London and Silicon Valley are the strongest tech talent magnets in Europe and the US respectively. The best engineers flock to work there. However, it doesn't mean they are up for grabs for just about any company out there. They get immediately scooped up by the strongest players in the market and never become available again.
A group of scientists from Northeastern University in Boston published a study which suggests that analyzing large amounts of data can help to understand the brain drain phenomenon."By tracking the migration of notable individuals for over two millennia, we could for the first time explore the boom and bust of the cultural centres of the world" says one of its authors Albert-László Barabási.
On the visualisations below you can observe how "notable intellectuals" spread across the United States and how they have recently become attracted to California.
Here you can see how London is becoming the most important European hub:
You can see how the cultural centre of Europe changed across the time. For ages, it was dominated by Rome. Then in 18th and 19th century Paris, German and English cities started to attract the best minds. Finally, in the last ten seconds of the video above you can see the dominating role of London.
London just drains talents from all over the world. Here's a story:
"Last month, an experienced software engineer in London decided it was time to change jobs – his company was struggling, and no one wants to stay on board a sinking ship. He accidentally made his CV public on a jobsite. By 10.30 that morning he’d had no fewer than 72 calls from recruiters and had agreed to six interviews. ‘That’s mad,’ says David Kerr, the 73rd recruiter to call (but one of the few the harassed developer actually picked up on). ‘If the market carries on like it is, it’s going to become a war."
The situation reported in "Management Today" is commonplace in every business hub in the world. The bigger the hub is, the stronger the brain drain effect and the London effect is one of the most impressive on the planet.
Silicon Valley is the other powerhouse. The companies there have to fight for talented people using the most sophisticated cocktails of high salaries and incredible perks. Netflix offers one year of paid maternity and paternity leave to new parents, Spotify adds to it egg freezing and fertility assistance, Airbnb chips in an annual stipend of $2,000 to travel around the world, Facebook ‘merely’ gives you $4,000 "Baby Cash", and Google will provide your partner with 50% of your last salary for the first 10 years after you die.
Additionally, the companies have been focusing on referral hiring programmes. Google bumped up the reward for recommending a friend from $2,000 to $4,000, and they are working intensely on optimising the programme. To attract qualified specialists they have been launching more and more talent incubators, which makes it even more difficult for the competition to hire experienced people. The above phenomenon is yet another brain drain effect at work: the biggest market players dominate the headhunting market.
The attraction force of California is so strong that it drains the talent from big business centres thousands of miles away, e.g. Chicago. We need to bear in mind, however, that the effect is not exclusive to Silicon Valley, as a similar mechanism can be observed in any local business and financial capital.
Take Poland for instance. Warsaw is the largest city in the country. It has the largest number of quality universities attracting talented students from all over the country. It turns out that it's impossibly difficult to find IT specialists of any kind in Warsaw. This is one of the reasons why the most successful Polish tech companies are based in other smaller cities, which still have a strong talent pool and academic infrastructure. Cities like Wrocław or Poznań (the home of Netguru) have all the infrastructure, great universities, high quality of life and are connected to regional and global hubs. In contrast to Warsaw, they have much fewer big businesses operating there and draining local talent.
Warsaw is also a difficult place to found a tech startup. Even though the market (both customer and b2b), financing and infrastructure are all there, the talent is not available. People have been sucked in by banks, insurance companies, branches of big multinationals, media companies, and so on. The demand is higher than the supply, and the salaries for experienced developers have been skyrocketing.
Here's a joke that's popular on Polish LinkedIn. Two programmers are talking:
A: "I've lost my job."
B: "Yeah. And...?"
A: "And it's been the worst 2 hours of my life."
Of course, the salaries in San Francisco or London are even higher. Quoting the same "Management Today" article from 2015:
"In 2008, as the financial crisis started, a graduate software developer in a ‘mainstream language’ (Java, C#, C++) could expect a £25,000-£28,000 basic starting salary, according to data gathered by Client Server, the company Kerr co-founded in 1999. Outside finance they can now command up to £40,000, while banks are splashing out as much as £50,000 a year before bonuses on grads fresh from the country’s top computer science courses. Team leads are pushing six figures."
Six years ago, the entrepreneur Joe Cohen warned that the shortage of talent could derail London's Tech City. It didn't happen. The London as a startup hub grew to such an extent that it seems it has now reached the limits of its development. Recently, a median total compensation in a London based tech company SAP has reached £90,000 and was the highest.
According to ComputerWeekly.com:
"The information economy already accounts for three-quarters of jobs in the City and between a third and a half in several outer London boroughs and in Cambridge and Oxfordshire. [...] Andrew Milroy, a director at the market intelligence firm IDC, said the financial community is responsible for the growth of the new economy in London and Leeds, while businesses in the old economy in the regions have been slower to accept changes. "Eventually, like any other shortage, the shortage of skilled staff will be addressed on the demand side," said Milroy. "Companies which are having trouble finding these skills will just find less labour-intensive systems."
That's a good point. Since engineers are a very valuable asset, businesses need to learn how to use them efficiently. There's one more trend that needs to be noticed and can be very helpful for companies operating on brain-drained territories. The largest companies keep on dominating the tech hubs. In Silicon Valley, they started paying workers more to live close to the office. This only emphasises the drain effect.
The solution smaller and smarter companies could choose is to start working with remote teams. That's what Netguru excels in. There are several reasons why remote teams work especially well in tech environments. Developers all over the world speak the same language. They use the same tools for communication and project management. To top it all, they are in the vanguard of change, and network economy is the future of the highly specialised labour market.
This is why remote teams work much better than outsourcing in software development, which we explain in this post. It's not only the question of price but mostly the question of quality. We often overlook the fact that the brain drain effect not only brings about a shortage of specialists and increases the cost of hiring them. In the long run, it reduces their overall quality. Even the most talented programmers become spoilt by working for outrageous salaries with no pressure to excel – if they fail, they will get a new (and probably better paid) job in no time. Apart from the few big players (e.g. Google and Facebook), the teams in companies at the very center of the big tech hubs are often made up of incompetent professionals, who came to work there as an effect of a recruitment error or compromise.
It's high time to start hiring better qualified teams further from the centre and develop remote working competence.