In part two of this global insight into the hiring trends in the technology landscape, our UK and Germany Technology Practices explore current shifting trends in the tech hiring environment in their markets.
Expanding start-up community and shifting global tech priorities in the UK.
The United Kingdom is one of the largest technology hubs globally and one of only three that has a sector valued at over $1trillion.
Broadly speaking the UK technology sector can be divided into two distinct ecosystems. The first consists of a large cohort of US tech vendors, who utilize the UK as their launch pad for international expansion (and once scaled, often a secondary hub for engineering, R&D and product development).
The other ecosystem consists of our home grown, but vastly expanding tech start-up community, which has evolved off the back of strong innovation in areas including FinTech and HealthTech.
UK start-up & scale-ups have benefited from the immense research and development capabilities and brilliant minds from world-class universities like Oxford, Cambridge and Edinburgh.
We’ve become a pioneer in artificial intelligence and machine learning, much of it seeded in academia, but now being monetized brilliantly in the commercial world. Deepmind, now part of Google, just one example.
So while the well-publicized tech disruption has hit the sector as a whole (although for context a global workforce reduction of 0.2%), the two ecosystems highlighted are fairing differently.
There is an acute focus from the US tech vendor community on sustainable growth and profitability. The idea of growth at any cost has been cast aside for a more conservative, but arguably needed focus on near-term return on investment.
But it is worth factoring that these larger tech houses had a lot more fat to burn in their shift to become fighting fit. That’s not to diminish the challenging times those affected might be suffering, but the upside is that unlike other tech downturns, the start-up/scale-up ecosystem, which is naturally leaner, has not been as affected.
That’s not to say that well-funded start-ups and scale-ups who had less fiscal oversight aren’t scaling back themselves, it’s just in the UK, there is less of a focus on growth at all costs and a more conservative yet stable growth trajectory preferred.
An interesting paradigm occurring now is that for many of these early-stage firms who initially lost out on talent to their more established competitors during the overheated pandemic hiring frenzy, they are now the preferred destination for those exiting many of the hyperscalers. These earlier-stage firms aren’t having to contend with the overheated compensation packages and the Tech-stock bag of tricks that were used to great effect over the last 3 years – the playing field is more level for now.
The recent turmoil caused by the collapse of Silicon Valley Bank could have triggered a significant issue for early-stage businesses who bank with them in the UK, but the rapid intervention by UK Government in partnership with the tech and financial services sector meant HSBC quickly took the reigns and a catastrophe was avoided.
So the UK is doing OK. We don’t have all our eggs in one basket and our homegrown ecosystem continues to grow and flourish. We expect the larger US tech firm to start hiring again in the second half of 2023, with plans for increased growth in 2024, so a pick-up after the Northern hemisphere summer is our prediction.
In the meantime, the UK scale-up community can hire without too much interference and market distortion from their US competitors – a rare moment in time indeed.
Growth continues at reduced speed and reduced investment in Germany.
While the global telco and IT market segments are predicted to grow by 4.8% in 2023, Germany’s Bitcom e.V. predicts a growth of 3.8% in total for Germany being the 5th largest market globally. The software segment is forecasted to grow by 9.3%, IT Services are expected to grow almost in line with global growth, by 4.7%. The Telco sector is expected to grow slightly by 0.8%, and in the consumer electronics segment, a significant decline by 7.3% is expected.
On the other hand, investments into Germany have declined significantly:
Germany’s BVK association announced recently that while in 2021 a volume of €19.6bn had been invested into 1,104 companies, in 2022 only €13.9bn had been invested into 885 companies.
As 47% of these companies are in the area of software, hardware and communication, this is a relevant trend for the tech sector. Berlin still headed the investment in 2022 with a total volume of €4.0bn into 281 companies, while the southern regions remained strong with €2.9bn each invested into Bavaria (228 companies, capital city Munich) and Baden-Wurttemberg (64 companies, capital city Stuttgart).
Neither the growth of the market nor the reduction of investments reflect directly in the labor market. Among others, Germany’s largest Tech company SAP, has announced they will lay off 3,000 employees recently, following the Big Tech trend. However, the labor market continues to face a shortage of skilled tech labor. According to Bitkom, Germany’s Tech sector has reported a shortage of 137,000 IT experts at the end of 2022 (compared to 124,000 in 2019 pre-COVID). As salaries for skilled tech labor are comparatively low e.g. compared to the US, and given the current USD vs. EURO exchange rate, we expect the shortage in the Tech workforce to get even worse.
The conclusion; we continue to experience a reduced yet strong demand for Executive Talent in the technology segment.
We are also seeing executives being exposed to a variety of different career options in parallel who are seeking orientation and advice from a trusted party.
Odgers Berndtson is continuously ranking among the top 3 companies for C-Suite talent with very high client and candidate satisfaction scores and has therefore positioned itself as an advisor in this situation. The strongest demand currently is expected in the Data & Artificial Intelligence segment (+41.8% growth according to Bitkom). Having invested in this segment since 2018 and being the talent partner in Germany’s largest network for applied AI (appliedAI Initiative at UnternehmerTUM), we continue to facilitate our Data & AI Leadership Circle education program and prepare the Leaders in this segment for the scale-up of their challenges.
For more information on what is happening in your local tech sector, contact our authors in the UK or the Germany Technology practices, or get in touch with us here. You can also find your local Odgers Berndtson contact here.
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