So, despite the wage increases we hear about, the supply of low-cost IT talent abroad isn't drying up? There are a number of hot spots for IT talent in low-wage countries where wages are rising and attrition is high. Bangalore, Hyderabad, Prague are all good examples. But the good news is those tend to be the exception, not the rule. Our research shows that the supply of talent in low-wage countries will continue to exceed the demand for many years to come. More than 90 percent of the young professionals with seven years' experience in the low-wage countries we studied live outside the current hot spots.

McKinsey Global Institute's study of conditions in 28 low-wage countries found 6.4 million "suitable" young professionals. What does "suitable" mean? We've defined "suitable" as young professionals with university degrees and up to seven years of experience who can successfully operate in a multinational company, meaning they have the requisite language skills, technical knowledge, practical experience and ability to interact successfully in a corporate environment. We calculated the suitable pool of talent based on interviews with almost 100 HR experts. The percentage of suitable young professionals varies widely from country to country, and population is not always an indicator of the size of the suitable talent pool. For example, in China, 10 percent of engineers are considered suitable for employment in a multinational, compared with 20 percent of Filipino engineers. So even though China's population is 16 times the size of the Philippines', its pool is only three times as big.

What effect will these workers have on the cost of offshore talent? Despite the talent hot spots, the huge supply of suitable professionals available for hire means that their average wages will remain relatively low. Our research suggests that average wages for these workers will not rise above 30 percent of U.S. levels.

And despite concerns in the U.S. and other developed countries, we don't anticipate that offshoring will impact salaries in high-wage countries significantly in the near term. That's because total offshore employment in services will likely represent only a tiny fraction of overall employment in developed countries. Our estimates suggest that the total number of jobs offshored by 2008 will reach 4.5 million -- a large number, but not relative to the size of the developed-world labor pools.

For hot-spot salaries to level off, companies have to move into these new areas, and that means considering all kinds of benefits and risks that they don't need to think about if they're going into a settled market. What are some of those benefits and risks? Companies should weigh the benefits and risks before entering any market. We suggest that managers develop their own location cost index, weighing a host of factors, including costs, availability of skills, the business environment, the market potential and the quality of infrastructure.