The NSE market in France

Performance
Shannon M 11 September 2020

1 - The NSE market today

Who are they?

Digital Service Companies (DSCs), formerly IT services companies, are companies specialising in the new information and communication technologies (NICT) sector. They put the digital skills of their employees at the service of companies in the digital transition phase that do not have the internal resources to go digital. NSEs are a major player in the management of change in companies.

They differ from software publishers who simply offer to create software solutions adapted to their clients' needs. The activity of NSEs is similar to that of consultants in New Information and Communication Technologies: IT consulting.

The growth of NSEs

NSEs have been growing rapidly since the early 2000s. The last few years in particular. Their growth rate was 3.3% in 2018 and 3.1% in 2019, according to a study conducted jointly by Syntec Numérique and KPMG. The sector's turnover reached €57.8 billion in 2019. This constant growth is reflected in the number of employees in the sector, which is close to 200,000.

These digital services consultancies are taking advantage of the growing need for digitalisation among companies. Thus, 56% of French companies see digital transformation as an "opportunity". This means an opportunity to lower costs, to reduce the time spent on data entry or on sharing information within the company.

In addition, there are profound changes in management processes, linked to the growth of digital technology. All these factors create a favourable context for the development of NSEs, whose main clients are SMACS (Social, Mobile, Analytics, Cloud, Security), followed by banking, insurance and professional services.

2- The war for talent: a challenge for NSEs

The skills of the employees

The added value of an ESN lies in the technical skills of its employees. But also the computer programmers and engineers who are the only ones capable of putting in place the digital tools that meet their clients' needs.

The scarcity of profiles and the war for talent is one of the main challenges facing NSEs. According to Syntec Numérique, "the obstacles to the development of NSEs are not on the demand side, but rather on the supply side of skills". Consequently, recruiting and retaining talent is a key factor in the development of IT services companies. In this context, the rise of freelancers is an opportunity, as it offers more flexibility.

High employability

This just-in-time job market gives computer programmers a very high level of employability today: 86% of NSEs offer a permanent contract as a priority, rather than a fixed-term contract or freelance status. This reflects a need to secure their employees. 75% of IT service companies say they have had difficulty finding suitable candidates for the latest positions they have offered.

This makes it difficult to meet the sector's target of 100,000 new hires over the next three years. This would bring the total number of NSE employees to 300,000 by 2022.

What impact?

This race for talent has a direct impact on the development strategies of digital transformation consulting firms. They are redoubling their efforts to win the battle for talent. External growth strategies are the first to be influenced, as a consequence of this need. According to Syntec Numérique, 51% of the takeover of a competing ESN is motivated by the acquisition of its developers (this figure rises to 60% for SMEs), and only 31% by the acquisition of its client base.

In addition, digital service companies are constrained by low margins, which average 15% compared to 24% for the non-financial services sector as a whole. As their business is directly linked to the amount of talent placed with their clients, project volume, and therefore the recruitment of new talent, is the main way to increase their revenue and profit.

However, the issue of optimising the management of IT service companies is increasingly being raised as a means of increasing margins. Indeed, in the face of difficulties in recruiting new staff, issues such as optimising the workload of existing programmers and reducing the time spent on non-billable tasks through the automation of recurring tasks is becoming a real issue. Management solutions that address this need for optimisation are beginning to emerge.

Another obstacle for NSEs?

Finally, data protection is another obstacle to the development of NSEs. Clients are increasingly sensitive to this issue, and may be wary of a complete digital transition, for fear of seeing their data corrupted or hacked. This caution, which is also justified, implies increasing customer demands in terms of data security, which is pushing French NSEs to optimise the management of their activity.

3- The challenge of the internationalisation of French NSEs

A subject that is still not widely discussed today is the degree of internationalisation of French NSEs, which remains very low compared to their European competitors. According to the overview drawn up jointly by Syntec Numérique and KPMG, French NSEs generate an average of 18% of their turnover abroad, and this share falls below 10% when we talk about SMEs and ETIs.

While this can be explained by the steady growth of the French market, it is still lower than the global average growth of the sector. The added value that internationalisation represents for NSEs does not seem to be fully taken into account by the former IT services companies, since the Syntec Numérique and KPMG study shows that the majority of French NSEs consider France to be the most promising market.

What are the advantages of internationalisation?

For an IT services company, exporting abroad is first and foremost a response to the major problem facing NSEs: talent recruitment. Indeed, the fact of setting up in a new market allows Digital Services Companies to integrate into a new pool of talent, and thus increase their chances of finding the rare pearl.

This first advantage leads to another: since the performance of NSEs is, to a certain extent, proportional to their size, increasing the number of employees by setting up abroad, and thus benefiting from a larger pool of talent, makes it possible to reach critical size more quickly.

Finally, if the French digital transformation market is indeed buoyant, foreign markets are at least as buoyant. Indeed, the sales of German NSEs, for example, represent twice those of their French counterparts. So why not take advantage of the market in this neighbouring country, while enjoying the benefits of internationalisation mentioned above?

Some seem to have understood this, since despite its weakness, the degree of internationalisation of French NSEs has increased significantly since 2017. It is motivated at 68% by the support of a current client in its strategy of setting up abroad.

The problem posed by internationalisation is similar to the one currently posed by the increase in the number of remote employees: how can the projects of an ESN be managed efficiently from a distance? Indeed, it is already more and more time-consuming to have a good visibility on resource planning and the projects in progress of one's collaborators when they are in France, working from home, so internationalisation can wait until tomorrow... right?

Are you interested in these issues? Would you like to know more about the management solutions of your ESN? Take a look at here.