differences when deciding to set up their centers in India.

India’s workforce is particularly unique – there is a strong can-do attitude and a zeal to find solutions to even the most complex problems. Companies trying to address India-specific problems have largely contributed to India’s tech success. In a country as wide and diverse as India, there is no dearth of infrastructural, systemic, and innovative problems to solve for. Additionally, the talent pool is at par with global talent, with experience working on products and solutions for India, as well as for the world. Also, conducive governmental policies, some of the cheapest data rates in the world, and having one of the fastest growing economies, India has a strategic advantage over other locations to rank in the top position in our evaluation.

Canada
Canada’s status as the next best location in our analysis, comes not only from its proximity to the US, but also its conscious investment towards tech enterprises, post the pandemic. The Canadian start-up ecosystem is booming and is forecasted to grow exponentially over the next decade. Housing some of the world’s most livable cities, the country also has one of the soundest banking systems in the world. For companies looking for a best-fit location to globalize their operations in, Canada’s financial implications are safe and easily forecastable – thus providing predictability.

Additionally, the increased migration efforts after COVID-19, have made Canada an attractive destination for tech talent to migrate to. With a lifestyle that resembles the US the most, Canada makes for an almost parallel experience to having an office in the US – because of its time zone compatibility, cultural similarities, and ecosystem maturity.

Mexico
Mexico has proven to be a preferred destination to set up world class centers of excellence, primarily because of its proximity to the Continental US – it is easy to access, and the time zones of work are similar. This allows for digital collaboration in real-time across teams. In addition, set up costs are considerably cheaper, and the English-speaking population makes it a great location to consider. The Mexican government has recently invested proactively in the Automotive sector and made it easier for Fintech companies to run as financial institutions. This has eased regulations for a company looking to globalize.

China
With new technologies emerging from Chinese-owned companies, there is no dearth of engineering talent and robust manufacturing capabilities. The country is ripe for investment, and it is encouraged by multiple government policies. An abundant availability of engineers and a robust ecosystem of tech companies make setting up a global center in China a strategic move, from a talent and innovation perspective. Google, SAP, Amazon, Siemens, and Microsoft already have COEs in China.

Poland
Poland rounds out the top 5 locations in our analysis, and its technology sector relies heavily on outsourcing. The IT outsourcing services market in Poland has grown significantly even during the pandemic. The cost of living is relatively low – 60% lower than that of the US, and there are abundant talent pools of software engineers and data analysts. Since it is located close to most European cities, access to global teams also becomes easier. Additionally, it has one of the highest English-speaking proficiencies in Eastern Europe, a low corporate income tax, and a recent push toward more Foreign Direct Investment – which make it an attractive destination for global center setup.

Globalization may have undergone a metamorphosis in its form and function, but it is undeniable that it is here to stay. Companies are fearlessly exploring locations that were not even on their radar before but have become prominent due to a variety of favorable factors. They have also realized that globalized teams can play strategic roles in product direction and help further the organization’s long-term strategy. The decision to choose the right location is based on multiple factors, which differ based on the context of the HQ and the long-term vision and mission of the company. Decentralizing power and making the most of global talent will be the key to de-risking and driving business outcomes through diversification.

If you’re looking to expand into a different location that can help your organization to scale as well as de-risk business, get in touch with our experts by writing to info@zinnov.com.

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