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Editor’s Note: This is the second in a four-part series on the history, current state, and moral implications of outsourcing for tech companies. In the first part, we looked at the history of foreign trade. Look for the next issue, tomorrow, on what business leaders need to remember to ethically hire abroad, as well as some compensation rules that tech companies can follow globally.
When Michael Araten At first he managed a portfolio of family-owned companies, including a construction toy brand K’NEXIt seems natural that most of the company’s growth will come internationally – in manufacturing and other office functions, including IT.
More on Araten in a moment: Most large companies developed a global workforce led by multinational corporations in the late 20th century as trade barriers and the costs of international travel declined. But it was rare for small companies to hire directly abroad for an obvious reason: building international offices was complicated and expensive. Until they got big, most companies’ only exposure to an international workforce was through outsourcing.
That’s changing — and fast. With the pace of remote work in the pandemic, many startup founders have said they are considering hiring anywhere without borders. (A joke several tech CEOs have told me: “I’d hire anywhere in the world except California.”
Small and early technology companies follow the titans of the technology industry. As the tech platform giants of this generation grow, they follow the common path of multinational companies before them.
More than 50,000 people are employed by the top 10 tech giants abroad, according to data firm Statista. Another report found that two-thirds of Fortune 500 companies have some international presence. Almost all large companies have some international exposure through some contracting firm with international talent.
The reason most growing technology companies work with IT outsourcing companies or hire globally is because they do a lot of things now: to combat the talent shortage.
That is well known – though Globalization may now be in retreat.. What’s new is the emerging wave of international remote work among companies of any size, which will forever reshape the local technology ecosystem.
The term outsourcing is synonymous with cost cutting, although it is actually meant to be a specialization function. Why build a help desk call center if it’s not your specialty and someone else can do it better and more cost effectively?
The reason most growing technology companies work with IT outsourcing companies or hire globally is because they do a lot of things now: to combat the talent shortage. Already in In 2019, before the pandemic began hiring, 45% of the 500 tech companies surveyed said this is why they are hiring abroad. He mentioned the opportunity to add new customers somewhat, but an informal focus group of tech CEOs I spoke to strongly emphasized that talent now overwhelms business development.
Outsourcing your company’s early software development to a third party to save costs still seems like an inefficient shortcut to take with many of the startup founders I’ve interviewed, but the requirements are changing. With proper control and clear focus, it can be done well. The lines are blurring further as companies hire directly overseas.
“It all seems possible now,” one tech CEO told me about hiring globally.
Shared in an email series earlier this year technical.lyTech leaders from one US city business found out which projects IT outsourcing firms are best for – and which ones are best when hired in-house.
“Prices are rising rapidly in many countries with traditionally low prices,” wrote one tech founder. “It seems that the epidemic has caused [this] to speed up dramatically”
Where are tech companies hiring globally?
As the Great Recession rocked economies around the world, Araton led a long-term transition to bring most of his family company’s manufacturing and office operations, including K’NEX, from China to the United States. They became a case study for what they call “re-shoring.”
The pandemic disrupted their business much less than other global companies.
“It was about shortening our supply chains and even the ‘traditional’ chain,” Araton said. “Technology firms are going to understand this, too.”
See how the war in Ukraine has disrupted tech companies with employees in that region. But Araton acknowledges that there are many factors that business leaders must consider. Manufacturing outsourcing has become synonymous with Asia, from Japan to Korea to China – although Africa may be next – not only for cost, but also for speed and specialization.
Tech companies looking abroad say the same thing.
Countries in Asia and Eastern Europe still represent 60% of investments, but Latin America is one of the fastest growing regions in the world for US companies to hire and provide technology.
It was once called a call center, called India The world’s IT powerhouse. In the year Since its inception in the 1990s, it has been the standard bearer of IT outsourcing, with well-trained, English-speaking labor coming in at low cost due to the high cost of living. In the year In 2004, the average salary of a Java developer in the US was $60,000, and in India it was only $5,000, according to an analysis at the time. Other regions of the world, particularly Eastern Europe, have laid the foundation for the collapse of the Soviet Union and its national investments in mathematics education.
According to SHRM analysis, countries in Asia and Eastern Europe still represent 60% of investments. But one of the fastest-growing regions in the world for US companies to hire and export technology is Latin America, along with Mexico and South America. Tech ecosystems are flourishing in the region’s cities, supporting a mature workforce and crucially, they are in the same time zone as Eastern Europe and India.
Outsourcing companies, research groups and business lobbies regularly cite the best places to hire technical talent. The main question is why you are hiring. If you’re planning to open up a partially new market for business opportunities, you need to have a good understanding of where your target customers are. If it’s just an effort to add to your team, it’s important how many people you actually plan to hire. If you want to open up your current roles to people from anywhere, discuss the implications with your payroll and account provider.
“If your needs are small enough, it doesn’t matter where you go,” says Dershowitz. “If you’re hiring five or 20 people, it’s different than hiring 1,000. For most business leaders, you don’t need to follow trends.
If not, that is, if you care about the impact your hire has.
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Look for part three of tomorrow’s series answering the questions: What should business leaders remember to ethically recruit abroad? What are the simple rules for compensation that tech companies can follow globally?
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