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Indian Outsourcers Living Large on Demand

Beyond that, the Indian companies are expanding into new areas such as network and data-center management, consulting, and business process outsourcing of such departments as human resources and accounting.

Infosys had been a leader in introducing new services and developing a reputation for innovation, industry observers say. "It feels like it's getting to the point where you don't get fired for hiring Infosys," says Roopa Unnikrishnan, a manager with organizational performance consulting firm Katzenbach Partners, putting a new spin on an old IBM (IBM - Get Report) adage.

But expanding into new areas hasn't been a slam-dunk for the Indian companies, says Schmidt. "The results of that are extremely mixed," he says. "I haven't seen dramatic growth in those businesses for Infosys and others."

One reason: The Indian companies are moving into the domain of major multinational IT services providers like IBM, Accenture (ACN - Get Report) and Electronic Data Systems (EDS).

Those heavyweights can offer greater depth and breadth of services, and have closer, long-term relationships with top-level executives, analysts say.

And at the same time the Indian companies are encroaching on the multinationals' turf, the multinationals are beefing up their own offshore offerings.

"The multinationals are definitely having an effect," says Rick Nathanson, whose Westport, Conn.-based firm Nathanson & Co. advises clients on outsourcing. "They're able to do business because they represent a step up in quality in the minds" of customers more than the Indian-only companies do.

Higher Pay

But for now, analysts widely believe there's so much offshore opportunity that the multinationals will have little effect on Indian firms' revenue. Where they are already having a notable impact, however, is on labor costs, which threaten operating margins.

It's a case of simple macroeconomics. As the multinationals build up their workforces in India, the competition and demand for labor has intensified, pushing up wages 10% to 15% a year.

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