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CRAIN'S New York Business
Going abroad to find techies
Web firms step up overseas recruiting despite barriers
by Alexia Vargas
When RightFreight Inc. needed to hire a bevy of programmers recently, the on-line air freight company got little response from local job candidates. Desperate to beef up its product development unit, the Manhattan-based company set up an office in an Eastern European country.
In a sign of just how tight the tech labor market is both here and abroad, RightFreight's president, Matthew Tucker, wouldn't even disclose the location of the office where he now has 15 full-time programmers. "There's a large pool of untapped talent there," he says cryptically.
Even though Congress recently passed a bill that will increase the number of H-1B working visas for educated foreigners-especially techies-to 195,000 from 115,000 for each of the next three years, the move isn't expected to be enough to fulfill the needs of the technology industry. The shortage of skilled workers in New York City is forcing new media and high-tech companies like RightFreight and Octet Corp., which already have H-1B employees, to open offices in other countries. Other companies are stepping up recruiting efforts overseas.
Yet foreign labor comes with hefty risks, especially for start-up companies. Long distances, government bureaucracies and political instability can wipe out any economic advantages. But the demand for tech-savvy workers is so intense that companies feel they have little choice. According to the latest PricewaterhouseCoopers' New York New Media Industry Survey, there were about 138,000 technology jobs in New York City in 1999, compared with only about 27,000 in 1995.
The most difficult position to fill, the survey says, is programmer. "Everybody is looking for the same pool of people in New York City," says James D. Robinson IV, a general partner at RRE Ventures, a Manhattan-based venture capital firm that has invested about $6 million in RightFreight. The Internet company says it expects to cut expenses 35% by operating the Eastern Europe office as opposed to competing for high-paid programmers in Manhattan. Mr. Tucker says new media employers have a hard time matching salaries with deep-pocketed investment banks. His 15 overseas employees are on the company's payroll but are paid in local currency at a competitive wage for the country they live in.
Octet, a software development company, opened an office in St. Petersburg, Russia, two years ago. It's currently staffed with 23 full-time developers and is expected to grow to 50 by the end of 2001. Vitaly Brukhman, vice president of technology, says the company, whose management has a Russian background, had outsourced some work there in the past. Distance, bureaucracy "We realized we could capitalize by having our own space and our own staff under the same payroll there," says Mr. Brukhman. Yet opening an office overseas doesn't come free of risks. Industry experts say Eastern European or Asian countries are prone to bureaucratic hassles and political problems.
Geoff Clendenning, chief executive of Manhattan-based ePod Corp., says geographical distances can make it difficult to manage projects and maintain quality. His on-line company, which sells marketing software to other Web companies, moved from Toronto last year but kept a technology team there. Some venture capital firms discourage companies, especially start-ups, from setting up offices abroad. Steve Brotman, managing director of Silicon Alley Venture Partners, says there are language barriers and cultural differences.
And early-stage companies should refrain from spending time and money in travel expenses. "As an early-stage fund, we discourage anything more distant than a subway stop away," Mr. Brotman says, only partially joking. To avoid some of those problems, several tech consultants have set up recruiting offices abroad designed to find the best talent and to streamline the immigration process. Quantum Technologies Inc., a local consulting firm, has an office in Bombay, India, with three recruiters hiring from major cities like Bangalore and Chennai.
This year, Quantum has successfully brought over 25 workers holding H-1B visas. Early defections Select Group Inc., a technology consulting firm based in Oyster Bay, L.I., this year has brought over 15 Chinese employees proficient in English and applications like Java through its recruiting office in Beijing. But both companies say many of those immigrants have left for other jobs. "We lost seven employees in 1999," says Neeta Chitre, manager of marketing and sales at Quantum. "It's easier to transfer an H-1B (between companies) than to get it from scratch." Industry officials are about to test a local solution to the tech labor shortage.
The U.S. Department of Labor recently granted about $2.9 million to the Private Industry Council of the City of New York Inc. to train American residents for highly skilled jobs in targeted occupations like programming, network design and systems analysis. The funding comes from a portion of the $500 fee companies pay for each H-1B visa they apply for. The City University of New York's Institute for Software Design and Development will train between 250 and 300 workers. Once they brush up their high-tech skills, the New York Software Industry Association will find internships for them among its membership of companies. "We need to start looking at our own resources," says Bruce Bernstein, president of the New York Software Industry Association. "There are lots of underemployed people in New York City."
Yet some experts would let Adam Smith's invisible hand fix the problem. Bruce Strzelczyk, co-chair of the new media practice of accounting and consulting firm Richard A. Eisner & Co., says the trend of hiring foreign workers to work in their homelands or in Manhattan may slow down soon. "There are a lot of companies laying off people these days, so there are many more workers available in the city," says Mr. Strzelczyk.
Copyright 2000 Crain's New York Business, Inc. All rights reserved.
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