Wage Increases in India Make Offshoring Unattractive

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A bit of good news for the beleaguered American white collar worker: wages have gone up so much in India that “offshoring,” or moving functions overseas, looks like a losing proposition when all costs are factored in.

From “Bangalore wages spur ‘reverse offshoring’” in the Financial Times:

The rising cost of paying engineers in Bangalore has prompted at least one Silicon Valley start-up to save money by closing its Indian engineering centre and moving the jobs back to California.

While this “reverse offshoring” remains unusual, it points to a broader belief in the US technology industry that the savings that drove software engineering jobs to India’s technology capital are quickly eroding.

Like.com, a search engine company that uses image recognition software to find pictures on the web, took the step of closing in India after seeing the wages of top-level engineers in some cases rise close to US levels.

“Bangalore wages have just been growing like crazy,” Munjal Shah, chief executive, complained in a blog post. In the next few months, Like.com would have had to lift the salary of one of its Bangalore engineers to 75 per cent of the US level, even though the same engineer earned only 20 per cent as much as an equivalent US-based worker two years ago, Mr Shah said.

The extra costs of running a separate office in India and the difficulties caused by the 12 and a half hour time difference from California meant the pay gap no longer made it worth staying, he wrote.

Other Silicon Valley executives report that while other parts of India remain inexpensive, salaries in Bangalore have been rising rapidly towards those of the Valley itself.

“The differential in India is very small now,” said Rick Prime, chief financial officer of Tool Wire, an online education company based near San Francisco, although his company has not brought jobs back to the US.

“If you’re a small company, saving 20 per cent isn’t going to make a lot of difference,” said Brij Singh, co-founder of Apptility, a Valley software start-up that has 20 employees in India.

If international labor arbitrage has moved Bangalore pay rates up so quickly, it won’t take long for wages for skilled labor in other parts of India to rise as well.

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One comment

  1. Jeet

    There has been so much talk about reverse offshoring and reversal of hiring – that I decided to pen down a whitepaper on the subject. As my research went forward – my thoughts about it being a real trend went backwards…
    I would like to present the interesting findings of the paper to all of you…

    Please download the paper at:

    The subject of the paper is Reverse Offshoring: Trend or Strategy

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