Portugal: The Silicon Valley of Europe

Klaus Straub, Management Consultant and Executive Advisor

A country famous for its rich history, beautiful beaches and top gastronomy, Portugal today is raising its profile as one of the world’s fastest-growing tech ecosystems.

Dubbed the Silicon Valley of Europe, the Iberian nation is home to a large tech talent pool much sought-after by organisations struggling with the skills gap. It is also attracting European companies and entrepreneurs looking to nearshore their operations and take advantage of Portugal’s thriving tech scene and welcoming culture.

One of the companies that has chosen Portugal for its operations is xelerate.tech, a Portuguese-German digital transformation start-up founded in 2020 by ex-BMW Group tech veterans Klaus Straub and Martin Zierheim. The company specialises in building and scaling innovative tech hubs in Portugal and helping companies increase their internal software development capability.

Straub first fell in love with Portugal during his tenure as Group CIO at BMW, a role he held from 2014 until 2020. As CIO of the automotive giant, Straub launched the ‘100% Agile’ initiative aimed at accelerating BMW’s digital transformation, which at the time was lagging in the industry. The initiative entailed a huge operation to merge the automotive and corporate IT functions and transition its software engineering development from waterfall to agile.

“This is normal for big corporates,” Straub continues. “In many companies up to 75% of the IT workforce is outsourced to consultancy and IT services firms such as Accenture, Capgemini, etc. ”This is not healthy in an agile world with fast development cycles and continuous need to adopt to latest customer demands.” 

In contrast, the in-house software engineering capacity in big tech companies like Apple or Microsoft comprises around 98% of the IT headcount. The classical industry branches do not need to go as far as that. To drive a sustainable digital transformation, companies must expand dramatically the internal software engineering teams. To ensure that the creation of new digital business models is successful, he adds, this agile transformation will happen as a joined-up company approach that bundles all competences and processes, rather than restricting it to corporate IT functions.

Portugal has 32 tech universities

Key to the increase of the internal capacity plan is the creation of new software engineering hubs that propels the corporate SW engineering competencies. The question, however, is where to locate these hubs. Although in his time at BMW’s headquarters in Munich, tech talent in Germany is scarce and highly in demand

“As we have great European tech talents we wanted to focus on nearshore locations in Europe.” Straub says. “It was six years ago, when I went to the Web Summit in Lisbon, that I got the feeling that Portugal was going to become the Silicon Valley of Europe.”

Straub’s gut instinct proved right: Portugal’s excellent infrastructure, with frequent direct flights to all major EU cities, socio-economic stability, government incentives, and large tech talent pool, is making it a preferred nearshoring destination for companies such as Mercedes-Benz, Bosch or Oracle but also local tech unicorns.

The main incentive that moved Straub to locate BMW’s software engineering hub, and later xelerate.tech, in Portugal was the huge tech talent offer. The country has the second highest rate in tech graduates per year in Europe and 32 tech universities, most of them concentrated in the north: “It’s like a software engineering cluster,” Straub tells CIOmove.

Although their former employer decided to base its software engineering team in both Lisbon and Porto, Straub and Zierheim opted to focus exclusively in Porto for xelerate.tech’s operations.

Martin Zierheim, CEO of xelerate .tech

Zierheim explains why: “Lisbon, as the capital of the country, is very international. Porto is a different city, it feels cosy and familiar. You don’t have the fancy skyscrapers but it has a special soul and you feel very connected to the people. I think in Porto people are more open and interested in having real conversations beyond small talk and touristy stuff.”

“At the beginning we thought that Lisbon was more appealing because it has better infrastructure and there are three flights daily from Munich,” adds Straub. “However, we clearly see that Porto is coming and already ranks 3rd in Financial Times top European cities of the Future

Zierheim and Straub are not alone in thinking that Porto is the ultimate destination for tech entrepreneurs: 10 tech unicorns have offices in the city, and almost 2,000 tech companies are headquartered there.

Although government and EU incentives were important at the time of choosing Portugal for nearshoring xelerate.tech’s operations, both executives claim that the main driver was the support from the authorities to facilitate tech talent access through initiatives such as the digital nomad visa or user-centric digital public services that are appealing to young graduates. Similar cultural characteristics to the rest of its European neighbours, as well as widespread use of English, were also important factors in this choice.

“Unlike other European countries, Portugal realised at a very early stage that tech and digitalisation are key elements for future growth,” Zierheim says.

Straub concludes: “Compared to countries like Germany, in Portugal there is a whole ecosystem supporting tech growth, including government and universities. They are fostering this whole transformation to attract young tech talent to work and live in Portugal, and that’s very encouraging.”

A contribution by Cristina Lago, former community editor at CIO UK, appearing at CIO events, the CIO 100 awards program, and case studies and profiles for the CIO UK Edition.