So how’s the offshoring tsunami going?

Your humble blogger has been unusually consistent in his position on offshore outsourcing: 1) The initial offshoring of tasks will slow as a) mistakes are made and as b) labor markets begin to equilibrate; 2) Offshoring will be limited to tasks that can be segmented into simpler jobs.Let's see how things are going now, shall we? The Influence Peddler reports that some Silicon Valley firms are now engaged in "reverse offshoring": No Joke: The rising cost of paying engineers in Bangalore has prompted at least one Silicon Valley start-up to save money by closing its Indian engineering centre and moving the jobs back to California. While this ?reverse offshoring? remains unusual, it points to a broader belief in the US technology industry that the savings that drove software engineering jobs to India?s technology capital are quickly eroding. Like.com, a search engine company that uses image recognition software to find pictures on the web, took the step of closing in India after seeing the wages of top-level engineers in some cases rise close to US levels. ?Bangalore wages have just been growing like crazy,? Munjal Shah, chief executive, complained in a blog post. In the next few months, Like.com would have had to lift the salary of one of its Bangalore engineers to 75 per cent of the US level, even though the same engineer earned only 20 per cent as much as an equivalent US-based worker two years ago, Mr Shah said. It's almost as if there's this crazy... international labor market -- and higher value skills and greater value added lead to higher wages. And then when companies no longer save money by locating jobs abroad, the potential actually exists for them to return to the US.The rising wage problem is disputed by Nasscom, the Indian software association -- though they acknowledge that the shortage of high quality workers is a growing problem. The other problem is local knowledge, as this New York Times story by Steve Lohr suggests: ?Once you start moving up the occupational chains, the work is not as rules-based,? said Frank Levy, a labor economist at the Massachusetts Institute of Technology. ?People are doing more custom work that varies case by case.? In the field of technology services, Mr. Levy said, the essential skill is ?often a lot more about business knowledge than it is about software technology ? and it?s a lot harder to ship that kind of work overseas.? The offshore specialists in India are learning that lesson. As they increasingly compete for higher-end work, the Indian companies are hiring thousands of workers this year in the United States, adding an odd twist to the offshoring trend. Tata alone plans to recruit 1,000 workers in America, said Surya Kant, president of the company?s American unit, for ?the near-shore work that requires regular contact with clients in person.? Lohr demonstrates the need for hands-on workers by profiling an IBM project for a Texas utility. IBM is using both domestic and international units to complete the assignment. For the domestic employees, the skill set required would be difficult, at best, to outsource offshore: The utility project I.B.M. is doing in Texas offers a glimpse of the global formula. The far-flung work team includes research scientists in Yorktown Heights, N.Y., and Austin, Tex.; software developers in Pune and Bangalore, India; engineering equipment and quality-control specialists in Miami and New York; and utility experts and software designers like Mr. Taft that have come from Philadelphia, San Francisco, Los Angeles, Chicago, Raleigh, N.C., and elsewhere. I.B.M. plans to use the skills learned and software written for the smart-grid project in work with utility clients around the world. In the services field, these are deemed ?reusable assets,? reducing costs in the future. Ron Ambrosio, a senior I.B.M. researcher, has been down to Houston a few times, attaching sensors to power lines and collecting gigabytes of data on electricity flows. He and others at I.B.M. are studying how to predict and prevent power failures, optimize performance, reduce costs and conserve energy. ?We?re looking at this as part of a worldwide opportunity,? he said. Dennis Hendon, an account executive, and Rob Calvo, a senior services consultant, lead the I.B.M. team in Houston. Mr. Hendon is an engineer by training, while Mr. Calvo has a business degree, but their real skills lie in years of on-the-job training ? what labor experts call ?passive knowledge? and ?complex communications,? observing, listening, coordinating, negotiating and persuading. The two men say they think of themselves as orchestra conductors, getting all the human parts working smoothly together, inside and outside I.B.M. ?We aren?t mounting the poles, but our subcontractors are,? Mr. Hendon said. This kind of human capital formation raises an interesting question for economists like Alan Blinder who feel that we need to redirect K-12 education right now to address the offshoring revolution: if the skill set required to develop non-offshorable jobs comes largely from on-the-job training, how would educational reform address the offshoring "problem"?