IT outsourcing has made Indian cities like Bangalore, Chennai and Hyderabad easily recognized names not just in the cubicles and hallways of corporate America but even with mainstream Americans.

But some of that sheen could be wearing off as India joins the high-wage club.

The Wall Street Journal (subscription required) has a front page story today on how wage inflation is making India a less atttractive destination for IT outsourcing.

Across Silicon Valley, some technology companies, particularly start-up and midsize ones, are beginning to turn away from India for low-cost labor to do sophisticated tech work. Kana Software Inc. of Menlo Park, Calif., eliminated 100 software-development jobs in India in late 2005 and expanded its U.S. hiring instead. Teneros Inc. shut down a 30-member India office and brought 12 of the people to its headquarters in Mountain View, Calif. Some tech start-ups are choosing other low-wage foreign locales, such as Romania and Poland.

The WSJ story also highlights the wage issues Munjal Shah has grappled with in building his start-up Riya and his decision to close shop in Bangalore and return to Silicon Valley.

For sure, what the WSJ story alludes to is only an an emerging trend and the situation is in no way dire. Companies like Infosys, Wipro, TCS and Cisco continue to hire in the thousands.

But the unbridled wage inflation for experienced engineers is a worrisome trend for tech companies.

After all, if you go back to the 1990s it was tech companies like Texas Instruments, Motorola, Verifone, Digital, Cypress Semiconductor and Honeywell that first dropped anchor in Bangalore setting off a trend that was subsequently embraced by a large portion of corporate America.

As the Journal piece today rightly notes:

[F]or a large swath of Silicon Valley — start-ups and midsize companies that do sophisticated tech work — India is no longer the premier outsourcing destination. While such companies make up just a fraction of India’s outsourcing work, they had been an early catalyst for the growth of India’s information-technology business and helped the country attract other outsourcing clients.

But if wage inflation in cities like Bangalore, Chennai, Hyderabad and elsewhere continues to gallop at the rate of 50%, it won’t be long before China, Vietnam and Phillipines start nibbling on the IT outsourcing pie to India’s long term disadvantage.