Local Sourcing vs. Outsourcing vs. Nearshoring for Dutch Tech Companies

Introduction

The global IT landscape is rapidly evolving, with an ever-increasing need - and incentives - for digitalisation, as recently recognised in the Draghi Plan, which is expected to influence an additional €750-800 billion in annual IT/digitalisation investment in the EU between 2025 and 2030. The Netherlands, as Europe's de facto technology hub, is at the epicentre of this boom, making it difficult for Dutch enterprises to attract IT talent at all levels, from human resources specialists to product managers and technical experts. These obstacles in scaling IT development force a critical decision: whether to use local sourcing, outsourcing (offshoring), or nearshoring to handle the skyrocketing prices of skilled local personnel, assuming such expertise can be recruited at all.

This study delves into the details of these three sourcing models, weighing their pros and cons. It also provides a case as to why nearshoring to Portugal rather than offshoring or nearshoring to Eastern European countries is becoming the best choice for Dutch companies that want to find a balance between low costs, easy collaboration, and the availability of skills.

Local Sourcing for Tech Talent: A Challenge for Dutch Tech Companies

Dutch enterprises, like other companies throughout the world, have always preferred local sourcing for all of their needs due to its inherent benefits of familiarity, proximity, and control.

Geographical proximity facilitates face-to-face interactions, immediate feedback, and quick decision-making processes and is regarded as a requirement for ensuring that development work is aligned with the company's goals and allowing effective collaboration, which is critical in agile development environments.

Physical proximity is also seen as a good proxy for cultural and language alignment, which means that team members are expected to have a mutual understanding of work ethics, business practices, and market nuances specific to the Netherlands, resulting in fewer misunderstandings and increased team cohesion, critical in agile projects with high communication needs and fast iteration over product features and other requirements.

Local sourcing also simplifies all fiscal, legal, and compliance processes due to a strong understanding of tax codes, labour laws, and other fiscal regulations that may be uncertain—and potentially risky—in other countries with different cross-border operations, especially important in industries that are heavily regulated (e.g., fintech) or handle sensitive data (e.g., personally identifiable information).

The combination of these factors explains why local sourcing is often chosen; nevertheless, concerns such as talent shortages and rising costs are forcing Dutch businesses to consider other tactics and have even prompted the national government to enact specific legislation (30% tax ruling) to make the Netherlands more attractive to highly skilled (tech) migrants.

Key outsourcing locations for the Dutch tech market

Outsourcing (Offshoring): Inexpensive but Risky

Offshoring IT services to India, Southeast Asia, and Latin America is financially appealing for Dutch enterprises. Cost is the most compelling reason for firms to pick this model as countries like India and the Philippines offer substantially cheaper labour, often by 50-70% when compared to local talent. For organisations with limited resources, offshore is an appealing choice for preserving profitability while satisfying development goals, especially considering the sheer magnitude of the talent pool in these areas.

However, despite these huge benefits, outsourcing has important risks that may eventually offset its advantages. One of the most persistent concerns is the difficulty caused by time zone differences. With a 5 to 10-hour time difference between the Netherlands and many outsourcing centres, it is challenging to maintain the level of real-time communication required for agile project management. Delays in feedback and troubleshooting can dramatically slow down project deadlines, causing bottlenecks in time-sensitive processes. While this is frequently marketed as a "plus" and an enabler of 24-hour operations, it is a hollow promise for most software firms that require good team cohesion, alignment, and communication, all of which are adversely impacted by timezone offsets greater than two hours.

Beyond logistics, differences in work culture, communication norms, and management styles can impede productivity and collaboration. For example, nations such as India and Vietnam frequently have more hierarchical work cultures, which may collide with the more egalitarian, flexible structures found in the Netherlands. These cultural misalignments can cause misunderstandings, lower productivity, and more time spent managing team integration.

In summary, while offshore provides significant cost savings and access to a big, trained workforce, the inherent hazards can outweigh the benefits. For Dutch organisations that value agile development and real-time cooperation, the risks may easily outweigh the benefits particularly for companies with limited tech resources and where a few low-performers can significantly impact the company's ability to deliver quickly and reliably. As a result, many businesses are turning to nearshoring as a more balanced option, which provides some of the financial benefits of outsourcing without the severe negatives of offshoring.

Nearshoring to Portugal: The Best of Both Worlds

Nearshoring to Portugal provides a strategic balance of cost-effectiveness and operational performance. This strategy has grown in popularity among Dutch companies and is a key driver for 25Friday's impact on the Dutch tech landscape.

One of Portugal's main advantages is its proximity to the Netherlands. Operating in the GMT timezone, Portugal has a tiny time difference of only one hour behind the Netherlands, enabling real-time cooperation and seamless communication between teams.

Portugal has a growing number of highly trained IT experts. The country's universities and technological institutes provide graduates with expertise in web development, artificial intelligence, cybersecurity, and cloud services. Portugal's focus on digital transformation has helped it become one of Europe's leading tech ecosystems. Dutch companies can thus access a consistent stream of skilled developers without the language or cultural obstacles that frequently exist in more remote places.

Moreover, it has a huge edge in terms of cultural compatibility with the Netherlands. Portuguese professionals are noted for their versatility and commitment to Western European work principles, making them great collaborators for Dutch teams. Portuguese IT experts' exceptional fluency in English guarantees simple and unambiguous communication, reducing the chance of costly misunderstandings.

Portugal also enjoys a high level of political and economic stability and is a member of the European Union since 1986, with legal frameworks and tax rules that are consistent with those in the Netherlands. This regulatory comparability streamlines operations for Dutch businesses by lowering legal and administrative barriers.

It is worth noting that while there are other valid nearshoring alternatives in Europe, particularly in Eastern countries such as Poland, Romania, and Ukraine, Portugal offers increased political stability and a closer alignment with Dutch ideals like transparency, flexibility, and open communication. Additionally, the widespread proficiency in English among Portuguese professionals enhances the ability to work effectively and efficiently together. In comparison, some Eastern European countries may have more hierarchical and formal corporate structures, which can lead to conflicts in agile and fast-paced initiatives typical of the IT landscape.

25Friday’s Approach to Collaboration in Nearshoring

At 25Friday, we believe that personal connections are essential for building strong, successful teams. That's why we prioritize bringing our teams together in person four times a year, providing opportunities to strengthen bonds that enhance team chemistry and productivity. To reduce communication hurdles, we offer in-house English lessons, ensuring that all team members and partners communicate clearly and effectively.

We also organize quarterly feedback sessions with our partners to resolve challenges, acknowledge successes, and drive ongoing growth. Employee development is a critical component of our commitment to excellence. We actively develop personalised career plans to help our team members advance in their roles and ensure their long-term success and satisfaction.

These initiatives foster deep partnerships between 25Friday and its partners, resulting in strong alignment around mutual goals. By focusing on continuous learning, improvement, and outstanding results, we create a collaborative environment where both our people and our partners thrive.

Conclusions

By choosing 25Friday with its Portuguese nearshoring arm, Dutch enterprises can reap the benefits of nearshoring while avoiding the dangers associated with offshore or other remote markets.

Portuguese talent stands out as a very appealing and cost efficient option for Dutch tech companies. Portugal's time zone alignment, political stability, skilled labour, and cultural fit make it a dependable and advantageous choice for long-term relationships.

As you ponder about Technology and explore the potential within your software development practices, remember that you're not navigating these waters alone. We, the 25Friday team, are dedicated to guiding tech companies through the maze of technical strategy. With our expertise in consultancy and nearshore development, we partner with organisations to fine-tune their vision, align their teams, and craft strategies that resonate in today’s dynamic market. Reach out to us, and let's work together to turn your challenges into successful ventures that stand out in the tech landscape.