Customers are now competitors in the hunt for nearshore IT talent
Things are heating up in the mad rush for software engineers in the Nearshore. Lately, recruiters and augmentation companies operating in Latin America and the Caribbean have noticed a new competitor making bolder inroads into their own turf, snatching up talent with juicy job offers. The new player? their own clientele.
Staff augmentation companies are among the main facilitators for foreign companies looking to outsource IT jobs to the Nearshore. They do the heavy lifting on recruiting, compliance, and talent management, saving their clients many of the potential headaches of employing people from another country remotely.
Nonetheless, their clients are increasingly experimenting with direct talent angling, typically through platforms like Torre and Telescoped where engineers are hired through a work-on-demand or freelance program.
“Before, companies were looking for partners who would help them build and manage their Latin American teams. Now many choose to hire Latin American teams like they do with their teams in the San Francisco Bay Area, which may consist of people from Berkeley, San Jose or even Napa Valley,” said Mario Chaves, president of the Americas region at Encora, in an interview.
Although the practice is not new, companies like Encora and Mexican company Scio Consulting have noticed an increase in the trend from the end of 2021. Skepticism about the ability of clients to recruit and sustainably manage talent is based. Clients often lack a “local sensibility” which could lead them to difficult contractual and cultural complications that, over time, could not only negate the savings, but create more risk for their business.
Colorado-based software provider CSG, for example, has experimented with a hybrid hiring model. CSG works with staffing companies to recruit engineers from Latin America, but recently posted a job offer in Torre for a senior software development engineer residing in Colombia. While many jobs posted on the platform offer hourly wages with flexibility as the main (and sometimes only) benefit, CSG promises a monthly salary, plus health insurance and bonuses.
According to CSG, they are going straight to try to give more freedom and flexibility to their remote workers.
“When we hire directly, our employees experience first-hand our flexible philosophy, which allows each CSGer to learn, create and grow their career, while having the freedom to make personal choices that best suit their style. home and work,” the company said in a written statement to NSAM. “In this way, we designed an experience based on our values and those values would be difficult to effectively embody through a third party.”
Their Nearshore partners believe it is for a simpler reason: cost. Remote work opened the doors, but now it’s become a matter of cost versus convenience, pointed out Luis Aburto, Founder and CEO of Scio. With rising labor costs, a shrinking startup ecosystem, and the threat of recession looming over the U.S. economy, U.S. tech companies will try anything to help them avoid falling into the doldrums. red.
“Instead of paying for an all-inclusive model, they [clients] prefer something more specific, cheaper”—Mario Chaves
This is especially true for companies that want to hire smaller teams, Chaves pointed out. For them, partnering with recruiters in Latin America may seem like an unnecessary expense given the opportunity to hire directly.
“For those working with relatively small teams, the solution is to find a platform that makes this process easy and go straight,” he explained. “For many companies, the costs [of hiring a staff-augmentation firm] are too high. Instead of paying for an all-inclusive model, they prefer something more specific, cheaper.
This town is actually quite big
Even though the trend towards direct hiring by clients is noticeable, augmentation companies don’t seem particularly worried about what it might mean for their business. The demand for IT services is still booming, which translates to higher demand for talent in the region, which translates to more customers knocking on their door.
“I haven’t necessarily seen a drop in demand for our services,” Luis Aburto told NSAM. “This is not a service competition. I would say the effect we see is on the race to acquire talent.
Anurag Kumar, managing director of coastal operations at Improving, also dismissed the danger. In his view, staff augmentation will remain a valuable service even as North American customers — even smaller ones — try to cut costs.
“I think it’s harder than people think [hiring a small team]. It’s never five programmers; a five-person team is probably a ten-person team,” he commented during a panel at this year’s Nexus conference. “I do not see them [the talent pool] decline, I don’t see any of our businesses shrinking. The demand is so high that people will try several options. There is no crisis when it comes to direct hires.
However, high demand does not mean that everything will stay the same. The shortage of IT talent is still strong around the world, forcing companies to step up their game when looking for software engineers, whether in their own territory or in the Nearshore. This includes offering more competitive salaries, which puts pressure on everyone in the hunt for talent. Aburto mentioned that, lately, Scio has been forced to raise salaries in his job postings.
“This is not a service competition. I would say the effect we see is on the race to acquire talent”—Luis Aburto
Should anyone be afraid?
Companies like Scio and Encora need not worry, even if their own clients are now vying for talent in the Nearshore. Aburto ensured that was the case, even when he shared that Scio had lost at least one client due to the direct-hire trend.
He and Chaves have demonstrated confidence not only in their own businesses, but in the very nature of their clientele. Scio and Encora primarily serve customers who work with medium to large teams, which means they’re willing to pay extra for the value-added staff augmentation package to avoid the hassle.
Nevertheless, having the customer base chasing the same territory could spell trouble for businesses that deal with smaller customers.
“I would say that companies whose customers are mostly mid-sized or small should be concerned,” Chaves warned. “Once a client realizes there are more options to build their own team directly, I can see that trend increasing.”
This will add to the growing pressures of IT talent shortages. Although some industry players see the landscape stabilizing by the end of the year, they have no illusions about a less crowded or easier ride.