EyeQube is also in ``advanced talks'' with a Hollywood studio, which he won't name, to do its first film for U.S. release, he added.

EyeQube's ultramodern studios center on an egg-shaped screening room. The 20,000-square-foot (1,860-square-meter) space is filled with hushed, dusky rooms of computer terminals, where artists experiment with complex computer generated avalanches and digitally transform a man's face into vanishing particles of smoke.

``Of course it's a threat'' to U.S. firms, Darby said. But ``competition is never a bad thing.'' Geon's founders met while working on ``The Lord of the Rings'' in 2003. They opened an 18,000-square-foot (1,670-square- meter) office in October with funding _ how much they won't say _ from Sahara India Pariwar, a conglomerate with interests in real estate, finance, media and infrastructure.

Geon ultimately hopes to get out of the effects contracting business, with its razor-thin margins, and start making _ and owning _ its own films. For now, Geon is focused on training a pool of Indian artists. Chief Executive Jon Labrie says he's looking to hire 50 more artists globally and plans to open a Los Angeles office. But he'll be taking on just one Westerner for every 5 to 10 Indians.

There has also been a spate of acquisitions. Sony Pictures Imageworks acquired the Chennai effects studio Frameflow for a reported $5 million in 2007. Last year, Mumbai's Pixion acquired U.K. special effects house Men-from-Mars, whose credits include ``Elizabeth.'' Since 2006, India's Prime Focus has acquired four special effects companies in the U.K. and two in North America, which have worked on films like ``There Will Be Blood.''

All this is putting pressure on smaller U.S. special effects companies, like The Orphanage, a San Francisco-based company that shut its doors in February, laying off 100 people. ``The average cost of a shot gets lower and lower every year,'' said co-founder Scott Stewart. ``If they keep driving the prices down, it will keep driving it offshore. Fewer and fewer artists will be working in the U.S.''

Even the Orphanage had outsourced work to India to save on costs, he said. ``Everyone's doing it,'' Stewart said. Indian companies have already established themselves doing low-end work and are now moving up the value chain, he added. ``They're starting to get good at everything.''