Will salary inflation curb offshoring?

Asia's booming economy is raising an interesting question for U.S. companies: As businesses in that part of the world raise salaries to reflect their prosperity, will the region become less attractive for offshore outsourcing?

A new report indicates that more than 50 percent of companies surveyed in Asia expect to increase jobs and salaries in the last quarter of the year, with those in China being particularly bullish. Although the study did not cite specific salary levels, some Asian countries had reported substantial increases in compensation as part of a trend that began more than a year ago.

If the cost of labor continues to rise in Asia, American companies may have less incentive to continue outsourcing work there--especially as they continue to face political pressures to employ U.S. citizens.

Blog community response:

"One of the most common reasons to leverage offshore resources relates to cost savings. However, as more actual data comes out of the offshore engagements, people are learning more about the 'hidden costs' or unanticipated costs of going offshore."
--Ravenous

"Indian salaries are rising much faster than American salaries are falling. If that cost advantage disappears, there will be less outsourcing. If salaries in India are rising fast (in this sector) eventually outsourcing becomes less lucrative."
--Voice From a 2.5-World Country

"Despite recent salary increases, offshore outsourcing in India remains a low-cost alternative to in-house staff or onsite contractors. By working with your service provider on process improvements and automation, you can not only absorb salary increases, but improve the overall quality of the work received from India."
--SEO