For many organisations, outsourcing Munich-based jobs can be key to remaining competitive. But getting the balance right is crucial. Which roles and services make strategic sense to outsource? And should they be outsourced to a local provider able to offer boots on the ground, or to a nearshore or offshore location?
Munich’s companies rely on outsourcing for 3 main reasons:
Munich, or München as the city is known to native German speakers, is Germany’s wealthiest city. A 2019 study conducted by the Institution for Economic and Social Sciences (WSI) based on income statistics for the year 2016 (the most recent data available) ranked the average Munich income as the highest of any German city at €29,685.
That puts the average Munich salary at almost 20% higher than that of the second placed city Stuttgart, at just €25,012. A 20% gap between the average income in the wealthiest and secondary city in a country might not be a big surprise in the case of the UK or France.
But Germany’s economy is not concentrated around one giant metropolis like London or Paris. In fact, average salaries in the capital Berlin don’t even give it a place in the top 10 cities in Germany for remuneration. Instead, Germany’s economic activity is famously nicely spread across the country.
Even regional capitals like Hamburg, Stuttgart, Berlin and Frankfurt don’t suck in major employers to the same extent they do elsewhere in Europe or internationally. Many of Germany’s biggest companies (think SAP’s Walldorf HQ and Huga Boss in Metzingen) are based in relatively small towns.
Source: The Economist
But Munich is an exception. The city is a magnet for corporations – both domestic German giants like insurer Allianz, the bank Stadtsparkasse Munchen and technology company Siemens, as well as international companies such as Adobe and Amazon. Also, unlike German as a whole, Munich’s economy is dominated by the services, not manufacturing, sector, which accounts for over 75% of employment.
The strength of the local Munich economy can be seen by the following stats:
One knock-one result of the concentration of enterprise in the city is that Munich’s GDP per capita is also the highest of any German city and unemployment rates consistently the lowest. In 2019 Munich’s unemployment reached a record low of 3.3%.
OECD Report – Germany Regions & Cities 2018
This all combines to mean that hiring permanent staff, especially in-demand skilled specialists, is both expensive and time consuming for companies and other employers in the Munich area.
That doesn’t, of course, mean that hiring full time employees in Munich is not an attractive proposition. It is, otherwise so many companies, large and small, would not base themselves in the city. But Munich-based organisations can have additional cost incentives to take the strategic decision to outsource certain roles and operations.
The underlying reasons why organisations may decide to outsource from Munich are likely to be the same as from any other business hub in a developed economy. The infographic below is based on research conducted by PwC, ranking the main reasons why organisations choose to outsource.
Cost cutting is generally the most common motivation given for outsourcing. And it stands to reason that organisations based in geographies with relatively higher salary and other overhead costs would, therefore, have an added incentive to outsource where that is judged as practical.
The third most commonly cited reason to outsource, resolving capacity issues, is also a more pronounced factor in a city such as Munich where there is tough competition for in-demand specialists. That is evidenced by Statista data on the most outsourced IT functions, with software application development and maintenance coming in significantly ahead of other roles and responsibilities.
There is a combination of reasons why software development and maintenance are the most commonly outsourced IT functions. One is relative scarcity of qualified specialists on the labour market – something particularly pronounced in an economy such as Munich’s.
A second is that software development tends to by cyclical and project based, which often makes it impractical to efficiently cover peaks and troughs of demand for these skills in-house. That would mean periods when a stable team of full-time employees is under-utilised, unnecessarily adding to overheads. And other periods of high demand that a stable inhouse team would be unable to meet without seriously compromising speed-to-market requirements.
Finally, if an organisation wishes to retain flexibility around the technology stack that different IT projects will use, IT outsourcing is often the only practical solution. In-house specialists cannot be expected to have deep expertise and the necessary competencies across a wide and constantly evolving range of technologies.
Which means an organisation must either restrict itself to a stable of technologies to be used across all software development projects. Or maintain a smaller core in-house team which is augmented with additional human resources and technology expertise on an as-needed basis.
The latter scenario is most common, with IT outsourcing providing the flexibility contemporary organisations in Munich and elsewhere require.
We’ve already mentioned IT outsourcing, which is currently the fastest growing outsourcing sector. Statista data from 2018 reveals 64% of outsourced technology functions have to do with software application development. About 51% of technology executives say they outsource application and software maintenance, and 40% outsource their data centres. With Munich-based software development particularly expensive, it’s little surprise IT functions are among the most commonly outsourced from the city.
Financial services, especially accounting, are also among those most commonly outsourced, especially in the SME sector, with marketing functions and customer support other big outsourcing markets internationally, with Munich no exception.
Globally, IT outsourcing is relatively evenly split between offshore and onshore outsourcers, with a slight majority going offshore. Cost cutting is generally the motivation but a lack of locally-based specialists (which also influences cost) is another major factor. We don’t have Munich-specific data here but as a Munich IT outsourcer, our experience is that the split is more pronounced in favour of offshore, predominantly nearshore, outsourcing.
It is more common that Munich-based organisations require or prefer outsourced IT consultancy roles to be onshore, with the consultant present or often on-site. But in the case of scalable teams of software developers and other IT specialists, that is generally not a practical possibility at a cost that is in-keeping with the business case.
A hybrid approach which sees an outsourced consultant or team lead onsite, with a larger support team executing off-site, with some members potentially travelling as needed, is increasingly popular.
DACH-region, German, and by extension Munich, outsourcing of software development overwhelmingly goes to nearshored (mainly east) European providers.
Professionals who thrive on variety and project-based work may prefer to look for a role with a Munich outsourcing company rather than a more traditional in-house position. If you are keen to explore employment opportunities with Munich-based outsourcers, you have a couple of core options available to you.
For example, if interested in IT specialist roles with K&C, you can view open position being actively recruited for or submit your CV more generally through our careers page.
If you are a Munich-based organisation that would like to source a locally based outsourcing partner, you also have a number of options to filter down to a shortlist:
There are also more specialist directories for industry-specific outsourcers. For example:
We hope you’ve found this overview of the Munich outsourcing market valuable. Please do let us know how you feel it could be further improved.
And, of course, if you would like to discuss your needs with a Munich-based IT outsourcing provider, we’d love to hear from you! K&C has been providing local consultants and IT specialists from our nearshored tech talent centres in Krakow, Kiev and Sofia for over 20 years now to a mix of Munich-based blue chips, SMEs and exciting start-ups.