Should you found an IT development center in Tallinn as we in Solita did?

We founded the development center for Solita in Tallinn in autumn 2017. The start has been very interesting, fast and fun and our plan is to grow our team up to 15-20 IT specialists by the end of 2018. One question I get asked frequently is why we chose Tallinn as the location for the development center. Isn't the job market in Tallinn overheated, costs high and good people very difficult to find?

After the first half-year, I can say that Tallinn was a very good choice for us. I will try to explain why we chose Tallinn and more generally, what are the things one should consider when choosing a location for an IT development center.

The job market loop

Firstly - yes, there is a lack of good specialists and salaries in the IT sector are the highest among all sectors in Estonia.

However, we should look at this situation in a bigger picture and that is ruled by the following principles:

- Good specialists are only in cities where there is demand for their skills - meaning jobs in the specific technologies. With no jobs, the specialists either leave or work with something else thus losing their skills.

- If there are specialists and preferably a technical university in a city and there is a global need for skilled specialists then companies expand to take use of the specialists available.

These two principles create a positive feedback loop: jobs->experienced specialists->companies expand->more jobs->more career and development opportunities ->more experienced specialists->more companies move in->more jobs.

This loop has been working in Tallinn for the last 5 years at least. Keeping this loop running is beneficial for all the actors in the city: the companies, the specialists, the universities, the government, the supporting companies (e.g. real-estate). Among other things, this means that the IT companies should not look at each other as competitors on the job market but rather make the whole job-market more attractive for the specialists, students, high-skill immigrants together.

Is the IT job market global? Competition between cities.

IT job market is more or less global. What I mean with "more or less global" is that:

-  Many teams work in English but it is still only around 30-50% of overall IT work that is in English in the Nordic and Baltic countries. 50-70% of jobs require the knowledge of the local language. Many jobs - especially in the consultancy business - require also the knowledge of local culture, how business is done, how the users act and what they prefer.

- Remote work is possible in many teams and companies, but 100% remote work is relatively rare. Many organizations want their IT teams to work together in one physical location...at least for some days in a week. Cases of "digital nomads" are still rare and physical presence is important.

- The differences between technology and IT development processes in different nations and cities are minor.

So overall, the IT job-market is much more global than the job-market of e.g. lawyers and schoolteachers but it is far from 100% global. Nevertheless this global market means that the difference in salary levels vs. living costs in different cities cannot be nearly as high as they are for example for school-teachers. Smart people look at the equation:

net salary minus living costs minus transport cost minus food minus kindergarten/school minus other costs. 

Besides money the specialists compare other factors like living standards and professional development possibilities and if these results are much better for them somewhere else then they send in their CV to a job offer in the other city.

 This equation+living standards+professional possibilities are categories where cities compete with each other. This really is a competition as each IT job brings tax money, creates 4-6 other jobs and unlike paper-mills, shale oil plants and other industrial jobs, the IT developers sitting in an office do not pollute very much. What (the local) government can do in this regards is to work with this equation and see that for example the living costs do not skyrocket (unlike e.g. Stockholm, Oslo) and the city is a nice place to live in. Fortunately these are not very difficult policy decisions as decent living costs, good schools, parks and good transport systems are good for all ....voters.

Is there a city for a development center where one can recruit tens or hundreds of good IT specialists that want much lower salaries?

The answer is "In normal circumstances no, but sometimes there are disruptions". :-) If you consider that the job-market works as a loop and the cities compete for the talent globally then "the price/performance of the cities" evens out in the time perspective of 3-5 years. (Fortunately) it does not work like for example the clothing industry where companies can get much cheaper labor from the cheapest country for a long time.

However sometimes there are disruptive situations that change the usual evened out situation:

- A major employer has just gone bankrupt or moved out from a place (e.g. Nokia from Oulu and Salo)

- A government decides to give big benefits to companies, e.g. taxcuts, easier immigration laws, free office space etc. (e.g. Belarus to IT development companies or Estonia helping with the immigration of IT specialists)

- Something terrible happens and people (including the IT specialists) move to other countries. (e.g. Turkey after the revolution attempt)

However, as usual the influence of these disruptive events is temporary.

The other - and more important part - of choosing the location

Finding talent is actually only half of “the problem” when choosing a city for an IT center. The other factor is building teamwork between your new employees, old employees and customers. This means building trust, a common language and common processes. It is in this that Tallinn is a much better solution for Solita than many alternatives.

 I am a huge proponent of remote work and use video, chat, phone and other telecommunication methods but for building trust and getting the "coffee machine" rumors, it is important to meet face-to-face. To accomplish this, two factors come into play.

 Firstly, of course, the transport. It is important that your colleagues and new hires meet regularly and to accomplish that there have to be fast, cheap and convenient transport connections between your new location and the old locations. It is hard to underestimate this! Compare for example the travelling options between Helsinki and Tallinn to e.g. Helsinki and Katowice or Helsinki and Lissabon. For the latter cases one really needs an important reason to travel and for example a half-day workshop or a meeting with one customer just is not enough to justify that.

Secondly, it really helps if people like to come to the city where the development center is. Things like an attractive Old Town, nice parks, good dining options, art/hipster areas help a lot with this. For frequent travellers also things like swimming pools, gyms and other sporting opportunities matter.

Overall, as a coincidence, the same things that attract tourists, attract businesses: transport connections, sightseeing, good hotels, restaurants, sporting and going out possibilities.

Brand of a city

Branding of a city and a country is very important. As you know from your own behavior then “Made in Switzerland/Norway/Sweden” means that it is OK to pay 30% more for a product than the average. Whereas “Made in Ethiopia/Bangladesh/Romania” is something that the sellers rather not write on the product to get even the average price.

 The same goes for IT development centers. Imagine for example that your CEO will announce on the shareholder meeting that “We founded a development center in Pattaya!” or “Our next place of growth is in Medellin”. These would be a bit hard to sell.

 When it comes to branding then Estonia and Tallinn have a good reputation in the IT sphere. Years of work by Enterprise Estonia, E-residency team, the IT companies and among others also the former Prime Minister Taavi Rõivas have made its mark! Naturally, there is no reason or possibility to stop that, but to carry on and continue with marketing and also maybe living up to the promise.

Conclusion and some thoughts on making a city attractive for IT development centers

- Keeping the living and transportation costs down through city planning and effective public transport. For example it is a good idea to see that the banks don't go crazy and give 125 year home mortgages to everybody, thus increasing the real-estate prices to unreasonable levels.

- A good university. Universities are also hubs for bringing in specialists to a city. Not only from other countries but also inside the country. Developing curriculum's (e.g. in English) to foster that immigration is a good idea.

- Good connections to other cities. Plains, trains and in some rare cases also automobiles.

- Making moving to a city easy and cheap for specialists. For example offering education possibilities in English, preferably for free or for a small tuition fee.

- Easy and cheap ways of doing business in a city. From registering a company and renting office space to taxes and accounting.

- Make the city a nice place to be in: parks, sporting possibilities, nice restaurants, gyms, swimming pools etc.

- Actively build and work with the brand of the city and the country.

The good thing with this is that almost all of these things are good and loved by the inhabitants - and the voters - anyway. Improving some of these things also brings tourists.