The software development industry in Israel: How tech businesses manage the tech talent shortage

The software development industry in Israel is going through challenging times. On the one hand, Israel, preceded by China and the US, makes it to the top three fastest-developing tech startup nations. On the other hand, software development companies in Israel report that they’re experiencing an IT talent shortage. With a population of only nine million, the local supply of software development specialists is wearing too thin to meet the needs of the ever-growing tech industry. Only in 2020, the software development sector in Israel will generate 15,000 extra workplaces. 

1. More than 15% of positions in the Israeli tech industry remain unfilled.
2. Every fourth tech company claims to have an overseas team of developers.
3. About 45% of Israeli tech companies hire developers in Ukraine.
4. More than 300 multinational tech companies operate around Tel Aviv and offer local programmers salaries that are two or even three times higher than the market average.
5. Even after the total population in Israel had grown by 8%, the tech industry saw only a 4% increase in the number of tech specialists between 2011–2015.
6. Since 2014, more than 117 companies from 21 countries have opened R&D centers in Israel.
7. There are no less than 6,000 startups in Israel, but the number is gradually decreasing because they can’t find developers locally.

The IT talent shortage in the software development industry in Israel is expected to reach 15,000 open positions. About 31% of open positions are predicted in product and infrastructure roles, followed by positions requiring the knowledge of data science, machine learning, and artificial intelligence says a study by Start-Up Nation Central and the Israel Innovation Authority. In fact, Israel’s experience is part of the global talent shortage trend that all major tech nations know too well.

How do tech companies try to tackle the talent shortage in Israel? The study also says that about 22% of responding companies have established a significant presence in Eastern Europe during the last two years. About 95% of all respondents have opened R&D offices abroad, 25% have hired tech talents abroad, and about 45% of all of them are claiming to delegate IT outsourcing to Ukraine.

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1. Open an R&D Center in an Offshore Area
   • The prevailing part of tech companies that seek external talent choose to open their own R&D centers and set up software development departments in tech hubs with a large number of developers. Eastern Europe, Asia, and South America are the regions best known for their large talent pools and skilled programmers.
   • Read: How to Build an R&D Center in Ukraine
2. Build a Remote Team of Developers
   • Building a remote team through an IT outstaffing company in an offshore country is a common practice for tech companies that have the necessary technical expertise to manage remote programmers on a daily basis. 
   • Read: How to Build a Remote Development Team with an Outstaffing Vendor?
3. Delegate Product Development Completely
   • This option is usually adopted by companies with no core tech team. Within this approach, the client gives the tech vendor a list of desired requirements and gets involved only during important milestones. The vendor assembles a team choosing from their existing talents and takes full responsibility for managing the development process.
   • Read: What Is Outsourcing?

The average software developer salary in Israel is $92,000 a year, according to PayScale. A junior software developer in Israel earns $65,000 annually, while a senior developer gets as much as $96,000 on average, says Glassdoor.

What Is the Average Software Developer Salary Around the World in 2020?

According to Glassdoor, the average PHP web developer salary in Israel begins at $74,666, a .NET programmer makes around $105,053 a year, and a Java developer can expect a yearly salary of $86,731. A front-end developer in Israel earns around $54,986 annually. PayScale informs that the average salary of a full-stack developer in Israel is $89,900 a year.

Israel is inhabited by large multinational companies such as Amazon, Facebook, IBM, Intel, Microsoft, and about 300 others. Not only do they monopolize the market by buying out Israeli startups, they also set salary bars very high. Large companies offer salaries that are twice or even thrice higher than the market average, hence leaving the rest no other options than to seek alternative hiring destinations outside of Israel.

The majority of Israeli clients have a tendency to improve and maintain old legacy digital solutions written on PHP and Java. Yet, unicorns and SMEs are more prone to using JavaScript, Java, and Python.

According to PayScale, the average developer rates of a junior programmer in Israel begin at $19 per hour (₪65.84). An hour of a middle developer’s work costs $20, and a senior programmer earns about $27. This data is based on a small number of respondents and doesn’t match PayScale’s report on the average salary of a developer in Israel, with the lowest salary being $34,749 (₪119,195) and the highest being $117,642 (₪119,195).

Misha Reyzlin’s survey on the average front-end developer salary claims that the average developer rates of a junior specialist are $30–$33. A middle front-end developer earns around $45–$60 per hour, and the hourly rate of a senior developer in Israel is around $70–$80 and higher.

• Read: What Is the Actual Average Software Developer Salary in Ukraine?

• Read: What Is the Actual Average Software Developer Salary in Ukraine?

The average developer rates in Israel are considerably higher than those in Ukraine. An hourly rate of a junior developer in Ukraine begins at $20, while a middle developer gets around $40 on average, and a senior developer’s average hourly rate in Ukraine is around $45.

The official number of software developers in Israel is close to 300,000. Unfortunately, the majority of developers in Israel are employed by large tech companies (source). This causes a severe lack of available programmers on the market.

Our custom research showed a low presence of Israeli programmers on professional social media platforms such as LinkedIn. We found only 169,000 software developer profiles located in Israel. The largest number of software developers, specifically 1,200 of them, indicate JavaScript as their major programming language. .NET follows with 474 programmers, and C# and PHP come next with 237 and 200 programmers respectively.

The freelance software development market in Israel, based on our Upwork research, is experiencing a downfall. Only 500 programmers were available for hire. The majority of freelance programmers in Israel registered on Upwork indicated JavaScript as their major technology. 

Tech business owners and the government alike set up initiatives aimed at increasing the number of software developers in Israel. According to Co-General Manager at Start-Up Nation Central Uri Gabai, Israel is now creating a multi-fold plan for solving the talent shortage. In his interview for Jerusalem Post, he says that the government plans to double the number of tech specialists by “helping pay for coding schools that do intensive training for six to nine months.” However, business owners feel more pessimistic and consider this increase in software developer count in Israel insufficient for keeping the tech industry growing.

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Grid Dynamics is a digital-native technology services provider with offices across the Americas, Europe, and India. This global footprint gives us access to elite software engineers across multiple regions and timezones. We leverage this worldwide talent pool to assemble dedicated development teams tailored to each client’s specific needs.

With us, you can assemble a team of developers and manage it directly. We’ll provide a comfortable working environment for the developers you hire with us, take care of paperwork, and make sure you retain the programmers in your team with the help of a dedicated HR Client Partner. Our geographic diversity also enables us to scale teams flexibly as needs change. Whether you need to expand an existing team or build one from scratch, our global delivery model staffs projects effectively.

After two months of an unsuccessful search for talent on the Israeli tech talent market, Liad Guez, Oktopost Co-Founder and VP Product, came to Grid Dynamics with a request to find additional developers for his team.

Grid Dynamics proved to be very professional. The staff was very responsive and knew how to explain the market specifics and recruitment processes. We also liked the transparency of all procedures.

Liad Guez

CO-FOUNDER AND VP PRODUCT

The tech talent shortage in Israel is caused by the presence of large tech companies and a growing number of tech startups that can’t be staffed with local tech talent alone. This tendency pushes tech businesses to offer inflated salaries in an attempt to compete with tech giants who, besides paying double or triple salaries, offer compelling social packages and benefits. Given the circumstances, company owners tend to outsource software development to offshore locations and hire developers in Ukraine and other Eastern European countries. Statistically, every fourth tech company In Israel works with an overseas tech vendor. Opening an R&D office abroad is one of the most popular approaches to filling talent gaps among tech business owners in Israel.