The End of Outsourcing?

Could diminishing wage gaps be the end of outsourcing?

Reports that General Electric (GE ) plans to sell its entire business-processing operation in India for a cool $1 billion raises the interesting question of whether the offshoring phenomenon may be peaking. Not that it will stop being an key part of corporations' global strategy. In an integrated business world, you go where the best talent is — period. But the surge in companies going to India, China, and Eastern Europe in search of very cheap brainpower may soon be coming to an end — far sooner than anyone has anticipated.

Why? Simply put, the wage gap between the U.S. and Asia is shrinking. Pay scales are rising fast in India and China for college-educated, English-speaking professionals. As U.S. and European companies send more of their call-center, design, accounting, medical-service, and legal-service business overseas, demand for folks to work at these centers has soared.

And since these Indians and Chinese aren't anyone's fools, they've been demanding — and getting — increasingly higher compensation. After all, these Web-savvy men and women just have to check the human-resources Web sites of Western companies to see what their counterparts are making. And indeed they have, as their rising compensation proves.

This is Economics 101, and it is a perfect example of why outsourcing to India or China is good for everyone in the long haul.