Bizarro Software Dev: Moving Work from India to U.S. to Cut Costs

Ann All

A tight labor market and rising salaries in India led Gartner earlier this year to suggest that Indian companies might need to evaluate the use of Tier 2 and Tier 3 service providers -- or even those located in other countries -- to supplement their staffs.

 

So is it really so surprising that a startup called Riya has decided to relocate its development team from India to the U.S. to save money? OK, it's a little surprising.

 

To date, it's been more common for Indian companies looking to reduce labor costs to look to places like Eastern Europe, Latin America and China. Those establishing operations in the U.S. -- like Wipro, which plans to open at least two software development centers in the States -- tend to cite business and communication benefits other than cost.

 

But as noted in a blog on CIO.com, Riya's CEO found that, over the past two years, the salary of one of his programmers rose to 55 percent of an equivalent U.S. programmer's salary. Not only that, but Riya would need to further boost his pay to keep him from leaving the company.

 

When Indian salaries reach 75 percent of those paid to U.S. employees -- the point at which Riya and other companies are finding themselves -- the labor arbitrage is no longer enough to justify performing work in India. Added management and travel costs cancel out the cost difference.


 

Riya's CEO says that he could reduce his costs in India by hiring workers in more rural areas, but he doesn't want the costs or hassles of maintaining multiple offices. Unlike multi-national service providers like IBM and Unisys, he also hires only experienced workers in order to minimize training costs.

 

The author of the CIO.com blog, BeyondCore CEO Arijit Sengupta, says that startups like Riya have an especially tough time with long-distance software development. Unlike their larger counterparts, they generally don't have the financial reserves to compensate for infrastructure issues or to respond to the cost of errors.

 

Indeed, as I noted in an earlier blog that cited research from Columbia University's Amar Bhide, tech startups are notably reluctant to offshore strategic tasks like product development.



Add Comment      Leave a comment on this blog post
Jan 7, 2008 1:49 AM Mohan Mohan  says:
Yes, rising costs are a concern, but offshoring has also moved from just a cost advantage prespective to other benefits , knowledge, experience and quality.In any case salary hikes in India has to be curtailed. Reply
Jan 7, 2008 2:56 AM medicman medicman  says:
We must exploit this opportunity in ways that support longterm domestic labor and economic growth. I hope and pray this can be done intelligently and for the benefit of many, instead of the more usual approach of a handful of already rich Americans making a high-profit killing and in the process driving jobs back overseas.How long will it take to find someone interested in others as well as themselves? Why can't we take a longer economic view and attempt to become more globally competitive? Many try to blame high wages for our problem in keeping jobs at home. The real culprit is a cycle of apparently never-ending greed. The amounts of money going to the few at the top of the pyramid are astronomical, and could easily absorb the "high" wages Americans need and deserve if any of those who control the purse strings were patriotic.Yes, PATRIOTIC. I know may will either laugh or scoff, and it is those who will never understand the concept of national stewardship. Beware greedy few, for a home left unsupported surely crumbles and will no longer provide the comfort and security to which you have become accustomed. Reply
Jan 7, 2008 6:05 AM Bill Budde Bill Budde  says:
The emerging issue is "quality" not "price" in driving the outsourcing decision. There is always someone willing to do the job for less. Any procurement officer has 10 IT firms just waiting at their door to sell resources for less. The question is what happens when they don't DO the job at all, or 2-3 developers are needed (because of attrition, training, lack of knowledge) to replace the original resource? All of the "job hopping" has made buyers very nervous about the decision to outsource, much less move the work offshore. 25%-35% savings only does good to the bottom line if the business can function.There are plenty of jobs to fill (IT is the #1 or #2 job category with openings) according to the job sites. Part of the reason that costs are rising to be at parity with US-based salaries is that the workforce is mobile. H1B visa caps aside, there are avenues for workers to come to the US and work under L1 visas, or get a visa in Mexico or Canada (and cross the border to work for up to 364 days before returning for another year).America is still the land of opportunity. I'll be more concerned when the immigrant programmers choose to work in Europe or back in Asia! Reply
Jan 7, 2008 7:08 AM Rajan Singh Rajan Singh  says:
Bill, You are right on the money. I have founded a group of who's who who would work to address exactly that: how to help America create millions of jobs and double it's GDP within the next 10 years, while living in a global world. Anyone who wants to pitch in, pls write to irrcgroup@gmail.com Reply
Jan 8, 2008 5:51 AM Opoku Mensah Charles Opoku Mensah Charles  says:
Yes labour cost may have increased but one must look beyond just increase in lobour cost to take such a decision.You must look at your Investment Rate of Return and run a sensitivity analysis to see if you will make profits before you take such strategic decisions. Reply
Jan 15, 2008 9:19 AM nativeman nativeman  says:
>Pure FUD. I have never met a foreign IT worker who was any more qualified than a "native" IT worker in the same category. I've got over 25+ years experience to prove it. Plus the communications barrier always favors the "natives" anyway. I predicted years ago that sooner or later the labor costs of the third world would soon rise to meet the boom in economic development for the third world.Tee hee hee hee hee. Reply
Jan 15, 2008 9:21 AM nativeman nativeman  says:
COMMENT BY MOHAN: Yes, rising costs are a concern, but offshoring has also moved from just a cost advantage prespective to other benefits , knowledge, experience and quality. END COMMENT.Pure FUD. I have never met a foreign IT worker who was any more qualified than a "native" IT worker in the same category. I've got over 25+ years experience to prove it. Plus the communications barrier always favors the "natives" anyway. I predicted years ago that sooner or later the labor costs of the third world would soon rise to meet the boom in economic development for the third world.Tee hee hee hee hee. Reply

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