To that end, Shah said, wage increases among his engineers in Bangalore tended toward twice the national average. "Salary increases have been 30 percent for more than a year now," Shah said; the engineers who lost a job when Riya decided to close the Bangalore office all have received multiple job offers with significant wage increases, he said.

Differences in the high-tech cultures of the United States and India also play a part. Indian workers are less likely than their Californian counterparts to be wooed by the prospect of working for stock options instead of cash. 

"In Silicon Valley, you see your friends from Google driving around in new Ferraris, and you think, 'Huh, occasionally this actually works,'" said Shah. "But there's no comparable value for options [in India]." 

And without the lure of options that might someday make a software engineer wealthy, money isn't just one reason for a Bangalore engineer to join a company – it's the only reason.

"If you can't build a core loyalty with options, then you're in for a tough time," said Keerti Melkote, cofounder of wireless LAN hardware company Aruba, which went public in March. Aruba tried outsourcing to India shortly after the birth of the company in 2002 but found that it slowed down operations too much for it to be worthwhile. 

"You need a critical mass for offshoring to work -- a whole project as opposed to part of one project -- and for a startup, offshoring might not make sense. Especially now, the loaded cost of all the late-night conference calls is high enough that it might not make sense."

Melkote said that with its growth in the last few years, Aruba can now afford to support a fairly autonomous Indian operations center in Bangalore. But startups don't have that option.

"We found that if you gave a guy less than a 30 percent salary increase every year, then he'd walk," Shah said. "By the middle of this year, we would have been paying [the Indian engineers] 75 percent of a U.S. salary, and at that point, it doesn't make sense because of all the other overheads that take away from productivity."

What kinds of overheads you ask?

"On average the power probably goes out three or four times a day," said Fran Karamouzis, a research vice president at Gartner who specializes in outsourcing issue.

“You get surges for 15 or 20 minutes, and if you don't have adequate power supplies, then that's a big issue." That’s a big issue for startups, whose employees often work odd hours from home, Shah said. 

Of course, infrastructure problems are nothing new and are considered par for the course in India, but with competition from China, Russia, Eastern Europe, and even Vietnam and Africa, unreliable infrastructure is starting to cost India business, such as Intel's recent decision to locate a $2.5 billion chip plant in China.