Automotive firms eye CEE region for software R&D engineers

06 February 2020 Consultancy.eu

Demand for software research & development (R&D) engineers in Western Europe’s automotive sector is outpacing supply, pushing many companies to look towards the Central and Eastern Europe (CEE) region for fulfilling their talent needs.

This is according to new analysis from global management consultancy McKinsey & Company, which comes at a time of major disruption in Western Europe’s automotive sector. Much like the rest of the world, if not more, mobility in Western Europe is evolving to meet a variety of new mobility trends and shifting consumer behaviour, including electric vehicles (EVs) and autonomous vehicles (AVs) to mixed transport nodes.

Many automotive companies – including industry stalwarts such as BMW and Daimler – are scrambling to stay ahead of the developments, while facing the challenges of an increasingly dynamic and competitive market. Alongside defining and executing winning strategies and considerable investments in technology, talent is key to bring the much needed change and digitisation to life.

Global software FTEs need in the automotive industry

However, McKinsey’s research suggests that winning this talent game is becoming increasingly tough, if not a top concern, amid a heating labour market. “The biggest structural challenge for Western Europe’s automotive companies is the high cost of and competition for software and R&D talent,” states the report.

The figures back up this claim, given that software development in the automotive sector is expected to grow by 13% over the next half a decade, which will increase the year-on-year demand for software engineers by 6%. Not surprising, given cars nowadays are more software than hardware: a modern high-end car features an estimated 200 million lines of code.

The new profile of automotive R&D talent is comprised of expertise in robotics, advanced industries, software development, and data science, among other capabilities that were once the domain of high tech.

The lack of talent to meet demand is not just unique to the automotive sector, but is a product of an overall skill gap in the information communications technology space. McKinsey reports that the number of vacant ICT positions in Western Europe jumped by a stellar 43% between 2016 and 2018.

Competition for talent is less intense in CEE due to fewer top engineering employers

Unlocking CEE’s talent

The authors recommend automotive players to look eastward for their talent demands, as they did in the past with manufacturing, for a variety of reasons. To start, there is an abundance of talent in the region, which can be leveraged for much lower costs than in Western Europe. According to the analysis, there are more than 6.5 million ICT specialists in the CEE region, as compared to for instance the 8 million in Germany.

R&D-related salary costs, meanwhile, are as much as 60% lower than that in Western Europe. The gap translates to €40,000 less in the CEE for each employee per year. A number of automotive companies have recognised this already, and have already built entire R&D technology centres in countries such as Ukraine, Bulgaria and Romania.

Further, at present, less than 2% of CEE’s workforce is engaged in an R&D job, leaving considerable room for automotive companies to swoop in. An added benefit is that economies in the CEE region have a reliable infrastructure when it comes to connectivity by air, road or rail. Lastly, governments in the CEE region are looking for foreign investment, and are likely to welcome automotive companies.

Business R&D activity did not follow a similar growth pattern to automotive manufacturing, leaving further potential for growth

Alongside the benefit to automotive companies from moving to the CEE region, McKinsey believes that unlocking CEE’s talent potential will also have a positive impact on the automotive sector of Europe as a whole vis-à-vis the global market. The shift will drive overall economic growth in the region, while building talent on the continent and making it a hub for advanced automotive technology.

Planning for the transition, meanwhile, must take place at a C-level according to McKinsey, as “they can consider clear actions related to the identification of appropriate R&D activities, the selection of the right CEE location, and initiating the setup in the region.”

In related McKinsey automotive news, the firm found that the global automotive industry is pouring billions into mobility companies across ten main segments (led by e-hailing and autonomous vehicles technology) as they anxiously prepare for the years to come.


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