The impact of the economic downturn is driving companies to consider moving their IT services to lower-cost locations. However, determining which country or countries are best placed to host such operations is a daunting task for many organisations.

Gartner has assessed the suitability of countries in the Asia Pacific region as offshore locations and identified '10 Leading Locations for Offshore Services in Asia Pacific for 2009.' These included the undisputed leader in offshore services — India — and the greatest challenger in terms of potential scale — China. The rest are a mix of mature environments that offer limited cost benefits (such as Australia, New Zealand and Singapore) and emerging countries with a variety of challenges, but attractive costs (such as Malaysia, Pakistan, the Philippines, Thailand, and Vietnam).

Although India continues to grow in absolute terms (as measured in the top-line revenue levels) of IT services being exported from India, its share of the overall worldwide totals has declined. This is because other countries are investing heavily in an effort to gain more market share. Enterprises are seeking out strategies to reduce risk, and India is starting to face some challenges. These include wage inflation, local attrition rates, geopolitical issues (for example, the Mumbai terrorist attacks) and, most recently, the "Satyam Effect."

Despite dramatic increases in investment, infrastructure remains India's biggest weakness – strained power capacity and inadequate local and international connectivity remain challenges. Additionally, some of the IT service categories, such as application outsourcing, have matured and the level of incremental growth is considerably smaller.
So what are some of the alternatives in the Asia Pacific region? The Gartner analysis showed that the dynamic nature of the market has seen a number of countries position themselves as credible alternatives.

After India, China is emerging as the sourcing destination of greatest interest. However, it still has a number of challenges to establishing buyer confidence: security and intellectual property issues, relatively low English-language capabilities, a scarcity of middle managers and quality issues.