Small in stature, but big on ambition, Singapore is keen to cash in on the offshoring rush by attracting more western IT companies to its 266 square miles of territory.

The Singapore Economic Development Board (EDB) is currently offering tax breaks and other financial incentives to IT firms setting up in Singapore. It emphasises that the country's advanced communications and travel infrastructure, together with its central position in South-East Asia are key to recruiting highly qualified technical staff.

"Companies can approach new opportunities in India and China from Singapore, whilst many companies in this region are looking at Singapore as a gateway to other markets," said Simon Lim, deputy director for Infocomm and media at the EDB.

While it will struggle to match either the manufacturing muscle or the lower wage bills of India and China, Singapore does appear geographically well placed and well connected for research and development (R&D), distribution and supply chain operations.

Lucasfilm opened an office in Singapore in October last year, having found that it was recruiting in a lot of talented programmers, artists and production staff to its headquarters in San Francisco from the South-East Asia region. The company was nervous about locating in China because of the perceived difficulty of protecting its intellectual property rights and the fact that video piracy was rife in that country.

"There are a lot cheaper places to get staff than here in Singapore, but it is a nice place for people to come," said Chris Kubsch, general manager at Lucasfilm Animation Singapore.

Motorola and Sybase have R&D facilities in Singapore, and Motorola announced earlier this month that Singapore will become the global supply chain management control tower (SCCT) for all of its businesses, including networks, software development and handset manufacturing.

"Singapore has a great airport, great local talent and we got support from the government,” said Jay Anderson, vice-president of sales and operations for Motorola Asia Networks. “It is cheaper for us to build and distribute handsets from here than it would be in either Europe or China."

The small, densely populated country is well served by fixed and wireless telecoms carriers and broadband providers, though Lucasfilm suggested that connectivity and capacity could be improved and the time difference raises some problems.

"Email is the not best form of communication, and we are using a lot of video conferencing, plus WAN optimisation to deliver instant access to stuff in our California office," Kubsch said. "We are working to improve capacity but there are lots of hubs [on the Singtel network] in between and we are not quite where we want to be yet."

According to a study by accountancy firm KPMG published earlier this year, Singapore is the most cost-competitive business location among nine industrialised countries, including the UK, America and Japan. The bi-annual study indicated that Singapore was 22 percent cheaper than the benchmark US. KPMG examined 27 cost components, including wages, freight costs, business taxes, rent and utilities pricing.