4 Tips for US Tech Companies to Retain Offshore Employees

It’s 2021, and the US software development community has become accustomed to using offshore resources, especially from Eastern Europe and South Asia. Highly educated engineers, enjoying a relatively low cost of living, have been yielding high-quality/low-cost programming for 20 years now. But not all offshore resources are created equal

There are offshore companies that will recruit tech personnel for US firms – often brought-in on a project basis and operating as freelancers. Then there are tech companies overseas that serve as “White Label” software providers for US firms. Obviously, the link between US headquarters and these offshore resources will be weak. It’s difficult, if not impossible for headquarters to exert a consistent approach to software development, and the end product will inevitably suffer.

However, when the US firm has wholly owned offshore offices, and where employees can be recruited locally and enfolded into the company’s corporate culture, great things can happen. DevOps will follow corporate protocols for writing code, back-up, testing, etc. Peer-to-Peer communication between US project managers and technical/functional engineers will improve over time. And after a while, project leaders will realize the advantages of time zone differences. Very often requirements will be communicated at end-of-day US time. This gives Eastern Europe and South Asia eight full hours of work to solve the problem and come-up with a solution – before the beginning of the next workday.

So, the US tech company with valuable offshore resources is in a very advantageous position AS LONG AS IT CAN RETAIN THESE RESOURCES. Offshore workers are no different than US employees. They tend to be young millennials (20s to early 30s) and mobile – often willing to change jobs for a small uptick in pay. This attrition costs the organization significantly “…a CAP Study estimates it costs up to nine months of an employee’s salary to replace them…”(1). Further, LinkedIn identifies TECHNOLOGY (software) as the sector with the most talent turnover “Tech turnover is likely driven by increasing demand and compensation…computer games (15.5%), Internet (14.9%) and computer software industries (13.3%) drove tech turnover most.”(2)

Ontash, with headquarters in Rochelle Park, NJ has been operating offices in India since 2007. Through the years, there have been many lessons learned (many the hard way). These lessons can be grouped into four areas:

1.Understand what really motivates your offshore employees. Ontash prefers to hire talent right out of university. While they may lack the experience of more mature hires, they offer a clean slate for Ontash to work with. As recently as 10 years ago, Ontash would never be able to recruit “A List” talent. The cream of the university crop tended to join more high-profile, prestigious organizations (i.e., Microsoft, Google, Apple, etc.). But today, the talent seems to have more long-range goals in mind. They want “experience” – the kind of “experience” that can set them up for a successful career. And where they might be pigeon-holed in a large organization, limited to a very narrow range of experiences, a smaller organization may offer them hands-on experience in a number of disciplines. And every new experience enhances their market value. Be sure to rotate employees through project opportunities. And it never hurts to just ask “what do you want to do?” Is it AI, Big Data, Mobile…?” then put them on it

2.Have a compensation plan. A big mistake many US organizations make with their offshore resources, is to “low ball” salaries and benefits. Nothing impacts employee turnover more than uncompetitive compensation. As soon as the employee can find a job for 50 cents more an hour, they’re gone. Make sure you know what tech firms in the area are paying and offer a little more. But simply paying employees a little more than the competition will not ensure employee retention. It typically takes entry level employees a year in the organization to begin producing at a high level. Salary and other financial incentives must be deployed in order to keep that employee beyond the first year. Ontash insists that every entry-level employee sign a 2-year contract. As a practical matter, it’s not worth suing employees who leave before 2 years. But the contract spells out salary, responsibilities, benefits, scheduled increases and incentives. Employees know that after three years with the firm, they will get a big bump in pay (usually doubling salary) with first-rate health benefits and a retirement plan.  Again, always make it worthwhile for the employee to stay another year.

3.Be sensitive to local cultural norms. There are significant cultural differences between various locations in India and Sri Lanka, and between Sri Lanka and Eastern Europe. For example, the Ontash office in Sri Lanka is staffed almost entirely with women. Social norms and personal safety in Sri Lanka allow more freedom and mobility to young females.  Ontash noticed that in its Calicut office In India however, parents concerned with safety, will often accompany their daughters on job interviews. You have to sell the parents on your organization and the security of your office location, as well as the prospective employee. And if they accept a job that’s too far from home to commute, the women will usually live-in hostels that are judged safe and secure, with rules that strictly regulate when the residents can come and go. So, overtime is not an option. Ontash also noticed that entry-level female employees almost always arrived to work late. This was due to the fact that they had to make their lunches at the hostel before coming to work, because they couldn’t afford to buy lunch every day. Ontash turned this “problem” into an opportunity. Wednesdays were designated “free lunch” day, and Ontash picks-up the tab. Everyone stops work at lunchtime and gathers for a first-rate meal and socializing. It’s something everyone looks forward to. Tardy arrivals and limited overtime are issues Ontash can work around – as long as good talent can be retained for 2 years or more.

4.Location, location, location. Where you locate your offshore office is also critically important to attracting and keeping top talent. Many US organizations will opt for inexpensive office space in less-desirable, out-of-the-way locations. Again, this always proves to be penny-wise but dollar foolish. Keep in mind that a young software engineer’s employment is much more than just a job. It shapes one’s self-image and represents prestige and status among peers (not to mention the impact on marriage prospects). The Indian government has invested in real estate to help build its tech industry. Indian-sponsored office space is leased to companies in upscale urban areas, with rent partially subsidized by the government as long as tenants serve the tech industry.  Ontash noticed an immediate advantage in hiring and retaining talent when they moved into Cyber Park office space in Calicut, India. An entry-level job became instantly more attractive to local talent. Parents of female applicants gave their approval, and male employees experienced improved status – simply because they worked in a highly visible office space with prestigious organizations in the same complex.

Early in Ontash’s offshore experience, the company’s employee attrition rate was 80 percent within the first two years of employment. Needless to say, you aren’t reaping the advantages of offshore resources if you can only retain 20 percent of your staff. After employing the above tips, the attrition/retention rate has been flipped: 80 percent retention within the first two years of employment, while losing only 20 percent. While 20 percent attrition shows dramatic improvement, it is still a number that can be improved upon. And improving employee retention will continue to be a primary goal of the organization going forward.


(2) LinkedIn Talent Blog, March 15, 2018, Michael Booz