Israeli companies are increasingly turning to offshore tech teams due to a growing struggle to retain local talent.

The Israel Innovation Authority reports that the number of firms hiring permanent staff in Eastern Europe has grown by 37% since 2020.

This shift is driven by high local salaries and a shortage of skilled workers in Israel’s tech sector.

A 2024 McKinsey report indicates that 40% of employees in tech roles are considering leaving their positions within a year, worsening the situation.

Eastern Europe’s cultural alignment with Israeli business values, including speed and independent thinking, has also contributed to this trend.

Despite cultural compatibility with Israeli work values, experts stress that outsourcing alone cannot fix the broader retention issue.

Recent events have highlighted the need for global teams, pushing companies to seek stronger hybrid management skills and policy support.

🔗 Source: Calcalist

🧠 Food for thought

1️⃣ The hidden economic impact of tech turnover extends beyond recruitment costs

Tech industry turnover rates now hover at 13.2%, significantly higher than most sectors, creating a more substantial economic impact than many realize 1.

Companies incur direct replacement costs with each departure, but the hidden costs are even more significant. Disengaged employees before departure cost the broader economy between $450-550 billion annually in lost productivity 2.

The financial case for retention has become compelling enough that over 50% of technology firms now award specific retention bonuses, particularly when equity-based compensation loses motivational value during market downturns 3.

Organizations that successfully retain talent through referral programs see these employees stay 70% longer (38 months versus 22 months for non-referral hires) and report a 41% reduction in replacement costs 4.

This data suggests Israel’s tech ecosystem must view retention not merely as a company-level HR challenge but as a macroeconomic priority requiring systematic investment and policy support.

2️⃣ Remote work flexibility has become a primary retention driver rather than just a perk