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Home » Can CFD brokers still outsource to Eastern Europe?

Can CFD brokers still outsource to Eastern Europe?

August 29, 20238 Mins Read Newsletters
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We have a new podcast episode out, this time with Mitto Markets founder Tim Sunderland.

I hesitate to say that this is the best one so far as (i) all our guests have been amazing and (ii) I don’t want to inflate Tim’s ego.

But we do cover a lot of interesting ground, looking at what it’s like to start a broker with minimal funding under an FCA licence, the growing popularity of options trading, demand for high touch services, the benefits of offering a mix of products, how to compete when you’re a small provider in a hypercompetitive tier-1 region, fundraising, getting institutional business and more. We even talk about TikTok marketing, a medium which seems to attract a worrying number of middle-aged Brits with lots of money.

You can listen via the links below…

Listen on Apple Podcasts
Listen on Spotify

And now on to this week’s programming…

Is Poland still a good location for CFD providers?

A couple of months ago I went to an event for investors in emerging markets. It was a fun day (if you’re interested in that kind of stuff).

Something that struck me during one of the presentations was a point on the rise of the former Eastern Bloc countries, namely that those that are currently EU member states are likely to see their living standards rise to be on par with Southern Europe in the next 10 – 15 years.

Poland is nearly always the stand out performer in this regard and GDP growth has averaged about 4% annually over the past two decades.

It has also been a popular place for CFD providers to outsource work. This is typically for back office roles or software development. For example, IG Group, OANDA, and Capital.com all have large offices in Poland. In fact, Capital’s largest office, in terms of employee numbers, appears to be its Polish one.

As with other companies in the financial services and tech industry that have outsourced or built offices in Poland, the primary motivator for these firms was monetary. It was much cheaper to employ people in Poland than it was in the UK or other wealthier countries.

Clearly on a high level there is still a gap between what you can pay someone in Warsaw compared to London. But seeing that presentation made me wonder – is that benefit as pronounced as it once was?

Polish average monthly wages have increased by about 71% over the past decade – roughly coinciding with when IG opened its office there. In contrast, UK wages have only gone up by 21% in that time.

Another factor that I thought might be at work here was a cutting off of labour supply because of Russia’s invasion of Ukraine.

Aside from Poland, Russia, Belarus, and Ukraine were perhaps the most popular places for companies operating in the CFD industry to outsource development work too. Sanctions mean the first two are no longer easy to access and the latter is in a state of total war, so presumably not the best place to go for hiring workers.

In theory, this would mean a cutting of supply and a resultant bump in salaries for tech workers in markets like Poland.

Unfortunately for us it’s not easy to actually measure this by looking at company accounts. IG Group is the only public firm of the three mentioned above and it does not segment its costs by country. In other words, you can’t see what proportion of its wage bill is taken up by the Polish office relative to a decade ago.

However, speaking to some executives in the industry, it appears that the wage increase phenomenon among software developers is real, but not exactly for the reasons I had anticipated.

“You already had a slow build up because of Brexit, which meant companies opened their EU office in Poland, and then interest rates being so low was leading to lots of VC investment that pushed up wages,” said Michal Karczewski, CEO of Match-Trade Technologies.

“But the real driver was the pandemic. Suddenly you had all these Silicon Valley companies that realised they could hire people anywhere to work remotely. So developers were being offered more than double what they were previously. Many of them started taking on multiple jobs as well. All they had to do was arrange their morning meetings to be at different times. Some people were making crazy money, like over PLZ 100,000 (£19,000) per month.”

This aligned with another executive I spoke to, who was running a small tech company in Poland until 2021. He noted that the pandemic effectively wiped out his business because of the reasons described above.

“It really kills me to think about it actually,” he said. “At that time we were seeing some early signs of growth but then pretty much everyone that worked for me on the dev side got amazing offers elsewhere that I couldn’t match. Then replacing them became impossible for similar reasons, right? I couldn’t even hire a low level grad because other companies were offering them crazy money.”

Where to outsource?

Assuming Poland is too expensive, or may become so in the not too distant future, then what are the alternatives? As noted, many tech firms previously had offices in Belarus, Ukraine, or Russia.

In a previous issue of this newsletter I noted that, after visiting Georgia / Armenia last year, it seemed as though a remarkable number of Russian men under the age of 30 had suddenly become big fans of khachapuri and khinkali and were thus flocking in large numbers to Tbilisi, the Georgian capital.

But being serious, both Georgia and Armenia are adjacent to Russia and allow its citizens to enter visa free. Georgia has a particularly generous policy and allows people from almost any country in the world to stay for a year without applying for a visa. From what I understand, this resets any time you leave the country and re-enter as well.

So perhaps unsurprisingly some of the larger tech companies have opened offices in the Georgian capital and moved employees there. B2Broker released a video of theirs at the start of this year.

Devexperts did the same when they opened an office in the city at the end of last year. They actually seem to be in the same building, so I guess they can awkwardly ignore each other in the lift in the morning. One other tech provider also appears to have set up a small entity in the Georgian capital too.

Yerevan does not seem to be as popular as Tbilisi. My guess is this is primarily due to visas or even just geographical proximity – you hit Georgia before Armenia if you drive out of Russia.

However, this is for companies moving employees from one place to another. But Yerevan – a city this author thoroughly recommends visiting – is becoming a more popular option for outsourcing in general.

For example, Exinity, the group company that operates Alpari and FXTM, appears to have a small office there, primarily for back office functions. Equiti has a software development team in the country and is even regulated by the country’s central bank.

IronFX also seems to have developers and some people in back office functions based there, as does IFC Markets. Several other brokers and tech firms appear to either have a small office or remote workers operating from Armenia as well.

But perhaps the most surprising information uncovered in speaking to executives for this article is how Ukrainian offices still seem to be up and running, albeit with the caveat that there are occasional disruptions to service.

Even then there are ways around the problems. For example, an executive at one technology company I spoke to noted that their development team is still operating as they were prior to the start of the war. They have even brought in generators to ensure that they aren’t subject to the blackouts that have become a part of life in the country.

And lots of developers have actually been looking for work in Ukraine. This is because many of them were working for international companies prior to the war starting. As these firms pulled out of Ukraine, developers were left without jobs.

However, this has not stopped Match-Trade from starting to hire developers in the country. Karczewski noted that, although the market for Polish developers has improved, it is still pricey and hard to find good people. His firm turned to Ukraine as a result.

“As you’d expect we were a bit unsure of how viable it would be to hire people there at the moment,” the Match-Trade CEO said. “But I got speaking to someone who had worked in a senior HR function in the industry previously. We ultimately hired this person to manage things and within a month of doing that we had 10 really good software developers working for us.”

Many of the drivers underpinning the changes we’ve looked at are obviously extremely sad and, in an ideal world, wouldn’t have happened. But even allowing for geopolitical machinations, the Polish example shows that slow change can make previously attractive outsourcing options less appealing than they once were. China, in a different context, is experiencing something similar for manufacturing, which is why firms are moving to places like Vietnam and India instead. As those changes occur, firms will have to adapt.

capital.com IG Group Match-Trade oanda Poland
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