Will India price itself out of offshore market?

Information technology workers in India reported double-digit salary growth in 2003, according to recent research, while pay for similar work within U.S. borders has been relatively stagnant if not declining. Although India's salaries generally remain significantly lower than U.S. averages, the narrowing wage gap and other unforeseen factors are leading at least some American companies to reassess the cost savings to be had by sending work offshore.

"Expectations about the benefits of outsourcing are becoming more realistic," according to a report by DiamondCluster International, a Chicago-based consulting firm, which recently released a survey of more than 180 companies involved in offshore outsourcing. "Most buyers in the previous study expected gains in efficiency in the range of 50 percent. Today, those expectations have declined to 10 to 20 percent."

Eastern Europe may become more attractive as an offshoring center. Last September, a research report estimated that a recent graduate of a specialist university in Romania could be hired for $6,500 a year in software development. An additional possibility is Russia, another country that produces more bachelor's degrees in engineering than the United States.

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