Israeli high-tech cos look abroad when hiring

Wix Photo: PR

Shortages of software engineers and high salaries in Israel are pushing companies to Eastern Europe.

The home page of Tel Aviv startup Roundforest, which deals with the development of data technologies for improving the shopping experience of online consumers, leaves no room for doubt that the company aims to double its staff or more over the coming year. The declaration "We're hiring!" appears in prominently in the upper part of the website. In case you missed the exclamation mark, you will see it again, this time next to a long list of available jobs and an e-mail address for those interested. What positions are available? Just about everything: R&D manager, big data team leader, software engineers, systems analysts, designers, and marketers. Everybody is welcome.

Unfortunately, "Hiring a developer in Israel in the advanced technologies we work with is liable to take four or five months," says Roundforest CEO and founding partner Alon Gamzu, who founded the company in 2014, together with CTO Yonatan Loewidt. "We're a growing company that wants to reach 100 employees this year. If we wait that long for each developer, we won't get anywhere."

The provocative solution to this problem is overseas. Roundforest's 40 employees already include two from India and 15 more from Kiev. Judging by what Gamzu says, this trend will become stronger, with an emphasis on Eastern Europe, especially Ukraine.

"Not only is there a large supply of relevant professionals there; it is about the same time zone as Israel, and that's very convenient," says Gamzu. "They speak English and probably Russian, and we have employees here in Israel that speak that language, so it's convenient for working together. It's very easy to fly to them and invite them to us. It's only a three-hour flight, and the tickets are cheap. Their mentality is excellent, and the management culture is like in Israel. You want to know that the development guy is working, and you want to be able to trust him, because you're not supervising him with a magnifying glass all day. In India, on the other hand, you can ask the engineers to do something, and they don't always understand you, or don't always do it. In Ukraine, things are always done."

"Globes": Wasn't it a gamble on your part to employ people in Ukraine at such a distance?

Gamzu: "Almost everything we do is a gamble, and I must say that this was easy. The hiring process is like in Israel, and we have the same interviews for them. Just like not every Israeli employee is a good worker, the same thing can happen there. Their salaries are of course lower, and that's obviously gives a certain advantage, although when a company grows, the emphasis is usually on hiring excellent employees, even if their cost 30% or 40% more."

Eastern Peak Software founder and CEO Alexey Chalimov had no hesitations whatsoever. He moved the development of his company, which provides software development services to companies in Israel and worldwide, to Kharkov, Ukraine's second biggest city. He has been employing 100 engineers there for four years already, while the company has only five employees in Israel. Chalimov says he became aware of the infrastructure in Kharkov when he managed GetTaxi's business there.

"It's a lot easier and more worthwhile to employ engineers in Ukraine than in Israel," Chalimov says. "You don't find topnotch professionals easy anywhere in the world; you have to look for them. We know the market there very well, and we have a good reputation in the city. We can provide our customers with access to excellent engineers and developers at much lower cost. It costs $5,000 a month to employ a Ukrainian engineer , compared with $8,000-10,000 a month for an Israeli."

How do you manage 100 employees in Ukraine?

Chalimov: "I'm on the line, and I spend two weeks in Ukraine every month. Kharkov is a three-hour flight from Israel, and they also travel to Israel a lot for team meetings with customers. It's like a bus."

What is your answer to the argument that this kind of outsourcing is damaging to the Israeli market?

"Outsourcing doesn't damage the economy; it helps. It's the ultimate combination of both taking advantage of the Israeli brain and getting ahead and being able to compete with international companies. In my opinion, the future lies in the combination of both aspects. Israeli high-tech companies have to keep their local team, but every company has innumerable external tasks that can be outsources, because it's hard to find enough people in Israel , so it's a win-win situation."

Israel can't keep up with the pace

The two companies headed by Gamzu and Chalimov and the solutions they found in Eastern Europe are clearly only the tip of the iceberg. There is now a severe shortage of engineers and programmers in Israel. According to the Israel Innovation Authority (formerly the Office of the Chief Scientist), this shortage will grow to 10,000 engineers and programmers within a decade, and constitute a significant barrier to the growth of local high-tech companies and their ability to lead the international markets. The startup nation is galloping ahead, with thousands of companies being founded in Israel in recent years and many international companies having opened R&D centers in Israel. Together with this accelerated development and the large amount of money invested in the sector, however, where personnel is concerned, Israel is not keeping up with the pace.

Take SimilarWeb cofounder and CEO Or Offer, for example, who is trying to fill 80 available jobs in his company. "A lot of CVs are being sent to us, but the problem is that the people don't have the relevant experience we need," he says. "The Israeli market is tiny, and in order for the company to grow, it needs employees with experience. The shortage we're encountering in Israel isn't just programmers and engineers. It's also product managers and designers. In other words, there's a shortage of professionals in the entire sector. We've done everything we could to employ workers from Israel, including opening a development center in Nazareth, because it's hard to recruit in Tel Aviv. When there's no choice, though, you have to hire workers from overseas."

Founded in 2009, SimilarWeb specializes in gathering and analyzing online data and rating the digital world. The company currently has 350 employees: 250 in Israel and the rest in various places around the world, including London, New York, San Francisco, and Kiev, where 15 engineers work for the company. "In Ukraine, you don't have to pay personnel placement companies so much to find high-quality people," Offer says about the process. "I'm not trying to save money when I hire people in Ukraine or other countries. I want the most talented people. It's working very successfully for me right now, and we enjoy very much working with talented professionals in Kiev."

"The main shortage in personnel is in programmers," says Picaro: Hitech Recruitment CEO Orna Dreman. "It's obvious to the recruiting company that it's not the only one offering a job to the same candidate; there are two or three more offers. For their part, the companies are creating hiring methods with a lot of sale elements - from the recruiting coordinator to the team head. Everyone stresses to the candidate that their company has added value, and how the job will help him get ahead. Everyone in the company who meets him makes sure to give a sales pitch."

Employees are frequently hired through the social networks, and by the popular word of mouth method. Companies are willing to shower an employee with the best money and perks if he recruits a suitable employee to the enterprise. The amount varies from thousands to tens of thousands of shekels per employee, depending on the company and its policy. Other companies give their employees a weekend for a couple in a luxury hotel in Israel or a weekend in Europe, sometimes combined with a show by a famous performer, sports event, or ski holiday. The reward for recruiting an employee for job that is difficult to fill, called a golden job, is especially high. It was recently reported that Mobileye had allocated $10,000 for rewarding employees serving as recruiting agents who helped find an algorithm developer. At Intel, incidentally, the prize for recruiting a woman is double.

"Everyone is willing to pay a lot and grant options, so companies can stand out with softer things - promotion opportunities, a workplace that allows leisure, the option of working from home, and so forth," says Dreman. "The candidates being pursued can set very tough parameters. There are people living in central Tel Aviv who are unwilling to work in Ramat Hahayal or Herzliya, and vice versa. They want to work close to home and ride a bicycle to work."

What does the recruitment timetable look like?

Dreman: "As soon as the candidate begins a process, it becomes clear to the companies that they have to call him in for an interview within one or two days, or they'll miss out on him. Programmers in a job search process usually settle on a job in less than two weeks."

"We prefer to hire employees in Israel," Gamzu says, "but the supply of employees is small, and the competition for talents is very difficult. If there's an employee we want to hire, our assumption is that he also has offers from three or four other companies, and this is reflected in the candidate's demands and in very difficult negotiations. We have to be very quick and clear in our hiring. It's also hard with our current employees, who are receiving job offers from other companies. We opened an office in Jerusalem, and that's another way for us to solve some of the recruitment problems in Israel, but from our first day, we've also been employing software engineers and development personnel in Ukraine."

Much smaller profits

The above-mentioned companies are relatively small, but the trend towards hiring employees overseas also applies to the largest high-tech companies, given the shortage of personnel and the high salaries. A crude estimate gives a NIS 18,000-20,000 monthly salary for a beginning programmer in his first job. A programmer with 3-6 years of experience earns NIS 28,000-32,000, and especially talented people can earn NIS 40,000-50,000. The salary, of course, is accompanied by options and other perks. Salaries in Israel are considered especially high and comparable to those in the US. The cost of employing an engineer in Ukraine, on the other hand, is estimated at 30-40% less than his Israeli counterpart, and 50-60% less in India. While India was the main supplier of high-tech personnel to both large companies like Amdocs Ltd. (Nasdaq: DOX) and NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE) and startups in Israel in the past decade, Eastern Europe is now playing a major role in this aspect now.

Matrix IT Ltd. (TASE:MTRX), for example, has development centers in Bulgaria, Macedonia, and Ukraine. Wix.com Ltd. (Nasdaq: WIX), managed by cofounder and CEO Avishai Abrahami, which has developed a platform for setting up websites, has personnel in Eastern Europe. "You can't put all your eggs in one basket," explains Wix president and COO Nir Zohar. "We want a horizon and stability for the company, and it's hard to do that only in Israel, because the competition for personnel is very intense. We're also hiring in Israel, but the salaries are rising, competition is more aggressive, and players like Google and Facebook are entering the local market with endlessly deep pockets. They can pay a candidate whatever they want, and raise as much money as they want, even double the going rate. I pay a fair salary and give options and good terms to all the employees, but I can't pay them double."

Wix is an example of a company whose staff is growing by leaps and bounds. The company grew from 580 employees in 2013 to 1,100 in 2014 and 1,400 in 2016. The rise in the number of employees was not confined to Israel: it now has 1,000 employees in Israel and the rest in the US, Brazil, and Germany. The company has 100 employees in Lithuania and Ukraine: programmers, engineers, and product personnel.

Is the substantially lower cost of employing people in Eastern Europe also a temptation?

Zohar: "The motivation isn't to pay less and save money; it's to build a strong and successful company. There is enormous talent in Eastern Europe. They have excellent and strong professionals who very much want to fit into high-tech companies. It's working very well, and is successful for us."

Isn't it hard to manage from a distance?

"It's hard to manage employees from a distance, but if you want to build a big company, that's what you have to do. We have plans to expand both in Israel and overseas, and I say with complete sincerity that overseas expansion is not at the expense of Israeli employees. Were the supply bigger in Israel, we'd expand only in Israel, but that's not the case."

What do you think the solution is?

"There's only one solution in the long term: Israel has to decide that this is what it wants. Software has to be taught in kindergartens and schools We have to turn the startup nation into the high-tech nation."

"The future," adds Offer, "is in technology. We have to train fewer lawyers and accountants in Israel, and many more engineers, statisticians, and other professionals in technology and computers."

Rapid imports of programmers

Another way of coping with the shortage of professionals is to import high-tech employees from overseas. A year ago, Prime Minister Benjamin Netanyahu initiated a program to import hundreds of foreign workers a year in a specialist visa framework, arousing protests. Some of the employees in the industry came out against the plan, claiming that importing workers would be at the expense of Israeli workers. The opponents also mentioned the thousands of unemployed likely to be suitable for the industry, the non-hiring of "senior citizens" 45 or older, and inability to "grow old" in Israeli high tech.

"It was possible to bring workers in Israel in the past, too, and companies are doing it all the time, but the process awkward," says Ministry of the Economy and Industry director general Amit Lang, who led the program, together with Prime Minister's Office director general Eli Groner. "We recently removed several barriers, and the process became quicker and more accessible. It can still be made simpler, and that will happen in two or three months. At the same time, it is clear that this is a short-term solution, and we are making every effort to address the problem in the long term, also.

"We have to encourage the importing of professionals in order to help industry," Offer declares. "It's very easy to find people who want to relocate to New York, but convincing people to live in Israel, especially if they're not Jewish, is very difficult. Importing workers from overseas doesn't harm people in Israel; on the contrary, it helps a company grow and develop, preserves more jobs, and feeds the surrounding economy. Think how much employment there would be in the area: restaurants in Tel Aviv, equipment suppliers, flights we're constantly ordering, and even cleaning workers and security guards. People who come to Israel will also waste their salaries here. It will lift the company's entire surroundings."

What about workers over 40, who have experience, but cannot find work, despite the demand?

"We have no problem someone over 40. We have no concealed discrimination, but he might not have the experience with the project we're looking for, or in a specific field, or maybe he learned a programming language that's irrelevant to our technologies."

Lang makes it clear that the condition for obtaining a specialist visa is the company's undertaking to pay the employee double the average salary in Israel, which will guarantee that he is employed because of his qualifications, not because he is cheaper than an Israeli worker. In any case, however, it is clear that in the long term, "the best thing to do is to substantially increase the number of university and college graduates in the relevant fields."

The proportion of those obtaining science degrees, which was 13% of all degrees in 2004, sank to 9% a decade later. The decrease was greatest in computer science, mathematics, and statistics graduates. "There is a dialogue with the Israel Council for Higher Education in Israel Planning and Budget Committee, in which there is an understanding that they will get a few hundred million shekels more, and the number of graduates will greatly increase within five years," says Lang.

What is you view of the growing employment of workers in Eastern Europe?

Lang: "Israeli high-tech companies want to grow, and we have an interest in their growth. The government is responsible for dealing with the shortage of personnel in high tech, and if the state still cannot provide a solution, I prefer that the companies find ways to grow, as long and the brain and the development stay in Israel. It is better to bring foreign workers to Israel, or to act in one of the other ways they have found, than to leave Israel. At the same time, it is clear to us that they would like to develop more in Israel."

Published by Globes [online], Israel Business News - www.globes-online.com - on January 8, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Wix Photo: PR
Wix Photo: PR
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