Is the offshore model the solution for Israeli tech’s chronic worker deficiencies and the effects of slowing markets?

The high-tech crisis has greatly impacted companies’ IT budgets. Many businesses struggling to stay above water in a challenging economic environment have had to cut expenses wherever possible, and IT departments were certainly not spared.

But despite the decrease in companies’ IT budgets, demand for IT services has not dropped. In fact, we are seeing that the opposite is true: the more companies streamline their activity in order to remain flexible, the more they outsource IT services to external providers to fill the gap. Outsourcing has become an increasingly attractive option for a growing number of businesses who want to get the most out of their IT budget.

Ben Pasternak.

It is common knowledge that the labor market, like any other financial market, oscillates between a state of excess and deficiency. And there is a simple economic rationale for this: when supply falls, demand rises, and when demand rises, the market accelerates to capitalize on profitability. The labor market behaves similarly. In a world reliant on technological and data infrastructures, the demand for skilled workers is on the rise – whether they be top-tier talent professionals, or procedural maintenance workers.

This applies to the tech labor market as well. The demand for skilled workers will drive demand for technological education and training, as an increasing number of people will want to access the field. So, companies hoard more and more workers, until the paradigm inverts. As with any financial market, stocking up and surplus reserves lead to a price drop (in salaries), lay-offs and a flaccid market.

Unlike any other resource, losing experienced employees means losing knowledge, which means that organizations’ will incur significant delays in technological advancements, as well as investment losses.

To prevent this cycle, as well as the wheel of superfluous investments it generates, an organization’s technological infrastructure must be grounded in development and maintenance units that sit outside of Israel’s closed market. The Offshore mechanisms available today are highly sophisticated and malleable, capable of being personalized to the needs of individual clients.

Israel’s internal market is limited in size compared to the increasing technological needs, but the Offshore model can provide services at a lower cost than are available in the internal Israeli market to meet it.

In contrast to sustaining an internal IT department, which requires long-term employment agreements, external IT services allow businesses to access the most contemporary technology and expertise without having to invest in costly internal resources – which allows them to focus on their core skills.

There are several benefits to outsourcing IT services. First, the process is cost-efficient compared to maintaining IT services in-house. External IT providers usually enjoy advantages that allow them to offer competitive rates, allowing businesses to save money on training, benefits and other expenses that come with maintaining their own team.

Second, outsourcing IT allows businesses to adapt and react quickly to changing market conditions. Instead of committing to long-term contracts with an internal team, external IT providers allow companies to increase or decrease activity according to the actual demand in the market.

Finally, another benefit we enjoy here at Aman when working with developers in Eastern and Central Europe is access to technologies that have not yet been developed in Israel. Developers in Europe often have a larger plane of operations than we do in Israel, and working with them allows us access to additional markets and the information therein.

All in all, the high-tech crisis has had a substantial effect on companies’ IT budgets. Although this has led to cuts in certain fields, it has also increased demand for external IT providers that can render the services in an economic and flexible manner. As businesses continue to adapt to the challenges of our current economy, outsourcing will probably remain an important tool for IT departments who are looking to do more for less.

Ben Pasternak is the CEO and owner of the Aman Group