European Nearshoring Index – Is Eastern Europe Attractive for Swiss IT Firms?

The main goal of this paper is to identify the major factors for the decision of Swiss IT service firms to nearshore their locations and to quantify their relative importance. Moreover, we develop an IT Nearshoring Index ranking the attractiveness of different European regions. We use a quantitative survey of 56 Swiss IT service firms that are either actively engaging in nearshoring or planning to nearshore parts of their business. Using the survey, we identified five main factors for the nearshoring location decision of Swiss IT firms: economic, labour, institutional, social and location. We pin down the relative importance (weights) of the aforementioned factors using the survey results and expert interviews. The labour factors (including labour costs on the one and the availability of skilled IT workforce on the other side) proved to be most important. We use the obtained weights to construct a (weighted) IT Nearshoring Index. Based on the IT Nearshoring Index, we find that in contrast to general belief, the most attractive locations cannot be found in Eastern Europe, but in Southern UK or Western Germany. The first is due to their high availability of IT workforce, the latter due to their cultural and geographical proximity. Eastern European regions can base their competitive advantage on offering attractive labour costs, but this cannot make up for the disadvantage of greater cultural and geographical distance to Switzerland.