Today’s Wall Street Journal has a very interesting article by Pui-wang Tam and Jackie Range – “Some in Silicon Valley Begin to Sour on India”. (Contact me if you can’t get a copy of the article). The authors interview a number of small and large business managers in Silicon Valley who have pulled out their outsourced operations in India. Why? Because the cost of the best engineers in India has risen to nearly that of engineers here in California!

Several of those interviewed noted that salaries for the best (best = technically experienced with good communications skills) have risen upwards of 30% per year over the past few years. In contrast wage growth in California is around 3% for engineers. For small and mid-size companies at least, it has become more economical to bring the few stars from India to the US and close down the operation abroad. The article also discusses other hidden costs of off-shoring technology development – employee turn-over is huge and dealing with development teams who work at different hours of the day is a big pain for managers.

India is still booming in the industry of lower-level tech support such as call centers etc., but even business in these areas is already starting to migrate to lower wage countries such as Vietnam.

You may recall that Thomas Friedman set off a wave of concern in the US with his book The World is Flat in which he saw a coming wave of global competition where the cheapest and most talented people world-wide would be in direct (and fierce) competition. Friedman saw this as potentially a huge shock to tech workers in the US, and there is no doubt that the increase in outsourcing over the last few years has contributed to the stagnation in wage growth among tech workers in the US.

But if Indian wages for the “best” are rising to nearly those in the US perhaps the tech sector has arrived at the end of the flattening phase. Sure, India produces 500,000 science and engineering grads every year but, according to a McKinsey Study (quoted in the article) only 25% have the language proficiency, cultural fit and practical skills required to work at multinational companies. US-born tech workers with good technical skills, good communication skills and cultural literacy are competing directly with these folks and they have one huge additional advantage: they are already in the US.

Because science and technology have always been a transnational community perhaps it was inevitable that tech workers would be the ones who would feel the changes of globalization first. But now that Globalization 1.0 appears to have occurred we discover that things aren’t as dire as Friedman (and perhaps some readers of this blog) have feared. US tech workers CAN compete with the best and brightest abroad. And because we have been competing for quite some time we may fare better when the world is rendered totally flat. Let’s see how the Radiologists, Investment Analysts and Mortgage Brokers fare…

A key to the value and strength of the US tech worker, as this article suggests, is not simply his or her technical skills. Communication, cultural fit and practical work experience are paramount. As long as science and engineering remains dominated by the US, US tech workers will fare fairly well. Maintaining the underlying forces that keep the US at the top of the technology/knowledge/value creation pyramid should be the real focus of policy makers in Washington.