The Ethics of Offshoring: Labor Costs and Working Conditions

My brother-in-law lives in the Philippines and works at Jollibee, the country’s largest fast food chain. He makes about $1.25 an hour. My sister-in-law, also in the Philippines, works as a virtual assistant for an American client. She makes $5 an hour, four times what he does.

Some people will tell you a $5-an-hour VA job is exploitation.

My brother-in-law would do anything for that job. That’s not a hypothetical. That’s my actual family.

I run Full Scale, a software development staffing company that places Filipino engineers on American teams. I get the exploitation question constantly, usually from people who have never set foot in the Philippines and don’t know what the alternative looks like for the person on the other end of the wire. So I want to answer it honestly, with the specifics I actually know, and then walk through what ethical offshoring looks like in practice when you’re the one signing the contracts.

The exploitation question, answered honestly

The wage that looks low through an American lens is transformative through a Philippine one. The cost of living there is roughly a fifth of the US average. The same dollar that buys you a coffee in Kansas City covers a real meal in Cebu. That’s why a $5/hour VA job is a good job, and why a software developer making $15 to $30 an hour is doing very well by local standards.

Geography sets the rate. Roughly 90% of software developers don’t live in the United States, per Stack Overflow’s developer survey. I’ve personally worked with engineers in Russia, Belarus, Latin America, India, Pakistan, and the Philippines over the last 14 years, and the talent question has never been the thing that decided whether an engagement worked.

The math works on both sides for different reasons. The company gets engineers it couldn’t otherwise afford, and the developer gets a stable career that pays well by local standards. When both of those are real, you have an ethical exchange. Fake either side and the whole thing collapses.

The honest test is whether you’d be comfortable explaining the role to the developer’s family at dinner. If the answer is yes, you’re probably in the right zip code.

Most of these jobs wouldn’t exist at US rates

The hardest part of the exploitation argument to engage with is also the part most defenders sidestep. Yes, the same skill captures less value across a border than it does within one. A Filipino engineer doing the same work as a Kansas City engineer does not earn the same dollars. That asymmetry is real and worth naming.

What it misses is that most of the work in question is only worth doing at the offshore rate. A small business that wants to launch a podcast can’t pay a US editor $5,000 a month to produce it, so they don’t. At $1,000 a month with a Filipino editor, the podcast happens, the editor has a steady job, and the business gets a marketing channel it would otherwise skip. The honest counterfactual is that the work doesn’t happen and nobody is hired.

The same math applies at our scale on the engineering side. A CTO who hires five Filipino developers through us for half the loaded cost of five US engineers usually turns around and hires one or two more US salespeople with the same budget. The savings don’t vanish into profit margin, they get redeployed into roles that have to be local. The offshore engineer makes a great living in Cebu, and someone in Kansas City picks up a sales job that wouldn’t have been funded otherwise.

Then there’s the multiplier on the Philippine side. Full Scale employs 350 people in the Philippines today. From running the business for years, I’d estimate every direct engineering job we create supports another two to three downstream: the driver who runs the office shuttle, the cooks at the lunch spot across from the office, the property managers and retail owners in the neighborhoods our engineers live in. The BPO industry as a whole has been the single biggest engine of middle-class formation in the country over the last twenty years, and we are a small piece of that.

None of this makes the cross-border value asymmetry disappear. It does change what the alternative actually looks like. The world where the Filipino engineer “loses” is the world where the job isn’t offered at all, the work doesn’t happen, and the sales role in Kansas City doesn’t get funded either. Nobody is better off in that scenario.

Where the BPO industry came from

The Philippines is the world’s largest BPO destination for a reason. In 1995, Congress passed the Special Economic Zone Act, creating tax breaks and easier development rules for foreign companies. SYKES set up the first big call center in 1997. By 2010, the country had over 525,000 BPO employees and the title of “BPO capital of the world.”

Today the industry employs more than 1.15 million people and generates over $25 billion annually. Software development is the fastest-growing slice. Universities are turning out more IT graduates than the local economy alone could ever absorb, which lines up neatly with the engineering shortage in the US.

I first hired Filipino developers in 2018, when I was scaling Stackify and US-only headcount was off the table. That team grew to 20+ developers and became a meaningful part of Stackify’s 2021 exit. The side project of helping friends do the same thing in the Philippines is how Full Scale started.

Why labor cost ethics start with the worker, not the spreadsheet

Labor cost savings get most companies in the door. Ethics start the moment you decide what to do with those savings.

The simple version: paying minimum wage in the Philippines isn’t the same as paying a living wage there, and a living wage isn’t the same as a career-grade salary. Plenty of companies stop at the first one. Filipino software developers earn $15 to $30 an hour locally depending on experience, and we pay senior developers at the top of that range. It’s the market rate for the talent we want, and it’s the rate that lets us keep developers on a team for years instead of months.

A few practical tests for whether your pay structure is ethical:

• The salary covers basic needs in the developer’s actual city, not the cheapest city in their country.
• It tracks with what local senior engineers earn at multinationals, not what the cheapest agency advertises.
• Raises are real and tied to performance, the way they would be on your domestic team.
• The developer can plan a real life around the role, including a marriage, a mortgage, and kids in school.

When pay clears those four bars, the cost-of-living dynamic stops being a question. The cheaper-by-half rate is real for the company. The career-grade income is real for the engineer. Nobody’s getting taken.

Working conditions are where ethics actually live

The deeper ethics question is about the work itself, and how the developer gets treated inside it.

Most of the offshore horror stories I hear from CTOs follow the same pattern. The client signs with an offshore firm and gets assigned a “technical project manager” who handles every interaction with the team, while the actual developers stay invisible. Sometimes the cause is a language gap, and sometimes it’s a cultural rule about who is allowed to talk to the client. Either way, you end up with a team you can’t actually communicate with and a middleman in the way of every decision.

That structure is bad for the client, and it’s worse for the developers. The engineers behind the curtain never build a relationship with the people they’re building for, never get named credit for their work, and rarely get the feedback they’d need to grow. They churn out, and the next batch rotates in.

What ethical offshoring looks like in practice:

• No middleman. The developers are on your Slack, in your standups, and accountable to your product manager. Full Scale staffs the team, and the team belongs to you.
• Full benefits. Every developer gets the government-mandated SSS, PhilHealth, and Pag-IBIG contributions, plus private health insurance, retirement contributions, and paid time off. “Compliance with minimum law” is the floor, not the ceiling.
• Career growth. A real path includes promotions, training budgets, conference stipends, and internal mobility, so the developer’s career doesn’t depend on switching agencies every two years.
• Equipment and environment. We provide proper hardware, an ergonomic workspace, reliable internet, and an actual Cebu City office for anyone who wants one. Remote works when it helps, and in-person works when that helps instead.
• Inclusion in the team’s culture. Birthdays, retros, all-hands meetings, and the annual kickoff all matter. Whatever your domestic team gets, the offshore team should get too.

We organize team development activities every year and run hobby clubs because retention follows belonging more than it follows pay. Our annual developer retention rate sits above 93%, which is the number that tells me the model is actually working. Burnt-out developers don’t stick around that long.

The AMC Theatres example

The clearest example of how this works in practice is AMC Theatres, a Kansas City company and a long-running Full Scale client. The Filipino developers we placed on AMC’s team are AMC engineers in every sense that matters: they have AMC email addresses, they show up in AMC’s engineering reviews, and they go through the same code review and product process as the engineers in Kansas City. Nobody on either side talks about them as contractors or as a vendor block sitting outside the org chart, because they aren’t.

A delegation from AMC’s Kansas City team flew out to our Cebu City office to spend time with the team in person, doing karaoke nights, hitting the beach, having dinners around the city together. That’s what an offshore relationship looks like when the structure is set up right and both sides actually want it to work.

The AMC engineers in the Philippines aren’t doing cheaper work. They’re doing the same work, and they care about it the same way the Kansas City engineers do.

Adhering to local laws

The regulatory side is the easiest part of ethical offshoring to get right, because the Philippines has built a clear framework for it. The Bureau of Internal Revenue has modernized its tax filing process, the Philippine Economic Zone Authority has spelled out the incentives available to foreign employers, and the Department of Labor has clear rules on hours, benefits, and working conditions for local employees.

Our compliance posture is unglamorous on purpose. We handle payroll, taxes, benefits, contracts, and government filings in-country, the way any local employer would. Our clients see a clean monthly invoice. The developer sees a real employer that does the same things their family’s other employers do. That’s the seam where compliance and ethics actually overlap. If the developer has to chase their own benefits or pay their own taxes out of pocket, the cost structure is a fiction.

For companies thinking about setting up their own entity rather than going through a staffing partner, the same rules apply. Take the long view, work with local counsel, and don’t try to be clever about classifications. The shortcuts here are the ones that surface in a press story two years later.

The win-win-win framing

I call what we’re doing a win-win-win:

• A win for the developer. A real, long-term engineering career in a country where those careers are still hard to come by outside of a few multinationals. Compensation that supports a family. Coworkers and clients who treat them like the engineers they are.
• A win for the client. Senior engineering talent for half to two-thirds of US loaded cost, embedded directly in their team as engineers rather than as a contractor block or a “dev shop” sitting outside the org chart.
• A win for Full Scale. When the first two work, the third one follows. We’ve been on the Inc. 5000 list of America’s fastest-growing private companies three years in a row, and 350+ people in the Philippines make a living because of it.

That structure is the whole answer to the ethics question. None of the three legs holds up without the other two. If the developer is getting squeezed, the client gets churn and burned-out work. If the client is getting fleeced, they leave. If we’re not running a sustainable business, we can’t keep doing right by either side.

What ethical offshoring actually requires from you

The Philippine government does its part, and a good staffing partner does its part. The last piece is the client. The ethics of offshoring aren’t decided in the contract, they’re decided in how you treat the people on the other end.

Practically:

• Treat the offshore developers like teammates, not vendors. Invite them to the all-hands. Include them in the Slack jokes.
• Give them real work, not just the leftovers your domestic team didn’t want.
• Give credit by name when their work ships.
• Pay on time, every time.
• If you’re going to end the engagement, do it the same way you’d handle a layoff at home. With notice, with severance where appropriate, and with help finding the next role if you can.

When clients do these things, the team gets stronger. When they don’t, the engineers leave and the client never figures out why. Almost every offshore failure I’ve seen in 20 years comes back to one of those five points being missed.

The bottom line

The ethics of offshoring don’t live in a policy document. They live in the difference between a $1.25/hour fast food job and a $5/hour VA job, and in the difference between a $5/hour VA job and a senior engineering job at the top of the $15 to $30 an hour range that comes with health insurance, a 401(k) equivalent, real career growth, and a team that knows your name. Every step along that ladder is real, and every step is worth treating with seriousness.

I’m proud that we get to give the people on our team a shot at the top of that ladder. The rest of this article is just the practical work of making sure that shot is the real thing.

If you’re thinking about building an offshore team and want to talk through what ethical offshoring looks like for your situation, schedule a call with us. We’ll tell you straight whether we’re a fit and what to watch for if we’re not.