Given the record amount of funding raised by Latin American tech companies during 2021, perhaps it is unsurprising that hiring by these companies also skyrocketed during the period. According to Deel, hiring by Latin American tech companies grew 286% in the second half of 2021 compared with the first half. Interestingly, hiring of Latin American workers by foreign firms also grew dramatically: up 156% for the same period.
The problem is that all of these businesses are competing for the same limited talent pool. This is great for Latin America’s workers. Increased talent competition will likely increase their wages and, by extension, their well-being. In fact, Deel published data showing that wages on its platform grew 129% for Ecuadorians, 128% for Dominicans, 55% for Mexicans, and 43% for Uruguayans.
However, one of the drivers of investment in the region is the comparably high ROI relative to investment dollars required to exit. Historically, pay rates have partly explained this phenomenon, as Latin American workers are highly skilled relative to their cost of labor.
Now, VCs are in a way creating their own problem. As increased funding drives more regional start-up hiring and as international firms increase their own hiring of Latin Americans, the cost to hire for and operate regional start-ups is likely to grow. All this while inflation adds even further upward pressure on wages.
In reality, venture firms have plenty of long-term capital left to deploy into the region, so the price of talent in and of itself is unlikely to be the stake in the heart of the region’s venture ecosystems. However, local talent takes longer to develop than either wages or venture funding take to grow. The local talent pool may not be able to keep up with demand, creating a situation where start-ups and international firms compete for local talent not on pay but other perks.
Traditionally, wages paid in foreign currency was a key perk of working for a foreign firm. Fortunately for Latin America’s start-ups, cryptocurrency is changing this equation (see page 4 of the Quarterly). Regional start-ups may even be able to source talent from the flood of digital nomadic foreigners that live part-time within their borders by offering them crypto rather than local currency in exchange for their skills.
Regardless, regional HR executives will have to become increasingly innovative in how they attract regional talent. Again here, it may be tech itself that helps solve for this, as regional HR tech investment lifts off (see page 7 of the Quarterly). Hiring strategy is likely to become a growing component of VCs’ due diligence when considering a regional investment.
In any case, the future outlook seems clear. Just as Latin American tech companies have proven that they can compete with foreign firms for customers on the global stage, they will now have to prove they can compete with them for both regional and global talent. We would not recommend betting against a region where innovation as a means of competition has long been a fact of life.
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