India's Wage Inflation May Have Outsourcers Looking At Des Moines Over DelhiIndia's Wage Inflation May Have Outsourcers Looking At Des Moines Over Delhi

Today I met with TCS CEO S. Ramadorai at the company's London offices across the street from Buckingham Palace. Not a bad location if you want to create the impression you're in business for the long haul. TCS, with quarter after quarter of double-digit gains in revenue and profits, clearly is. But there's one thing that could derail the $3 billion company's plans to become a $10 billion company by 2012. It could also put the whole offshore equation in doubt.The issue is skilled labor--or the lack of it. The topic was clearly on Ramadorai's mind today and probably is on most days. "Attracting and keeping the best talent is going to be a critical challenge for us," he conceded during our chat. Indeed, although India is pumping out about 400,000 technically trained graduates each year, employers are snapping them all up before they even leave campus.

TCS doesn't just need to compete for labor with Indian peers like Infosys and Satyam--IBM, EDS, Accenture, and other Western firms are hiring in the country by the tens of thousands. One tech exec over there recently told me that companies now routinely poach from each other, offering to double on the spot the salary of key workers such as experienced project managers if they'll jump ship.

Why should you care? Simple: India is still a great bargain for low-cost, high-quality IT talent, but I'm not sure how long that will last. The quality will always be there, but with wages increasing at 15% per year it won't take long for the gap between U.S. and Indian salaries to close. Offshoring carries considerable overhead, so wages in the two countries don't have to be equal for India to lose its advantage.

To ensure that TCS gets its share of skilled tech workers, Ramadorai is looking beyond India. The company is moving aggressively into China, Eastern Europe, and South America. And it's recruiting at all the top schools, like Harvard, Oxford, and Cambridge. "We don't go there with PowerPoint presentations. We engage the students. We let them participate in real projects we're doing and see our facilities around the world," Ramadorai told me.

He believes that approach will convince top prospects to join TCS rather than, say, IBM. Ramadorai needs to be right on that for TCS to hit its ambitious growth targets. "For us, retention is a strategic issue, not departmental," he says. For India as a whole to remain the country of choice for IT services, its own schools need to continue mass-producing capable graduates to keep supply in line with demand. Because there's always Budapest, or Sao Paolo, or Guangzhou, or Halifax, or even Des Moines, Iowa.