Image search firm Riya is to pull its research and engineering operations out of India to consolidate in the US due to rising wages in Bangalore.
The company, which is behind visual shopping website Like.com and specialises in image recognition software, had maintained offices in both Bangalore and the US — despite the difficulties of being based in locations 12 time zones apart — because low wages and a strong pool of talent in India meant it still saw a significant return on investment.
But in his company blog, Riya chief executive Munjal Shah says: “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% to 10% of his equivalent US counterpart.
“He then jumped from 10% to 20% of his US counterpart in the next year. During his time with us (less than two years) he jumped to 55% of the US wage. In the next few months we would have had to move him to 75% just to ‘keep him at market.’”
Shah adds: “In general, this wage inflation is really good for my employees and great for India”, but the increase in Bangalore wages has “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 predicts that other firms with similar offshore operations will also face problems as wages rise. “I do believe that other startups in Bangalore will see the same issue in 12-24 months,” he says.
Shah notes that unlike Silicon Valley employees, staff in Bangalore do 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 says.
The costs of having two offices so far apart was “significant”, he says, 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 says.
But loss of that return had prompted the US consolidation. Riya will see a fall in headcount in a bid to keep overall payroll costs the same before and after the move, Shah says. “Because wages are still higher in the US, we couldn’t bring everyone.”