Nearshore Americas

Is Prevalent Poaching Going to Turn Latin America into Another India?

Last year when the US Department of Justice brought to light anti-poaching agreements between tech giants Apple, Google, Adobe, Intel and others, it seemed like the first time this issue was seriously considered in the tech industry. But the fact is that poaching or ‘employee raiding’ has been a prevalent practice for some time now, and can have disastrous consequences on a company’s growth.

Especially for certain Latin American markets whose economies have grown rapidly, but whose labor pools have not kept up, poaching is a volatile issue, leading to some firms thinking of pulling out and moving to less competitive locations. Will Latin America see the same attrition problems that India now faces?

 

The Indian issue

 

We’ve all heard of Indian churn rates close to 40% (that’s a conservative estimate for some of the larger cities). The high attrition and increased competition for talent is now creating a wage spiral upwards, as companies try any means to attract the most skilled workers. And sometimes when taken too far, it can be downright embarrassing, as in the recent case of Cognizant. A mid-sized Indian tech firm HOV Services filed a law suit in January alleging that Cognizant took illegal steps to recruit its employees, including accessing their salaries, bonuses, production efficiencies and even customer project names. While this case may be atypical, it reflects the kind of atmosphere that Indian providers are working in. Tech firms are constantly monitoring their employees to make sure they don’t suddenly pack up and leave to join the competition.

So why does employee poaching happen? Simply because it’s easiest way to find skilled employees, with the added benefit that they have already been trained. “The companies early to a market often need to make a disproportionate investment in building basic skills, work-specific skills, and raising the experience level of their employees,” says Michael Corbett, Chairman of IAOP. “These employees then become an attractive and potentially less expensive talent pool for the companies that subsequently enter the market.” While every destination faces a certain amount of attrition as its sourcing industry develops, widespread poaching is something that really makes a location unsustainable for companies to operate in. It’s happening in India, and the worrying thing is, we’re starting to notice it in certain LatAm markets as well.

 

Not seeing the forest through the trees

 

Colombia is one of those markets. With an IT offshore industry that has exploded in recent years, Bogotá is now host to many new US companies, all vying for the same pool of technically trained workers. “People working for us get unsolicited calls every week,” says DJ Edgerton, CEO of Zemoga. “Headhunters make enquiries specifically on Mondays (the start of the week when no one wants to come to work), and Fridays (when we usually have deadlines or projects due).” According to him, it’s always the new companies that are setting up in Bogotá, and trying to rapidly scale up.

It’s important to realize that employee poaching is not illegal, or even necessarily unethical. But it is bad business practice – for one simple reason. When firms offer to double employees’ wages in order to attract them, it sets unsustainable wage expectations in the local labor force. Offshore work always carries with it some risk, but that risk is usually outweighed by the main driver for sourcing, which is cost reduction.

When firms have to pay Latin American workers the same amount that they would pay back home in the States (or even 15% less), the risks suddenly start to outweigh the benefits. “The new firms engaging in these practices are not seeing the forest through the trees when they impact the labor market like this. Salaries here have increased nearly 50% in the last three years,” says Edgerton. “Businesses will begin to look at other locations, and I am beginning to look elsewhere in the country.”

Handshake agreements

 

One discussion thread on the Nearshore Nexus LinkedIn group is specifically about the feasibility/attractiveness of establishing friendly agreements between companies, that prohibit them from poaching workers from each other. A great example of this in practice is the Guatemala Contact Center Commission, in which executives from the major call center companies meet regularly to discuss ways to reduce employee raiding, and to cooperate on other workforce related issues.

Another example is the Indian tech association NASSCOM which “issued an Ethics Framework for the IT industry late last year that sets out guidelines for hiring. Those guidelines include a suggestion that companies ask new hires to gain ‘final clearance’ from their current employers before starting a new job,” according to SiliconIndia News.

However these handshake agreements have their downsides, as Guatemala City is now experiencing. “Since all these companies had anti-poaching agreements, there was much less competition, and they didn’t have to work to keep employees happy,” says Estuardo Robles, Business Development Analyst at Zagada Markets, and one of the architects of the above-mentioned contact center commission in Guatemala. “The rule was if an agent left a company, he couldn’t be hired by another for at least six months, which meant that they remained unemployed for some time. As a result, many workers just left the call center labor force and didn’t come back.”

 

All this to say, a free labor market and healthy competition for workers between companies is critical to the development of a country’s offshore industry. Employee poaching may always be part of that, as a basic result of supply and demand. But the fact is that it compromises long term sustainability for short term results. As Edgerton says, “businesses have to understand that we need to be slightly concerned about the greater good.”

Tarun George

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