While India remains a source for increasingly skilled workers who earn a fraction of what their Western counterparts take home, many companies will see the rising wages there as good reason to look elsewhere for IT services.
Some analysts say wage increases will become more apparent in companies' wallets later this year, forcing them to consider alternatives for offshoring. Eugene Zakharov, director of professional services for Technology Business Research, Inc., a firm based in Hampton, N.H., says that shift already has started to happen.
''It's making many companies look at other locations,'' says Zakharov, who adds that companies may set up new deals or open new offices in other countries, but he doesn't see many companies pulling out of India in one fell swoop. ''India is not the only offshore possibility. There's The Philippines, and China is one of the more popular locations for offshore developing and engineering work.''
But other countries have their own hurdles for foreign companies to climb over.
A number of companies are checking out China, with its large labor pool and educated workers, as a growing source of offshored work. Peter Ryan, an outsourcing and offshoring analyst with Datamonitor, an analyst house based in London, says some IT executives are approaching China cautiously because of its lack of intellectual property rights, its problems with software piracy, and its smaller base of workers who speak English.
''Are they at a point where they need to be with their Western language skills?'' asks Ryan. ''I'm not sure they are. And China, to a very large degree, has not yet absorbed Western business practices like they have in India... It can be very trying to work with the government.''
But Ryan also is quick to add that China is still worth a good hard look.
''I'd say China's pros outweigh the cons,'' he says. ''The pros are a scalable labor force, a strong emphasis on engineering and information technology, and there's a desire there to develop outsourcing as a sector and work with Western companies.''
Ryan says companies also might consider doing work in South Africa, which has a 'high degree of commercial sophistication' and a strong understanding of Western business practices.
However a surprise player in the offshoring market just might be Egypt, according to Ryan. ''Keep your eye out for Egypt, which has come on strong in the last few years,'' he adds. ''I went down there and was thoroughly impressed with what I saw. They have 200,000 university graduates coming out every year and 80,000 have engineering or IT backgrounds.''
In terms of players in the offshoring market, though, India remains the big dog on the block.
''I mean, really, in terms of IT, what's happening is people will still look at India because of the resources on the ground -- the labor force, the ability to set up shop quickly and the real estate market, which is still fairly fluid,'' says Ryan. ''You're still taking on a huge cost savings there. It's compelling enough still for U.S. companies to look at India as a serious option. The U.S. dollar has dropped over the last few years and Indian wages have increased, but we're still looking at a pretty wide gap.''