IT outsourcing in Estonia, Latvia, and Lithuania
N-iX
2021-12-28T18:04:22+00:00

Modern companies face the need to accelerate their pace of development to keep up with the industry leaders and stay on top of their game. Many of them struggle to find qualified talents with diverse technical expertise in-house. That is why nearshoring to Eastern and Northern Europe becomes a stron...

IT outsourcing in Estonia, Latvia, and Lithuania

Modern companies face the need to accelerate their pace of development to keep up with the industry leaders and stay on top of their game. Many of them struggle to find qualified talents with diverse technical expertise in-house. That is why nearshoring to Eastern and Northern Europe becomes a stronger trend. Cultural alignment, business and market understanding, agility, and diverse technological expertise are fostering interest towards these outsourcing destinations. In this article, we are going to take a closers look at:

IT outsourcing in Baltic countries

Baltic countries are recognized as some of the most economically stable IT outsourcing destinations in Europe. They boast high levels of digital solution adoption and effective legislation that ensures data security and smooth business operations. The companies in the region are known for nearshore and offshore development services.

Estonia, Latvia, and Lithuania IT outsourcing overview

It is also worth mentioning that the region has a large number of product companies, startups, and vendors that specialize in business processes outsourcing or global business services, so the number of experts that work for the IT outsourcing companies is rather low. 

Breakdown of employment of Estonian, Latvian, and Lithuanian companies

However, along with the benefits that Baltic countries can offer, there are also some significant risks and challenges. Let's find out more about the IT market development and business environment of Estonia, Latvia, and Lithuania to help you find a reliable IT outsourcing partner.

IT outsourcing in Estonia 

According to the State of European Tech, the ICT sector in Estonia employs around 30,000 specialists. In a visionary plan Digital Strategy 2020 for Estonia by the government, IT is expected to become the leading sector of the economy and will make up for 20% of the country's total exports. Two major cities contribute the most to the development of the Estonian IT industry – Tallinn taking the lead (67.5%) and Tartu as a runner-up (12.5%).

Estonia outsourcing: market overview

A little over 1,000 people graduate with degrees in computer science every year [1, 5]. In addition, Estonia expects to train an additional 7,000 ICT specialists between now and 2027 [2].

In Estonia, the IT industry is well developed due to the large number of startups and favorable business climate. The country is known as the birthplace of Skype, TransferWise, Pipedrive, Cloutex, Click & Grow, Grabcad, Erply, Fortumo, Lingvist, etc. Moreover, the country is home to a wide array of foreign companies that opened their R&D centers there. They include such global companies as Microsoft, SAP, Acronis, Parallels, and more.

Software development companies in Estonia

The Department of Critical Information Infrastructure Protection (CIIP) in Estonia evaluates the security of information systems and carries out regular risk assessments. According to Statistics Estonia, 17% of all enterprises have a formally defined ICT security policy and around 42% of them are engaged in the IT sector. 

Clutch lists over 50 software companies in Estonia and most of them employ less than 250 people. The majority of companies work in financial, information technology, business services, and e-commerce industries, as well as healthcare and retail. 

Estonia it industry: domain expertise of IT outsourcing companies

If you are looking for a software development company in Estonia, there are plenty of vendors to choose from. Moreover, many Eastern European vendors also have presence in Estonia or the region. 

Business environment

Estonia is a frontrunner in the Baltic region in terms of applying modern IT solutions including a wide range of state e-services, e-banking, nationwide ID-card, digital signature legally equal to a handwritten signature. The country ranked 18th in 2020 Ease of Doing Business ranking by the World Bank. Estonia is not only implementing e-government solutions but is also conscious of its cybersecurity. The country hosts the cybersecurity center of NATO and the IT-agency of the European Union. What's more, the governmental agency Enterprise Estonia is aiming to increase the productivity of Estonian companies up to 80%. It promotes Estonian entrepreneurship and regional policy and offers consultation, training, cooperation opportunities, and financial support to entrepreneurs, research institutions, public and nonprofit sectors.

Estonia is one of the most politically stable countries in the CEE region being a member of the Eurozone, WTO, NATO, and OECD. The country also launched Estonian Entrepreneurship Growth Strategy 2020, which is the most important strategy related to the development of the country's economy for the next seven years. It focuses on increasing productivity, stimulating entrepreneurship, and encouraging innovation within the state.

Risks and challenges

Estonia has one of the best performing labor markets in the European Union, but its declining working-age population is a real challenge. The Estonian labor market is characterized by its flexibility and low unemployment rates. However, aging poses risks for businesses' profitability, competitiveness, and the country's long-term economic growth. Moreover, the scarcity of resources remains the most critical issue for the successful development of the IT industry within the state. For instance, Lviv, one of the biggest IT hubs in Ukraine, employs as many IT experts as Estonia itself.

IT outsourcing in Latvia

More than 20,000 IT specialists work in software development companies in the Latvian ICT sector. Also, around 700 computer science students graduate every year from Latvian universities [5], thus stimulating growth in the industry. The information and communication technologies (ICT) sector has become the third-largest exporter in Latvia, following timber and food products sectors. 

IT outsourcing in Latvia: overview

The evolution of the Latvian IT market led to the birth of such large IT service providers in the country as Tieto, Evolution, Accenture Latvia, and Lattelecom Technology. Moreover, international companies like IBM, PwC, Accenture, KPMG, Siemens, ABB have already opened their regional centers in Latvia. 

Software development companies in Latvia

Latvia has the lowest number of IT outsourcing or software development providers. Clutch lists less than 30 vendors, with the majority of them being small firms with less than 250 employees. As for the domain expertise of these companies, the leaders are business services, e-commerce, financial services, and manufacturing industries. 

Domain expertise of Latvia software companies

With less resources and smaller tech talent pool, this is still an attractive IT outsourcing destination in Northern Europe. But what makes this country so attractive for global companies? 

Business environment in Latvia

Latvia's business environment growth and economic stability are driven by increasing shares of fast broadband subscriptions, implementation of several governmental measures as well as by improved delivery of public services. According to Global Services Location Index [4], the country is ranked 21st in terms of financial attractiveness, skills and availability, and state of the business environment. Also, the country improved its position in the World Bank's Ease of Doing Business 2017 ranking and now occupies the 19th place. Latvia was also featured as one of the top 50 countries in the 2019 Global Competitiveness Index ranking according to indicators like infrastructure development, technological readiness, business sophistication, innovation, etc. The Latvian government is planning to reduce administrative burdens, expand e-government services and work on attracting investment to local companies to create new jobs and increase business competitiveness.

Risks and challenges

Even though more and more Latvians are going online and are using e-government services, still half of the population has a low level of digital skills adoption. Furthermore, Deloitte estimates that almost half of Latvian companies spent less than 1% of their income on R&D, while only 26% of European companies spend that little. This negative tendency confirms that R&D investments in the Latvian business sector are not only lower than the EU average but are also well behind other European benchmarks. Additionally, even though the number of IT specialists in Latvia is bigger than in Estonia or Lithuania, it remains lower than in most European countries.

IT outsourcing in Lithuania

Around 30,500 specialists are employed in the ICT industry in Lithuania [1], with additional 750+ future experts graduating every year [5]. Such global companies as Google, AIG, Nasdaq, Uber, IBM, Wix, HP, Virtustream, Exadel, and Unity have already opened their R&D and IT development centers in the country. 

On the whole, IT companies in Lithuania have received substantial investment over the past years, which stimulated the growth and development of the IT sector. In addition, several Lithuanian companies were included in the Deloitte Technology Fast 50, a report bringing together the fastest growing tech companies in Europe. For instance, Lithuanian IT company Ruptela UAB experienced a whopping 1,211% growth in revenue over the past seven years. Another Lithuanian company, Data House UAB, marked an 861% increase while nSoft UAB reported a 337% gain. 

Learn more about Lithuanian outsourcing industry

A lot of regular tech events, such as the Innovations conference, Global Game Jam in Lithuania, Software Development Conference, Silicon Valley Comes to Baltics event, International Open Data Hackathon, etc take place in Lithuania. Some of them attracted thousands of participants and over 100 international speakers. 

Software development companies in Lithuania

If you are planning to outsource, Lithuania is a great place for that. Apart from a decent tech talent pool, the country has some reputable IT outsourcing vendors. According to Clutch, there are a little under 50 companies that offer IT outsourcing and software development services. 

If you plan to outsource to Lithuania, check out their domain expertise

Software companies in Lithuania have versatile domain expertise.  Among the most popular industries that choose Lithuania for IT outsourcing are financial and business services, information technology, e-commerce, healthcare, and consumer goods. 

Business environment

In line with its Programme on the Information Society Development for the period of 2014–2020, the Lithuanian government is planning to develop the high-speed broadband communication infrastructure. Lithuania has also launched a program aimed to increase the availability of e-services and enhance its quality by adopting digital technologies. No wonder, the country occupies the 40th place according to the 2021 Bloomberg Innovation Index. Besides, Lithuanian IT education witnessed a significant increase in government funding for IT studies, which stimulated rapid growth among students choosing IT as their first choice field of study.  

Risks and challenges

A large number of skilled professionals are leaving the country to be employed abroad. The skills shortage in Lithuania continues to be high and becomes a primary bottleneck for Lithuania's growth. Although Lithuanian enterprises have been steadily embracing the opportunities offered by various digital technologies, their progress has been slower than in previous years.

The Digital Agenda Strategy recognises that addressing this issue remains crucial to support digital transformation in banking and other industries. It sets out some necessary steps to reinforce investment in human capital. By implementing this, the country is expected to boost the quality of teaching, improve the employability of the low-skilled and promote adult and work-based learning. The strategy sets an objective to attract more young people to choose IT and related science studies and professions to ensure the acquisition of digital skills when learning. 

Wrap-up

All in all, the launch of e-programs, ease of doing business, high cybersecurity and low corruption rates foster IT industry development in the Baltic countries. Nevertheless, the pace of software development market growth and digital technologies adoption in Lithuania, Estonia and Latvia are still moderate. The shortage of skilled IT specialists becomes a major bottleneck for this region. Thus, finding and scaling a team quickly is a real challenge. That is why many companies consider Eastern European IT outsourcing destinations like Ukraine to establish long-term cooperation. This country is a win-win option in terms of availability of IT professionals and strong technological expertise. Explore all IT outsourcing destinations of Eastern Europe

Sources cited in this article: 

  1. State of European Tech 2021
  2. IT Services and Equipment Estonia by Export.gov
  3. IT sector - e-Estonia
  4. The 2019 A.T. Kearney Global Services Location Index
  5. Tertiary education graduates: main subject areas
  6. Global software marketplace insights: Eastern Europe by SourceSeek
  7. World Bank’s Ease of Doing Business Index
  8. Trading Economics
  9. 2021 Business services sector in Latvia by ABSL
  10. EMEA’s Business Services Landscape by ABSL

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By N-iX December 28, 2021

About N-iX

N-iX is an Eastern European software development service company that helps businesses across the globe expand their engineering capabilities and develop successful software products. Founded in 2002, N-iX has formed strategic partnerships with a variety of global industry leaders and Fortune 500 companies, including OpenText, Fluke Corporation, AVL, Lebara, Currencycloud, TuneIn, and many others. With more than 1,800 professionals, N-iX offers expert solutions in software engineering, cloud-native services, data analytics, embedded software, IoT, machine learning, and other tech domains covering a wide variety of sectors, including finance, manufacturing, telecom, supply chain, to name a few.

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