I think in the very long term though what will happen is countries like India will actually end up with salaries comparable to western workers, so even though the gap might be smaller, the cost/benefit ratio will change again.
That happened during the last offshoring hype cycle as well. Those Indian developers aren't stupid -- the ones who deliver quality work will soon move somewhere they can earn a salary to reflect that, and it will be comparable to a US/UK/EU salary. Companies who insist on sticking to low salaries are left with the worst people.
I worked with some very good offshore engineers. They all left pretty quickly for a job with double the salary, or moved abroad outright to claim it. The only ones who stuck around were the ones whose poor skills kept them from landing a better job.
It's also great for productivity when your offshore team is a rapidly rotating cast. I remember being in meetings where without any announcement, half of the developers who had slowly started to get to know the project were replaced with new faces who had no idea what they were supposed to do.
