India losing its cost advantage

Last month, I noted that the pendulum may be starting to swing back on offshore outsourcing. Now, there's more evidence. The New York Times is reporting that, as a center for outsourcing, India may be losing its cost advantage. The problem? Demand is pushing up wages and outsourcing firms are poaching employees from each other, with attrition rates now at 50-75% per year in some sectors.

The data from India show that, to some extent, the offshore outsourcing phenomenon may be self-correcting. Though outsourcing shows no sign of fading, rising wages and rapid turnover in Indian hubs may reduce the savings American companies reap when they send work abroad.

After reading this article, I remembered a phone call I received last week from a consultant, an Indian national working here in the U.S. on an H1B visa. His firm, which is composed of nearly all Indian H1Bs, is finding that the market is so hot in India that it wants to send most of them back to work in India rather than continuing to hunt for projects in the U.S. The problem, however, is that after living in the U.S. my consultant friend doesn't want to go back.

So, if the job market in India is so hot that even the H1Bs are being called back, how soon can it be before the Indian cost advantage is completely gone?

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