The New Nearshore

The following conversation took place during the coffee break at a recent Corum event in Moscow, hosted by the legal offices of Dentons. The interaction was between myself and the CEO of a large Russian IT Services company (name withheld). While the exact wording may not be 100% accurate, the information relayed was quite enlightening.

CEO: ...And where are you heading next?

Me: I’ve got some meetings here in the morning, and then I’m on the direct flight to Barcelona tomorrow afternoon.

CEO: (smiles) Great. Perhaps we can catch-up at the airport tomorrow. I’ll be on that Barcelona flight as well.

Me: (surprised) Oh really? Escaping the snow and this winter storm, I assume?

CEO: Sure, but not the main purpose. Actually, we have our new nearshore operations based in Barcelona.

Me: Ah, so you have a Spanish client in Barcelona that you are running some nearshore development for…?

CEO: No. In fact, our new nearshore development and services center is based in Barcelona. It’s far more cost effective today than Moscow.

Me: More cost effective? I’m a little confused…

CEO: Sure, its a reversal from what we think is normal. Let me explain...

Over the past 10-years, Moscow has become the most expensive real estate in Europe, among the most expensive in the world. €5,000 - €10,000 per square meter to purchase, €25,000 per month for a few hundred meters of quality rental space.  Even the outskirts of the city and St. Petersburg have become incredibly expensive. It is still true that our cost of talent is some of the most affordable in the world, but at this point, Moscow overhead no longer fits a cost-effective and efficient model.

With the current crisis, Spain has millions of unoccupied meters of newly built, tech office space — they are renting for next-to-nothing, if you sign a 5-year contract. There is plenty of unemployed talent, willing to work for wages that are discounted from their previous contracts. While the cost of talent is still more expensive than what we could hire in Russia, the cost of overhead tips the equation in Spain’s favor.

Also, I like the weather and the wine.

Posted by , Executive Advisor on 7 January 2014
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