India and China are still top in Asia-Pacific IT and BPO, but sizeable investments have seen various countries emerge as credible alternatives, according to a new Gartner study.

In the new report Gartner analysed the capabilities and potential of various countries as offshore services locations in the region.

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

“Some of these countries 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 adds.

The ten leading countries in Asia Pacific included the undisputed leader India, with China remaining the greatest challenger in terms of potential scale. The other countries include a mix of mature environments that offer limited cost benefits such as Australia and New Zealand and emerging nations with their respective challenges but attractive costs such as Malaysia, Indonesia, the Philippines, Thailand and Vietnam.

According to Gartner the last 12 months has seen significant activity in many countries to consolidate or grow their positions as leading offshore locations. 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.

India is also starting to face some challenges including wage inflation, local attrition rates, geopolitical issues and financial irregularities, which are opening opportunities for other countries that are also improving their capabilities to target local service demands of more-mature regional Asian clients.

“In view of India’s dominance, many countries trying to tap into this market are reassessing their strategy and looking at niche markets like call centres, logistics and other back-office functions where they might have a physical proximity advantage over mature countries like Australia, Hong Kong and Singapore,” said Mr Longwood.

Readers can read more findings from the report at "Gartner's 10 Leading Locations for Offshore Services in the Asia Pacific and Japan Region for 2010”