Three big India-based offshore outsourcing companies claim sharp increases in employee head count is clear evidence of growing demand for offshore services.
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Analysts say this demand is increasing wages in India by double digits and raising the potential of rate increases for US customers.
For now, at least, competition in India is keeping billing rates stable. But analysts say that won't continue indefinitely as competition for experienced employees increases.
In a quarterly report, Wipro said its workforce rose by nearly 18%, adding 5,546 employees in the three-month quarter that ended 30 September, to bring its total to 37,063. For the same period one year earlier, the company reported 24,500 employees.
For the same period, Infosys Technologies said its workforce grew from 27,939 employees to 32,949 employees, also an 18% increase. One year ago, Infosys had 18,580 employees.
For the same quarter, Tata Consultancy Services said its head count had climbed nearly 12% , from 36,636 to 40,948. In June 2003, Tata reported 24,000 employees.
"Bangalore today is like Silicon Valley was five years ago," said Lance Travis, an analyst at AMR Research.
The growth in overseas IT employment is coming from demand from US companies. Meta Group said the use of offshore services by US companies will grow at about 20% a year through 2008.
Meta estimates US spending on offshore services at $10bn (£5.5bn) this year, and that's with 55% of US companies not using any offshore services, according to Dane Anderson, a Meta Group analyst.
This demand is driving up salary rates in India by about 14% this year, especially for experienced workers, said Eugene Kublanov, an analyst at outsourcing consulting firm NeoIT.
An experienced Indian programmer making $7,400 this year can expect to earn about $8,500 next year. By 2010, that same employee may be making double that, Kublanov said.
To cover these increases, service providers will have to shrink profit margins, improve efficiency and add more sophisticated IT services that allow them to charge more. While India application development rates remain roughly a third of US costs, they are creeping up to about $19 to $20 per hour for software development this year, up from $17 to $18 an hour last year, Kublanov said.
But competition for employees, as well as the threat of increasing turnover, is prompting companies to try different approaches to recruiting and retaining workers.
At its Hyderabad, India, outsourcing facility, Sierra Atlantic has begun holding "parents day" programmes for recent college graduates mulling job offers from firm. Win over the parents and the likelihood that their son or daughter will accept the job offer increases, the company hopes.
"The majority of college graduates have arranged marriages still," said Marc Hebert, a vice-president at Sierra Atlantic, an outsourcing firm that specialises in research and development. "The parents are very involved in these kids' lives."
By exposing the parents to the company's culture, working conditions and values, the hope is that it will leave a favourable impression on the parents, he said.
Hebert said that in Hyderabad, where Sierra has a 700-employee facility, turnover has reached about 15%, about par with other large cities, he said. While high, it has been historically similar to the turnover rate in Silicon Valley, he said.
The accelerating demand is prompting Sierra Atlantic to consider operations in other regions of India, as well as China and elsewhere.
To minimise the impact on their projects, US companies are increasingly using dedicated development centres, which establish a separate work environment with employees who do work only for that client and are made to feel that they are part of a team. While these dedicated centres may stabilise a workforce, they also lock a company into a multi-year contract.
As customer use of offshore outsourcers increases, Travis said he is unaware of any provider that "is turning away business because they don't have enough resources".
Patrick Thibodeau writes for Computerworld