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As a US citizen myself, I've been wondering this for years: What motivates software companies to hire locally? More specifically, what motivates Silicon Valley companies to hire talent locally, instead of remotely, for example, from Eastern Europe, where salaries are many times lower for the same quality of a software engineer (with maybe slightly worse English)?

  • Are they concerned that productivity will be lower? I think the pandemic remote work showed that if productivity drops, it doesn't drop by a factor of 10 or anything close to that.
  • Are they concerned about IP theft by remote workers? Is IP better protected against theft by an H1B employee working from home (due to the pandemic) than by a foreign remote employee working from abroad? If so, I don't really see how.

I'm aware that the 2000s trend of outsourcing to India is widely seen as a failure. If it was indeed a failure, do the reasons apply to software companies specifically and to destinations other than India?

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    Does this answer your question? Why do remote US companies require working in the US? – mustaccio Oct 9 at 17:52
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    The presupposition of the question is that US companies do not hire eastern European workers, but some do; EPAM for instance is a US tech consulting company which has a huge fraction of its workforce in former Soviet republics. Asking why a thing does not happen when that thing does happen makes it hard to answer the question. – Eric Lippert Oct 10 at 21:59
  • @EricLippert There's no such presupposition. If the motivation to hire locally did not exist, the salaries for the same talent would be the same globally. Are you saying they already are? It would be a good answer, if you could prove it. – MaxB Oct 10 at 23:38
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    @MaxB why would the salaries be the same? Salaries are usually relative to cost of living, and cost of living anywhere in the world but silicon valley is not too much influenced by developers alone. It seems you want to ask more about why silicon valley with its extreme wages/cost-of-living persists? That is a much more specific question. – KillianDS Oct 12 at 8:19
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    @KillianDS why would the salaries be the same? Market forces. As an employer in SV, why would I pay a remote Swede more than a remote Pole if they do the same work, just because the Swede chose an expensive place to live? It's his choice/problem. I mean, I could get away with paying the Pole less at first, but then I'd choose the Pole, and eventually Polish remote dev salaries would catch up due to the market forces. (This also applies to local vs remote unless there is an intrinsic motivation to hire locally) – MaxB Oct 12 at 16:39

11 Answers 11

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+50

The disadvantages of an employee located in another country or even another continent are myriad. Some of them may be imaginary, but that doesn't stop companies considering them:

  • paperwork and taxes. Do I have to send some sort of form to some foreign government? What if that government doesn't even work in English? Is it legal for them to work for me? Do we need a permit or something? Will I have to give them 8 weeks of paid vacation a year or whatever weird laws they have there? Do we have to worry about exchange rates? How do I actually pay them? I don't know how to send money to a bank in another country. What government do I send with-holding tax to? Will my government believe I don't need to send any withholdings to my tax people for them? And so on.
  • time zones. Sure my employee may be willing to switch their work hours to 1am-10am their time (or whatever) to sync with us, but will they be at their best? Will they really do that all the time, or just wake up in the middle of the night for meetings some times?
  • difficulty of in-person meeting. Maybe we will never need to get together one on one, but with a local person I know it's possible. The further away they are, the more expensive it gets and the longer it takes to arrange, and maybe it will even be impossible.
  • difficulty of providing standard equipment. Many large companies rely on everyone having the same laptop, with the same stuff installed, and being on the same network. They are scared of "bring your own." They also worry that "go buy a laptop and we'll reimburse you" is an invitation to various kinds of fraud.
  • perceived culture dissonance ("Europeans don't have the same attitude to work as we do", "remote workers bond less with the employer"), language barrier, and other (almost certainly wrong and over-generalized) worries that are hard to test in an interview. See for example anti-outsourcing articles that claimed the Indian teams would always say yes whether they meant it or not.
  • a worry that a really good developer would have moved to the "promised land" to work already, so even with an amazing interview performance, perhaps this person isn't quite what they seem? "If you're so good, why do you live there?"
  • lack of familiarity with far-away educational institutions (even names of degrees and diplomas) and previous employers. "Does this place even exist? Is it good that the person studied there? Worked there? I've never heard of it."

Meanwhile the benefits are what? You can pay them a little less? So what? I literally turned away people who wanted to work for me for free. Salary is only a tiny part of the cost of an employee. Saving half the salary but taking on a boatload of trouble? Not interested. I know this feels really unfair, but you asked why and this is why.

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    Comments are not for extended discussion; this conversation has been moved to chat. – DarkCygnus Oct 11 at 21:36
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    "a worry that a really good developer would have moved to the "promised land" to work already, so even with an amazing interview performance, perhaps this person isn't quite what they seem? "If you're so good, why do you live there?"" Yuck. (I realise it's not you saying this!) – Asteroids With Wings Oct 12 at 12:06
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    Your first bullet is also significant within the US. I read an article about some Silicon Valley employees trying to move out of state and drastically cut their cost of living when everyone shifted to working from home. Their companies stopped them because the time and expense required to get set up to pay an out of state employee was massive (orders of magnitude more than their salary). This was just from state level tax and corporation law requirements. The overhead of going international would eat away anything you save on salary. – bta Oct 12 at 20:41
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    Couldn’t pay me enough to live in this ‘promised land’ and I’ve been offered – Sebastiaan van den Broek Oct 12 at 22:26
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    +50 because other answers are worse, but this one is still somewhat unsatisfying: Amazon expands its US-based software divisions (sometimes). Why do that when for the same $, they could expand their existing E. European software divisions many times over (both real estate and people are cheaper, and the reasons you listed don't apply much)? There must be some additional intrinsic motive to have American software devs as opposed to foreign, otherwise why do the above? – MaxB Oct 17 at 18:18
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I saw in a comment you mention overseas remote workers being available for 1/5 of the salary of a local worker. This is probably true, but not the whole story.

The thing is - those developers are cheap for more reasons than simply being in a different country. They're cheap because they're not good.

All the developers who are good are already happily working for more money than that.

Sure, you might be able to get decent remote overseas workers, but the price differential for competent developers is a lot smaller than you seem to think. And there are other costs involved in staffing that are either equal to or maybe even slightly greater than a local worker.

So the benefit of "cheap" overseas developers is quite the myth, though it continues to cost many companies money trying to save a buck.

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    Comments are not for extended discussion; this conversation has been moved to chat. – DarkCygnus Oct 11 at 21:36
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    This post could be improved by something to back up the claim that the price differential isn't that big, going off the SO salary tool in India you will earn around $13k per year with 10 years of experience and no special education versus for the exact same profile you will earn $95k in the US on average. The idea that on average developers in India would be that much worse would be very hard to justify. For context, $13k per year is still 3x the Indian average. – David Mulder Oct 12 at 12:05
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    @DavidMulder I don't know. I once took over a project, where after six months, the developer had managed to gather about 10 pages of documentation on the requirements, including a diagram of how four database tables interacted with each other. It was about the same amount of work I do in a day. The problem was only partially where the dev came from, the rest of it was the dev's culture. They were hired to pad the books, and you can't get only one person to do anything from that region (guess where?) without the assistance of three others. Committee actions only! – Edwin Buck Oct 13 at 4:47
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Although you seem primarily interested in the reasons why US/Silicon Valley software companies hire locally, I think it is also interesting to answer this question from a non-US perspective. In other western countries with high local salaries, (a large part) of the codebase and/or documentation might actually be in German, Dutch, Norwegian etc. Even if the codebase and documentation are in English, the users of the software might not be fluent in English and might prefer to interact with employees of the software company in their native language. This all makes the pool of suitable cannidates in low-wage countries far smaller/almost non-existent.

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    I am from Germany, and while I have seen code written in German, I think this is quite uncommon and not considered very professional. At least in engineering; it may be different for customer-specific business software. The point re. communication is more relevant. The customers of those companies where I have worked were always quite fluent in English. But some employees were not. – Jan Oct 10 at 2:57
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    The code I am currently working on is written in Dutch. Also various companies/organisations where I applied to in the past indicated that their code was (mainly) written in Dutch. So although it may be frowned upon by some and is not the norm, it does happen in quite some cases. – thieupepijn Oct 10 at 20:00
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    @Jan, every time I have written code with German comments (never used like German variable names or function names because it just doesn't sound right with a kind-of-English programming language), I ended up having to translate it all. I actually saw a German court decision where the judge said that any German software developer can be expected to read and understand the GPL in English. – gnasher729 Oct 11 at 13:29
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    And even if code is not Dutch, it's the documentation - which is very important. This is true for PRL (Procesleiding) for The Netherlands. Comments, documentation and (parts of) code in Dutch. Employer requires fluent skill in Dutch language. – Gizmo Oct 12 at 7:13
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    I would expect code tightly tied to a Dutch business domain (say, dealing with Dutch tax law, for example) to have a fair few comments and perhaps even variable and function names in Dutch. Why try to find an English translation for Dutch technical vocabulary? Using the original language will be clearer, and tie the code more directly to the business logic. (Disclaimer: I'm a mostly monolingual English speaker myself.) – TRiG Oct 12 at 16:25
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They do, they just don't hire internationally - the big players just set up local branches, most likely for legal and other reasons. In Poland, off the top of my head I can list: Intel, Amazon, Lufthansa, Jeppesen in my metro area. Nokia and Samsung have offices in other parts of the country. And that's only what I can list from memory.

Probably setting up local branches avoids most of the downsides of outsourcing while still allowing those companies to enjoy the local labor market.

That said, for a proper employment contract in Poland (and probably rest of EU), whatever a person takes home is probably somewhere around a half to a third of what the employer actually pays.

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  • By earns, do you mean "takes home"? – Azor Ahai -him- Oct 12 at 17:21
  • @AzorAhai--hehim yes – Jan Dorniak Oct 12 at 17:22
  • Amazon expands its US-based software divisions (sometimes). Why do that when for the same $, they could expand their E. European software divisions many times over (both real estate and people are cheaper)? – MaxB Oct 17 at 17:53
  • @MaxB you ask me, but who should I ask? I have no idea. – Jan Dorniak Oct 17 at 18:00
  • @JanDorniak I'm saying there must be some intrinsic motive to have American software devs as opposed to foreign, otherwise why do the above? What that motive is is part of the question (It's remote vs non-remote and US vs foreign) – MaxB Oct 17 at 18:04
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My first job in the UK was in a huge aerospace company. Their biggest problem was with young engineers coming in, gaining a few years training and experience, then going somewhere else for more money. The company had invested time and money in these people and they left.

The company was big enough to do some statistical analysis on the numbers, and they found that people recruited locally tended to stay longer. Local people had not just loyalty to the region, where their friends and families were, but also to the company itself, which had employed also their friends and relations over decades.

Therefore they tried to recruit locally.

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    What actually happened is that said company was too cheap to pay those young engineers a decent salary once they'd become senior enough, so they went somewhere that did pay them appropriately. Instead of fixing that obvious problem, the company wasted money on a "statistical analysis" that, surprise surprise, gave them the answer they wanted to hear: "You can just hire localsfor less and they'll stick around because they don't know you're ripping them off!" Not to mention that the quality of work produced by the locals is almost certainly lower too. – Ian Kemp Oct 12 at 11:30
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    I think we all knew our market worth, but having your friends and family close by is a price some of us were willing to pay. Me, I left not for more money, but for the senior position another firm offered me. (And failed to deliver, which is why I just went contracting in the end.) – RedSonja Oct 12 at 13:19
  • Further, aerospace is a high-tech industry. Hiring only local people, who have broadly the same set of skills, is unlikely to drive the innovation that an aerospace company needs to be able to compete internationally - versus young blood from outside the area or country, who have different perspectives and fresh ideas. So yeah, whichever aerospace company this is, I fully expect them to either be bought, taken over, or ask for a government bailout sooner rather than later. – Ian Kemp Oct 12 at 14:46
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    @IanKemp, you describe it as a firm unwilling to pay the market rate to retain staff. Look at it the other way around - the market rate for rootless cosmopolitans, is massively higher than for a locally-embedded workforce who enjoy non-financial benefits of permanent settlement and community, and the company has found that hiring the former simply sends payroll costs (or turnover) soaring with no commensurate increase in quality. And whatever you gain from "young blood with fresh ideas" coming in, you lose from those going out of the locality in the opposite direction under the same system! – Steve Oct 12 at 20:43
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    @IanKemp All recruits, even the locals, had studied at the best places and were excellent engineers. We are not talking about yokels. In fact the company is still thriving and building world class aircraft, and other types of hardware and systems. – RedSonja Oct 13 at 6:13
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I'd like to expand on the first point of Kate's answer. I once worked online for an employer that will only hire people living in a few states within the US. The reason is tax reporting and payment. That employer was only registered in a few states. In order to hire employees in other states, they would need to handle the tax paperwork for those additional states. They didn't have enough remote employees to make it worth the cost and effort. The same is even more true for other countries.

The more governments (state or national) you need to deal with, the more you can expect to spend in Human Resources and Payroll. You need to comply with all of the tax laws and workers' rights laws for every government involved. For a large company, the added cost is worth it to access the larger talent pool. On the other hand, if you have to hire a Payroll employee fluent in Greek just to handle the new paperwork for the two employees in Greece, then you really aren't saving much, even if you only pay the Greek employees half. (This example is made up. I don't know the cost of Greek labor compared to US labor.)

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    Fluent in Greek and familiar with Greek labor laws, taxes, processes, etc. – jcaron Oct 12 at 11:36
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    @jcaron, That's true. I was working under the assumption that a qualified accounting employee fluent in the target language would be able to navigate the tax forms. That assumption may not be valid. Even with that assumption, the language requirement narrows the field a lot and means they can demand a larger salary, which reduces the cost benefit even more. – Kyle A Oct 12 at 13:35
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  1. Abundant talent locally. Especially in US, there are a lot of developers already, and new ones from universities, boot camps, requalification come too in large numbers. There is a very small need to look elsewhere with all the associated cost, paperwork, cultural and border barriers, etc.
  2. Time. Going through the same process abroad, with all the little details, usually takes more time than going locally. This is quite important, if you want to hire fast and get a top notch quality too.
  3. Evaluation criteria. Usually companies in US already know what universities are good, that are bad and so on, their recruiters know about the specific market in hand. When you dealing with Europe, a lot of variables come in, country location, culture, level of education, these are all quite different.
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  • I find it hard to square this against the reported undersupply of talented engineers. Unless you're hiring semi-randomly from the flood of underqualified candidates hoping to get lucky? – Jared Smith Oct 12 at 21:41
  • I wanted to say that talent comes way way faster in US because of the infrastructure: good universities, abundant boot camps, speaking the English language helps a lot too, when a lot of Europeans must learn it as a 2nd language, thus not speaking and understanding it so well. – Gintas Oct 26 at 20:39
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I'd like to add one more point to the already excellent answers above.

Recomendations from existing employees drive a lot of hiring and employees tend to know (and recommend) people they worked with previously, went to school with, or live near and know from their personal lives. All that adds up to more local hiring.

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This would be an example of the network effect. You have clusters of companies in similar industries in the same geographical area, which means that there is a concentrated pool of people with the skillsets you desire readily available. This increases the likelihood of a company finding suitable employees quickly, making expansion easier.

It works both ways as well - because there are a significant number of companies in that area, people with those skillsets move to the area as it is easier to get a job in their field.

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    making expansion easier But it's even easier if you hire globally, is it not? – MaxB Oct 9 at 18:26
  • @MaxB not nessecarily. Lets say you want to hire 1000 people, where do you search? as wirde as possible. lets say you want to hire 10. if you happen to have 10 sufficiently skilled people available close by, it can be very easy and fast to setup. Interviews: Somebody hops over for his lunchbreak, nobody at his work has to know. or he goes "home" early that day. Scheduling: yeah easy, you all live close by. Having them over if you happen to have need for it? easy. In my current project I work primarily remote, but I must come onsite with one days notice if need be. – Benjamin Oct 9 at 20:31
  • continued: 200k still is some distance, so I need to book a hotel and stuff. But its managable. Imagine being 1000km away. or 5000. Yeah, wont work out that easily. – Benjamin Oct 9 at 20:32
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Let add one more perspective. I have hired locally when I have gotten many calls from India companies wanting me to hire their developers.

Why?

Because I can talk to people here who not just understand my words, but also understand the context. I can argue over methods, tool choices, and why the client wants things done a specific way. I can bring my understanding of business practices and the specifics of how this client wants to operate and do that verbally instead of writing a detailed specification. I can interact with the developers, reviewing their code on the fly, and clarifying their understandings of the problem.

I can't do that with someone who is in a different business culture. (Or I can, but it will be a very large learning curve for both of us. For me on how to explain things to that person and that person on the very real differences in business culture that my client has.)

For me to be able to send a project to that part of the world, I need to

a. Specify the project in far, far more detail than I need to locally

b. Specify the testing processes to the level where I could have written the tests myself. (For example, I sent one project to India years ago. I specified the project quite well. But didn't specify the tests well. It came back satisfying the definition, but failed the testing that was needed.)

That is a heck of a lot more work in order to manage that project. It is almost impossible to do an "Agile development" that far remote. In short, there are very good reasons to hire locally.

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+250

In addition to Kate Gregory's fantastic answer concerning the practicalities of hiring internationally for the perceived benefit of lower short-term costs (as seems to be the intention of the question, not simply "locally", e.g. a company in Silicon Valley hiring someone in a different part of the country where the cost of living is much lower), I'd like to offer an additional motivation: ethics. Be it "patriotism", camaraderie, or the general sense of duty to one's craft, society and locality and that enabled you to ascend to the position of being able to hire others in the first place.

This is especially true when it comes to hiring junior and mid-level developers (some of us once were one!) From a personal standpoint, my commitment to enabling someone's growth and development is far greater than my commitment to the abstract principle of unfettered movement of capital. From a business standpoint, I know that the increased productivity and low turnover repays in spades over the medium- and long-term. In addition to creating positive relationships that fan out over time.

Hiring someone, locally or not, is an investment, and again echoing Kate, the difference in salary would have to be large for it to be worth considering. And if it is-- what are the externalities? And when we're in a crunch, would I feel as comfortable asking someone making pennies on the dollar to stay late or give up a weekend? And if not, how is that fair to my local employees?

As others have pointed out, the truly committed to the neoliberal way set up satellite offices in Costa Rica, Poland, etc. to exploit local markets directly. Earlier in my career I was part of a company that did this due to holding company mandate, and though many of the developers were talented, the work suffered because everyone hated the process, which is intended to reduce cost first and foremost. There are also many shops in South America or Eastern Europe that retain project managers in their target market to give the perception of cost effectiveness & local presence, but in reality people are where they are, subject to all the above and the daily friction quickly adds up. All the while those are more dollars leaving your community.

In summary: not only is it more often than not a poor business decision, but some may also find it to be a question of personal ethics as well.

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  • The thing is that the turnover is lower if you overpay (relative to the best alternative). So it comes down to labor cost, again. – MaxB Nov 21 at 4:19
  • No. If you ignore every other aspect of working together as humans and restrict your purview to strictly skillsets and dollars in a near-term-only time-scale, then perhaps. However I'd argue that it's in these parts which you're ignoring where the "intrinsic values" you claim to be seeking originate. – gbanks Nov 24 at 18:39
  • A guy who's paid 2x his market value is much less likely to leave for greener pastures, other things being equal. You disagree? – MaxB Nov 24 at 22:13

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