Digital transformation has become a linchpin of modern business strategy, with cloud computing and other cutting-edge technologies taking center stage. However, as these technologies continue to define the new normal, industries are grappling with significant shifts in their talent pools. This situation is especially prominent in Europe, given the impending retirement of the baby boomer generation and historically low birth rates.
Switzerland is a prime example of a market that is highly attractive to leading international tech firms, while also being fiercely competitive when seeking IT/tech talent. By 2028, Switzerland alone is projected to face a deficit of approximately 35,000 IT professionals (see Exhibit 1). This dramatic shortfall underscores the urgent need for companies to rethink their talent strategies. As the competition for qualified IT and tech professionals intensifies, it is crucial to identify ways to remain competitive and relevant in this ongoing war for talent.
In this article, we outline potential solutions to address the challenge of meeting an escalating demand for IT/tech talent, and share insights learned from the practice of captive shoring using the situation in the Swiss IT market as an example. We provide guidance to help companies navigate this territory, ensuring they are well-positioned for success in an increasingly digital marketplace.
Exhibit 1: IT talent situation in Switzerland (Source: Federal Statistical Office/SAKE, State Secretariat for Economic Affairs/AMSTAT, Institute for Economic Studies Basel, Universum, PwC Strategy& Analysis)
A portfolio of options
As companies grapple with an unprecedented tech talent shortage threatening their ability to remain competitive over the coming years, a diverse portfolio of strategies is emerging as a means to remain ahead of the curve in this talent war. Nevertheless, no one-size-fits-all solution exists; success hinges on an approach that aligns with a company’s unique context and corporate strategy.
Potential solutions to the talent shortfall can be divided into “make” or “buy” options, including captive shoring, outsourcing, targeted talent acquisition, retention and development efforts, employer branding, upskilling and reskilling initiatives, talent marketplaces and ecosystems, strategic partnerships, joint ventures, and even mergers and acquisitions (see Exhibit 2).
Exhibit 2: Portfolio of options to compete in the war for IT talent (Source: PwC Strategy& Analysis)
Yet, the choice of the suitable method or combination of methods should not be arbitrary. It necessitates a strategic approach that considers the unique needs and circumstances of each company.
The strategic assessment: Mapping capabilities
Each solution carries its own set of implications for control, coverage of steering capabilities, and desired size/scalability, among other factors (see Exhibit 3). Therefore, it is crucial to assess which solutions best suit a company’s individual needs and strategic outlook.
Exhibit 3: Exemplary subset of granular options and decision criteria (Source: PwC Strategy& Analysis)
The assessment should involve a detailed analysis of the “make or buy” decisions at a company level. Key factors to consider include differentiating versus commodity capabilities, the level of specialization versus standardization required, market availability and maturity, capability build-up time and complexity, long-term versus temporary need, and considerations of financial efficiency, regulatory, and quality requirements.
Towards a tailored strategy
In essence, the process involves matching the company’s required capabilities with the most appropriate strategy, effectively crafting a tailored approach. This detailed analysis allows for informed decisions about which methods best align with the company’s unique circumstances and overall corporate strategy.
In the face of this talent war, companies must not only react but strategically adapt. By leveraging a portfolio of options and aligning their strategy with their unique needs and capabilities, companies can position themselves to successfully navigate the tech talent shortage.
Building an in-house advantage: Captive shoring as a strategic response
Based on our experience, captive shoring is one of the most suitable and promising strategies when a high level of in-house control is imperative (e.g., for differentiating capabilities). Captive shoring can enable organizations to maintain firm control over their resources, ensuring their strategic alignment with an organization’s core objectives and delivering superior service quality. When rare skills are necessary for business success, setting up a captive shoring center could be the most effective way to harness such talent in specific geographical locations where they are more readily available or where the organization is in a better position to compete in the market. In addition, captive shoring is particularly viable when demand is sufficiently high e.g., north of 100 employees – a demand not unfamiliar to many organizations with significant digitization ambitions. Such volumes often justify the investment required to set up and run near- or offshore centers.
Implementation of this, based on our best practice approach, involves a structured three-step process, encompassing strategy, scoping, and designing a target operating model (TOM). This approach is to ensure efficient setup and operational readiness, while also driving market success and seamless integration into the organization over three phases.
1. Scoping: Demand analysis and location selection
In the initial phase, a thorough demand analysis identifies business needs. This serves as basis to define the scope and viability of a captive shoring center. This stage also considers if the operation size justifies the center, with room for future expansion. A detailed business case, informed by this analysis, evaluates the captive shoring center against a no-center scenario or alternative scenarios, highlighting long-term return on investment and net present value for decision-making. Location selection is also key, using various criteria from available talent pool to country stability, operating costs, and the firm’s footprint.
2. Design: Crafting the target operating model
The next phase centers on shaping the target operating model (TOM). This process relies on guiding principles to align the captive shoring center with organizational objectives, focusing on talent attractiveness, firm integration, and a lean, efficient local structure. Our proven captive shoring TOM framework helps in navigating this crucial step (see Exhibit 4).
Exhibit 4. Captive shoring TOM design (Source: PwC Strategy&)
3. Execution: Ramping up operations for success
In the execution phase, meticulous implementation planning paves the way for the smooth transition from concept to reality. This step is crucial for aligning resources, timelines, and stakeholder expectations. Following the detailed plan, execution to go-live transforms strategic designs into operational reality, marking initiation of the captive shoring center’s fully-fledged operation.
Success factors
Based on our extensive experience with similar projects, we have identified four primary success factors for establishing a captive shoring center:
- Location selection: Careful assessment of factors such as talent pool, cost-effectiveness, and socio-political stability is crucial when choosing the right location.
- Designing the right TOM: The new center should be based on a thought-out target operating model, seamlessly integrating with central operations to effectively contribute to the overall business strategy.
- Employer branding: Building a strong employer brand in the shoring market is necessary to attract and retain top-tier talent in the new location.
- Knowledge of local specifics: Comprehensive understanding of local culture, laws, and business practices paves the way for successful adaptation and efficient operations.
Success story: Hiring tech talent in Lisbon
In a strategic move to address the increasing demand for IT specialists, we supported our client, a major Swiss logistics company, in opening a nearshore development center in Lisbon, Portugal. The center, projected to employ 120 professionals in the next few years, aims to tap into the wealth of talent available in Portugal in addition to continuing to hire in the home market. This initiative is not intended to replace any domestic roles at all, but to complement existing resources, fulfill new requirements, and secure the “future-readiness” of the organization.
Based on our thorough shoring location analysis, the organization chose Portugal as a hub due to its sizable pool of skilled IT specialists, high-quality work standards, and a similar work culture to the organization’s home country. Despite efforts to be an attractive employer domestically, our client faced challenges in filling positions promptly due to intense competition in the local talent market. Against this backdrop, the initiative in Portugal has been launched with enormous success, attracting numerous, highly qualified candidates.
With this move, the organization is not only securing the essential IT talent it requires but is also laying a roadmap for others navigating the global talent shortage. This example showcases how proactive talent acquisition and strategic expansion can help organizations continue their digital transformation journey unabated.
Conclusion: Captive shoring for a competitive edge
In today’s hyper-digital and highly competitive landscape, the war for IT/tech talent is intensifying. It is imperative for companies to adopt strategic measures to remain competitive and maintain relevance. As illustrated, captive shoring presents an attractive option for companies seeking to build in-house capabilities, especially in differentiating areas, from an extended talent pool.
The key to successful captive shoring lies in selecting an ideal location and designing a holistic target operating model, which can enhance talent attractiveness, firm integration, and the center’s overall objectives. Importantly, consistent execution from strategy to implementation, with a deep understanding of local specificities, is crucial to ensure alignment with the initial vision. This strategic initiative can serve as a capable means to position companies for continued success in the ever-evolving digital age.
Patrick Schneck and Thomas Sigrist also contributed to this article.
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