Nearshore Americas
talent recruitment nearshore

Clients Who Hire IT Talent Directly Face Higher Risks, But Some Don’t Mind

Things are heating up in the mad scramble for software engineers in the Nearshore. Lately, recruiters and staff-augmentation firms that operate in Latin America and the Caribbean have noticed a new competitor making bolder incursions into their home turf, snatching talent away with juicy job offerings. The new player? Their own clientele.

Staff-augmentation firms are among the main facilitators for foreign companies seeking to outsource IT jobs to the Nearshore. They do the heavy lifting when it comes to recruiting, compliance and talent management, saving their clients from the many potential headaches that come with remotely employing people from another country.

Nonetheless, their clients are experimenting more and more with fishing for talent directly, usually through platforms like Torre and Telescoped in which engineers are hired under a gig worker or freelancer scheme.

Mario Chaves, President of the Americas region at Encora

“Before, companies would search for partners that would help them build and manage their Latin American teams. Now, many are choosing to hire Latin American teams just like they do with their teams in the San Francisco Bay Area, which can be made up of people from Berkeley, from San José or even from Napa Valley,” said Mario Chaves, President of the Americas region at Encora, in an interview.

Though the practice isn’t new, companies like Encora and Mexican firm Scio Consulting have noticed an increase in the trend from the later part of 2021 onwards. Skepticism around the ability of clients to sustainably recruit and manage talent is well-founded. Clients frequently lack a ‘local sensibility’ that could lead them into difficult contractual and cultural complications which, over time, could not just negate savings, but create more risks for their company.

Colorado-based software provider CSG, for example, works with staffing firms to source engineers from Latin America, but it recently posted a job offering in Torre for a senior Software Development Engineer residing in Colombia. While it is common for jobs posted in the platform to offer hourly wages with flexibility as the major (and sometimes only) perk, CSG promises a monthly wage, plus health insurance and bonuses.

According to CSG, they’re going direct in an attempt to give their remote workers more freedom and flexibility.

“When we hire directly, our people get to experience firsthand our flexible-first philosophy, which empowers every CSGer to learn, create and grow their career, while having the freedom to make personal choices that best fit their home and work lifestyles,” said the company in a written statement to NSAM. “In this way, we have designed an experience based on our values and these values would be difficult to embody effectively through a third party.”

Their partners in the Nearshore believe that it comes down to a more simple reason: costs. Remote work opened the gates, but now it has become a matter of cost versus convenience, pointed out Luis Aburto, Scio’s founder and CEO. With labor costs increasing, the startup ecosystem shrinking and the threat of recession looming over the US economy, American tech companies will try whatever helps them avoid falling in the red.

“Instead of paying for an all-included model, they [clients] prefer something more specific, cheaper”—Mario Chaves

This is particularly true for companies who want to hire smaller teams, Chaves pointed out. To them, partnering with recruiters in Latin America might look like an unnecessary expense given the option of hiring directly.

“For those who work with relatively small teams, the solution is finding a platform that facilitates that process and going direct,” he explained. “For many companies, the costs [of hiring a staff-augmentation firm] are too high. Instead of paying for an all-included model, they prefer something more specific, cheaper.”

This Town is Actually Big Enough

Even though the trend of direct hiring  by clients is noticeable, staff-augmentation firms don’t seem particularly worried about what that could mean for their business. The demand for IT services is still booming, which translates into a higher demand for talent in the region, which translates to more clients knocking on their doors.

Luis Aburto, Founder and CEO at Scio

“I haven’t seen a lowering of demand for our services necessarily,” said Luis Aburto to NSAM. “This is not a competition for services. I would say the effect we see is on the race to acquire talent.”

Anurag Kumar, Managing Director of Nearshore Operations at Improving, dismissed the danger too. In his view, staff-augmentation will remain a valuable service even as North American clients –even the smaller ones– try to cut costs.

“I think it is harder than people might 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 that took place at this year’s Nexus conference. “I don’t see them [the talent pool] shrinking, I don’t see any of our companies shrinking. The demand is so high that people will try multiple options. There is no crisis as far as direct hirings is concerned.”

High demand doesn’t mean that everything will stay the same, though. The IT talent crunch is still going strong worldwide, forcing companies to step up their game when hunting for software engineers, whether that be in their home turf or in the Nearshore. That includes offering more competitive salaries, which is pressuring everyone in the hunt for talent. Aburto mentioned that, lately, Scio has been forced to increase wages in their job offerings.

“This is not a competition for services. I would say the effect we see is on the race to acquire talent”—Luis Aburto

Should Anyone Be Afraid?

Firms like Scio and Encora have little to worry about, even though their own clients are now jumping into the race for talent in the Nearshore. Aburto assured that was the case, even when he shared that Scio lost at least one client to the trend of direct hirings.

Both him and Chaves showed confidence not only in their own companies, but in the very nature of their clientele. Scio and Encora service mostly clients who work with teams that are either mid or large-sized, which means that they are willing to pay extra for the staff-augmentation added value package to avoid the hassle.

Nevertheless, having the clientele hunting in the same territory could mean trouble for companies who deal with smaller clients.

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“I would say that companies with clients that are mostly mid or small-sized should be worried”, warned Chaves. “Once a client realizes that there are more options to build their own team directly, I can see this trend increasing.”

This will add to the mounting pressures of the IT talent crunch. Though some industry players see the landscape stabilizing by the end of the year, they have no illusions of the race getting less crowded or any easier.

Cesar Cantu

Cesar is the Managing Editor of Nearshore Americas. He's a journalist based in Mexico City, with experience covering foreign trade policy, agribusiness and the food industry in Mexico and Latin America.

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