India's salary growth threatens outsourcing

Eastern Europe may also become more attractive as an offshoring centre. Last September, a research report estimated that a recent graduate of a specialist university in Romania could be hired for $6,500 (£3,572) a year in software development. An additional possibility is Russia, another country that produces more bachelor's degrees in engineering than the United States.

"There is great competition for cost, and there is a view that India is getting more expensive," said Pete Foster, a research director at Pierre Audoin Consultants, which released the report. "Europe represents a good opportunity and a new area to find resources -- but it is virtually ignored by the UK."

Even if companies turn to other countries for outsourcing work, however, India's technology industry would by no means be in dire straits. Executives and analysts on both sides of the Pacific agree that India's offshoring business is far more advanced than those of other countries and has unique benefits ranging from common language to Western-like entrepreneurialism. Most Indian technology companies offer stock options and other forms of compensation linked to performance.

"India's education system and culture foster risk-taking," said George Gilbert, managing partner of the Tech Strategy Group consultancy and former market analyst with Credit Suisse First Boston. "They also have financial backing and geographic intensity in Bangalore and New Delhi."

And India's technological future is not limited to offshore services. Many executives of Indian companies believe that political changes in the last decade will help their industry become more independent and develop technologies of its own, rather than simply service those made in the United States and elsewhere. As a result, business leaders say India will become a "knowledge centre" for the global technology economy.

"India has undergone a series of reforms, opening itself to globalisation and investment, leading to innovation, opportunities and jobs for its indigenous population that heretofore never existed," the American Electronics Association said in its report. "Before these reforms, India did not welcome foreign investment, had strong protection and trade policies and questionable intellectual-property protections."

At the same time, however, politics could also have a negative effect on India's international business and work against further wage increases. Potential customers may avoid the region altogether because of recent news about terrorist calls for attacks on the sitting government of neighbouring Pakistan and conflicts along the border between that country and India.

"Eighty percent of offshoring work is done in India. It's raising the question of, 'how do I protect myself in the event of some negative catastrophe?'" said Dean Davison, lead analyst on outsourcing for the Meta Group consultancy. "Even though the risk of going offshore might not really be that much higher, there's going to be a lot of companies that go to domestic vendors just so that they have the perception of not having higher risk."