India is the global leader by revenue among the APAC offshore services locations: Gartner

In its latest assessment of nine Asia Pacific countries as potential offshore service locations, Gartner says India is the clear global leader by revenue, while China is the most serious challenger by scale. Bangladesh, Indonesia and Vietnam are continuing to gain regional traction for offshore service delivery, while more mature countries, such as Malaysia and the Philippines, are refocusing on their core capabilities of higher-end IT infrastructure, help desk, application and business process services.

With an average of 19% of total planned applications spending for 2014 being directed offshore globally, sourcing managers are taking a keen interest in which offshore locations their services are delivered from, according to Gartner research vice president Jim Longwood.

Ongoing cost pressures in Europe are driving some multinational corporations to consider moving their offshore services from mid-cost countries like Malaysia to lower-cost locations in Asia, Eastern Europe and Latin America. Some Western countries are becoming more protectionist, which is also having a negative impact on demand for offshore services from Asia Pacific.

Cost increases, either due to currency exchange and/or increases in cost for local resources and infrastructure are affecting the ability of India and China to be as cost-competitive as they have been. However, service providers are also taking advantage of market changes to revise their business strategies, according to Gartner.

“With demand slowing in Europe and North America, we have seen a range of Indian providers expanding their regional Asian presence and leveraging their nearshore capabilities,” said Mr. Longwood. “As a result, they are growing their presence in more mature markets like Singapore and Malaysia, and are now challenging the traditional MNC application service providers in these markets.”

Enforcement of laws for data/IP security, privacy and legal maturity continue to be an adoption barrier for using emerging low-cost countries, despite country governments improving related policies and regulations. All nine countries were rated either ‘poor’ or ‘fair’ on the data/IP security and privacy criterion.

This year’s Asia Pacific report includes the emerging IT economies of Bangladesh, Indonesia, Sri Lanka, Thailand and Vietnam, along with the more mature offshore locations of China, India, Malaysia and the Philippines. Developed countries such as Australia, Hong Kong, New Zealand, Singapore, South Korea and Taiwan are not included but should still be considered important nearshore location options.

Countries in Asia Pacific offer cost-competitive, typically stable and scalable locations for offshore IT and business process services, but Latin American and Eastern European countries now compete more aggressively for offshore deals, according to new research from Gartner, Inc. Analysts said currency fluctuations and rising delivery costs are also an issue for Asia.