by Lori Hawkins
Austin American-Statesman
Pervasive Software Inc., which two years ago launched a high-profile effort to move all its software development to India, said Wednesday that it is ending that program and hiring instead in Austin.
"We're coming back home," Pervasive CEO John Farr said.
It's an unusual scenario in an industry grown accustomed to companies adding far more jobs overseas than in the United States.
Farr said that although the potential cost savings of offshore development are compelling, the setup didn't work out as planned.
"We have found that the complexity of managing such an operation and the increasing costs of labor, employee turnover, training and facilities in a hot market such as Bangalore make it challenging to realize those savings," he said.
Farr said the database-software company will close its subsidiary this month. It will continue, however, to do some low-end development with its longtime India partner, Aztec Software.
As a result of the closure, Pervasive will ramp up hiring in Austin, where it employs 150 workers. The company will add up to 20 technical employees here over the next several months, Farr said.
"We value the unique blend of technical sophistication and innovative spirit here in Austin and believe the technical talent we require resides here locally," he said.
The changes come five months after CEO Dave Sikora resigned and was replaced by Farr. Sikora launched Pervasive's India effort, in which the company planned to move most of its programming to Bangalore to cut costs and speed development of new products.
Pervasive planned to hire as many as 100 Indian programmers while reducing its team of developers in Austin. The company ultimately hired about 45.
But delivering savings is often far more difficult than small companies imagine, said Robert Kennedy, professor of business administration at the University of Michigan.
"Moving offshore involves a trade-off. Typically you save a lot on labor and you incur additional costs related to administration and other issues," Kennedy said. "For big corporations, the economics still work. But for midsized ones, it's easy to overestimate how much you're going to save."
From 2002 to 2005, Pervasive's annual revenue climbed 30 percent to $48.4 million. At the same time, overhead costs rose 50 percent as the number of employees rose from 146 to 251.
"Leasing costs in Bangalore are the same as in Austin, Texas," Farr said. "Salary costs are increasing in Bangalore, and the cost of attrition and retraining people is certainly higher in Bangalore."
Rising costs in India are affecting big tech players, too. That's what led Apple Computer Inc. to scrap plans for a technical support center in Bangalore earlier this month.
But experts say the offshoring trend is permanent and growing. Dell Inc., which made headlines a few years ago by bringing a small number of high-end technical support jobs back from India to the U.S., has grown from fewer than 200 Indian workers in 2000 to more than 10,000 workers now. It is expected to double that over the next three years.
Freescale Semiconductor Corp. said earlier this year that it will add 1,000 engineering jobs in India within four years.
EMC Corp. said this week that it will invest $500 million in facilities in India over the next four years. IBM Corp. said this month that it would invest $6 billion in India over the next three years.
But for Pervasive, it's time to pack up, Farr said. "We've been to Bangalore, and learned a lot, and we've decided to return to Austin."