As Harrison sees it, India labor will be cheaper for another 30 years. “A lot of the hype over wage inflation and the end of arbitrage is sensationalized and put out by people who have a vested interest in it being over,” he says. “While outsourcers do have to look for ways to move up the value chain, to deliver more value and do more with less people, to say that arbitrage is over is a little silly. The difference between U.S. salaries and India salaries is getting closer, but it’s creeping there, it’s not leaping there.”

For example, over the last five years, the average salary in India has increased 15-20%. But according to Harrison, many people falsely claim this is the annual growth rate and the upward mobility of a few skews the numbers. “There is, in what’s widely misread and misinterpreted as wage inflation, a huge difference between what junior and senior people are paid in India,” he says. “In the U.S., the difference is modest; a junior person makes $60,000, a senior person makes $180,000, so there’s a 3X difference. In India it’s more like 30X.”

Harrison is more concerned about currency changes. “The currency shift in the last 90 days has probably had more impact than wage inflation has in the last three years,” he says. “So if there were a precipitous decline and the dollar went from 40 rupees to 20 or 15 rupees, that would be an equalizing force. But I don’t think anyone expects it to go to that low.” If the dollar drops to 36 rupees, the average salary in India will still be less than one-third of the average U.S. wage.

GlobalLogic runs 110 "virtual captives" for technology companies and a few Wall Street clients including Blackstone and Citigroup. The virtual part means employees all work together, yet client companies’ intellectual property is protected.

Although many U.S. companies have been shutting down their U.S. captives in India, such captives can succeed if they can achieve two things: a strong brand and effective collaboration. “The companies that are struggling with their Indian captives tend to be the smaller companies with smaller captives,” he says. India has a brand-conscious culture and outsourcers’ employees often support an extended family. “If they come home and say they have a job offer from an unknown company and one from Infosys, their parents will say, ‘Go with Infosys -- we know them, we don’t know those other guys.’ That conversation happens millions of times and puts a lot of pressure on smaller outfits.” Small companies end up paying two to three times the salaries that large, well-known companies can get away with in India. To work on its visibility, GlobalLogic spends $100,000 a month on newspaper and magazine ads.

When employees are scattered around the world, the right collaboration tools are essential, Harrison says. GlobalLogic, which has offices in Ukraine, India, the U.K. and the U.S., with another being built in Beijing, uses what he calls “the usual suspects”: a wiki, workflow software, video, instant messaging, structured mail, and whiteboarding. “It’s bringing them all together and using them all appropriately that’s the secret sauce,” he says. “It’s tough to do; I think a lot of companies have one or two of these things but not all of them. A lot of companies have never invested in a knowledge base. When you’re distributing work, you have to have a knowledge base, it’s no longer an option.” The wiki, which GlobalLogic built using Atlassian’s Confluence software, acts as a central repository of information backed up by a database. “We view requirements [documents] as no longer being Word documents but a database of features -- that’s the only way to properly collaborate in a distributed fashion on a specification,” he says. “If you were doing it through a Word document, it would be horrendous. The challenges associated with revision marking and version control would be completely impractical.”

What country will be the next India, when Indian outsourcing labor arbitrage finally disappears? Without hesitation, Harrison says China because of the million graduates a year coming out of its schools with increasingly better language skills. Although today China gets one-tenth the outsourcing business of India, it’s growing fast and in 5-10 years it’s reasonable to expect it will be more competitive.