Rising wages prompt firm to pull out of India

Image search firm Riya is to pull its research and engineering operations out of India to consolidate in the U.S. due to rising wages in Bangalore.

The company, which is behind visual shopping Web site Like.com and specializes in image recognition software, had maintained offices in both Bangalore and the U.S. despite the difficulties of being based in locations 12 time zones apart because low wages and a strong pool of talent in India meant the company still saw a significant return on investment.

But in his company blog, Riya chief executive Munjal Shah, said: "Bangalore wages have just been growing like crazy. To give you an example, there is an employee of ours who took the first five years of his career to get from 1 percent to 10 percent of his equivalent U.S. counterpart.

"He then jumped from 10 percent to 20 percent of his U.S. counterpart in the next 1 year. During his time with us (less than two years) he jumped to 55 percent of the U.S. wage. In the next few months we would have had to move him to 75 percent just to 'keep him at market.'"

Shah added: "In general this wage inflation is really good for my employees and great for India."

But the increase in Bangalore wages had "destroyed the ROI" that was the rationale for maintaining the otherwise difficult two-continent operation. The company has now moved to consolidate its engineering and research work at its California headquarters.

In his blog Shah predicted that other firms with similar offshore operations would also face problems as wages rose. "I do believe that other startups in Bangalore will see the same issue in 12-24 months," he said.

Shah noted that unlike Silicon Valley employees, staff in Bangalore did not value stock options highly, preferring a boost in cash wages. This, and the fact that Riya was seeking the most highly qualified staff in the area "increased our exposure to wage inflation", Shah said.

The costs of having two offices so far apart was "significant", he said, with staff having to make late-night conference calls and then returning to work late the next day because of tiredness.

"We were all travelling constantly. Development and communication moved slower due to the distance and teams. However, all of this was worth it so long as the ROI was there," he said.

But loss of that return had prompted the U.S. consolidation. Riya would see a fall in headcount in a bid to keep overall payroll costs the same before and after the move, Shah said. "Because wages are still higher in the U.S. we couldn't bring everyone."