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IT Firms 'Insourcing' Jobs to U.S.

February 10, 2014

Tom Zanki, NJBIZ

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Bridgewater software company Mantra Information Services is in the process of slapping technology jobs to another country.

This country.

That's right: After four years of outsourcing work to India, the company decided it would get a better return on its investment in the United States.

Call it "insourcing" rather than outsourcing.

Maulik Shah, Mantra's cliief technology officer, said the transition is expected to improve productivity. The company concluded that the overhead costs of maintaining distant operations were offsetting savings from cheaper wages in developing countries, he said.

The shift is becoming more common. Underway in manufacturing for years, it's also happening in technology as more companies reevaluate the merits of offshoring.

"We're seeing this as more of a growing trend now," Shah said.

Mantra, a developer of mobile applications and custom software for businesses, closed an overseas operation in Ahmedabad in October after four years. It is hiring stateside to replace those jobs.

While Mantra employed 30 software developers in India, the company expects to need only about half as many employees here because of anticipated productivity increases. Shah said the decision makes sense when factoring all elements.

First, there were employee retention issues for Mantra. While wages are considerably lower in India, Shah said that gap is narrowing as inflation and living costs rise more rapidly in developing countries, putting upward pressure on salaries.

Shah said the company's employees in India came to expect annual wage increases of more than 30 percent and could find offers from other employers if their expectations weren't met. This resulted in frequent turnover. Mantra said average retention was about one year, and hiring and training anew employee could take six months.

Time zone differences, travel expenses needed to manage offshore operations, and lower productivity levels also added to costs. Shah estimated the company spent $2,000 a month in additional overhead. That made savings in wages - Mantra paid $10 to $15 an hour for software developers in India versus $40 or more per hour here - less attractive.

'When you figure out the full cost, it was about the same as here, sometimes more," Shah said. "And with the way wages are going up, you'll be spending more in a few years. Add it all up and it did not make sense for us to go down that road."

While Mantra is ceasing offshore operations entirely, other technology companies are paring back overseas growth as a percentage ofworkforce and capital investment

Object Frontier, an Atlanta-based software engineering company with offices in Jersey City, has about 400 of its 500 employees based in India. CEO Rich Napoli said that 4-to-l overseas-to-domestic ratio was more than 6-to-l four years ago.

"Part of it is the overhead costs of having physical resources offshore," Napoli said. "You think it's cheap, but you still need to manage and integrate it. It's never as cheap as it appears."

Napoli said the changing nature of information technology is also influencing decisions to limit offshore operations. Corporations are shrinking their IT budgets as more back-end operations shift to the cloud. As IT staffs decrease, Napoli said it makes less sense to employ operations overseas.

"Small teams are just saying, 'Forget it,"' he said.

That doesn't mean "insourcing" is a smooth transition.

Technology companies hiring in the United States say it's difficult to find highly skilled graduates who match their openings. And small companies are fighting big companies, such as Apple and Google, for top talent.

New Jersey Technology Council CEO Maxine Ballen said skilled employees who can write code and develop programs come at a premium, she said.

"These positions command a pretty dollar," Ballen said, adding that salaries can range from $60,000 to $125,000."

In the end, Shah said, it may be worth it.

"Ifyou really want to get something finished quicker that will be good quality, it's a no-brainer? he said. "Get it done here."

E-mail to: tomz@njbiz.com

On Twitter: @biztzanki

(c) 2014 Journal Publications Inc.

Original headline: Moving jobs back to U.S. is starting to make sense


Source: (c) 2014 Journal Publications Inc.

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