India continues to firmly hold the top spot for global offshoring, but other countries are seizing opportunities for client base expansion.

According to a report of research firm Gartner, there has been a "significant activity" in many countries during the last 12 months in terms of strengthening their respective positions as credible alternatives.

In its report titled 10 Leading Locations for Offshore Services in Asia Pacific and Japan for 2010, Gartner particularly noted India's shrinking global share in the competitive IT services market.

"Although India continues to grow in terms of IT services being exported, its relative share of the overall worldwide total has declined as a result," the report said. "India is also starting to face some challenges including wage inflation, local attrition rates, geopolitical issues and financial irregularities."

The report added that problems in India are giving a break for other countries to supply the services required by the more mature regional Asian clients.

Attractive costs versus mature environments

Although China holds strong in its position as India's closest challenger, other countries have responded to the opportunities and caused market shareholder positions to move accordingly.

"Countries such as Malaysia, the Philippines and Vietnam have continued to strengthen their position against leading alternatives, while Indonesia has entered the top 10 for the first time," said Jim Longwood, Gartner research vice president.

Indonesia nudged Pakistan off the list of top 10 offshore destinations. Gartner underscored the Southeast Asian country's expanding business environment targeting both offshore IT and business services, its large labour pool, and its established industry base in mining and manufacturing involving prominent multinational companies.

Longwood said some of the countries in the list have invested considerably and leveraged increased demand for lower-cost services. "The global financial crisis forced many organisations to place a greater emphasis on cost optimisation," he stressed.

These four Southeast Asian countries, along with Thailand, offer attractive costs despite a variety of political and economic challenges.

The other countries in the list--Australia, New Zealand, Singapore--possess mature environments but extend limited cost benefits.

Hard choices

With the global economic crisis, however, Gartner said choosing an offshoring destination is not that easy.

Gartner assessed 30 countries in the Asia Pacific based on a 10-point criteria including language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, globalisation and legal maturity, and data and intellectual property security and privacy.

In choosing an offshoring site, Gartner suggested what it calls a "dual strategy" or co-locating offshoring sites. For instance, corporate functions can be located in mature economies while transactional back-office transactions can be located in low-cost countries. Examples include pairing off Australia or Singapore with Malaysia or the Philippines; or pairing Japan or Hong Kong with China.