Why are US tech giants flocking to Portugal instead of Eastern Europe for nearshoring?

The tech industry’s geography is shifting in ways that would have seemed unlikely just a few years ago. American software companies, venture capital firms, and engineering teams are increasingly looking westward to Portugal rather than eastward to the traditional Eastern European hubs that dominated outsourcing discussions for decades. This isn’t a marginal trend—it represents a fundamental recalibration of where tech work happens and why location suddenly matters differently than it did during the pandemic remote-work boom.

What’s driving this change goes beyond simple cost arbitrage. Portugal offers something more nuanced: a combination of European Union membership, favorable tax incentives, a young educated workforce, and cultural alignment with Western tech norms. For companies that spent the last few years learning that remote work has real limits—collaboration challenges, timezone friction, quality control issues—Portugal’s proximity to the US and Western Europe begins to look strategically intelligent rather than merely economical.

The phenomenon reveals deeper truths about how companies actually operate when they move beyond theoretical distributed models. Nearshoring has become the working term, but it’s really about finding that uncomfortable middle ground between the cost savings of offshoring and the operational smoothness of keeping everything in-house.

Why Eastern Europe Lost Its Advantage

For nearly two decades, Poland, Ukraine, Romania, and the Czech Republic built reputations as the reliable backbone of Western tech outsourcing. Lower wages, strong technical education systems, and an abundance of developers made the math simple. But the calculus changed after the pandemic forced a reckoning with how distributed work actually functions.

Timezone differences that seemed manageable with asynchronous communication turned out to be more problematic at scale. A developer in Bucharest working on critical infrastructure for a San Francisco firm creates a nine-hour gap that compounds across a sprint cycle. Add to this the geopolitical uncertainty—particularly post-2022 in Eastern Europe—and some companies began questioning whether they’d optimized for the wrong variables. They’d chased hourly rates and forgotten about operational risk, team cohesion, and the real costs of delayed problem-solving across continents.

Portugal, by contrast, sits in a single timezone that overlaps substantially with US business hours. A Porto developer can collaborate in real-time with a Boston team for a meaningful part of the workday. That proximity, however small it might seem, transforms daily workflows.

The Infrastructure Play: More Than Just Low Costs

According to OECD data on digital infrastructure and workforce development, Portugal has invested significantly in its tech ecosystem over the past decade. The country offers non-habitual resident tax status with substantial benefits for foreign workers and companies, EU regulatory alignment that simplifies legal operations, and a government actively courting tech investment through incentive programs.

What separates Portugal from other European alternatives is that these advantages come with European legitimacy. Hiring from Portugal means tapping into EU labor standards, data protection frameworks that don’t require workarounds, and a talent pool educated within Western institutional contexts. For companies dealing with regulated industries—fintech, healthcare tech, anything touching financial data—this alignment matters enormously.

The housing costs remain significantly lower than in Western Europe, yet the cities aren’t struggling with the infrastructure problems that can plague cheaper Eastern European options. Lisbon and Porto have functioning public transit, reliable internet, coworking spaces, and the basic professional amenities that make attracting talent feasible.

The Talent Pipeline Story

“Portugal’s advantage lies not in being the cheapest option, but in offering the best balance between cost efficiency and operational proximity to Western teams” – Tech sector analyst from Lisbon startup ecosystem

Portugal’s universities have modernized their computer science and engineering programs, and the country has become increasingly attractive to young European professionals seeking lower cost of living without sacrificing career prospects. A developer educated at a Portuguese university speaks fluent English, understands Western business practices, and can integrate into American company cultures more seamlessly than might be assumed.

Equally important: Portugal isn’t importing its entire tech culture from the US or UK. It’s developing its own startup scene, which means hiring local talent isn’t pulling from a depleted pool. The ecosystem has enough depth to support both outsourcing operations and indigenous innovation, preventing the brain drain that has affected some Eastern European countries.

The Often Overlooked Retention Challenge

One dimension that gets less attention in nearshoring discussions is employee stability. When a company opens an office or expands operations in a new location, retention becomes critically important. Eastern Europe’s talent drain—where engineers leverage experience gained at outsourced positions to move westward—represents a real cost that isn’t always captured in financial models.

Portugal presents a different dynamic. The country is increasingly seen as a destination rather than a stepping stone. People move to Lisbon to live there, not to use it as a career launching pad before relocating. This subtle shift in perception translates to lower turnover rates, stronger institutional knowledge, and teams that develop genuine investment in long-term projects.

The wage differential between Portugal and the US remains significant enough to be meaningful, but not so vast that talented developers feel systematically underpaid relative to their peers across the EU. That psychological balance—feeling fairly compensated without feeling exploited—shapes retention differently than in markets where the wage gap is more dramatic.

What Remains Unresolved in the Nearshoring Equation

The enthusiasm for Portugal shouldn’t obscure genuine uncertainties. The infrastructure is good but not perfect; internet reliability and power grid stability remain slightly behind Western European standards. More fundamentally, it’s unclear whether Portugal’s tech ecosystem can absorb the influx of international companies without disrupting the very attributes that make it attractive—affordability, authenticity, lower operational friction.

As demand increases, salaries will rise. The cost advantage will erode. The question becomes whether the other attributes—timezone proximity, EU membership, cultural fit—remain compelling enough to justify choosing Portugal over continued Eastern European partnerships or even cautious re-evaluation of remote-first models. Some companies are betting yes. Whether that bet holds as the ecosystem matures remains genuinely open.