The Hindu Business Line : The road now taken

It's not just the hotspots any longer. Tech activity is picking up in smaller cities in several States, including God's own country, Kerala. eWorld traces the changing contours of the Indian IT map.

IF the first things in life have a special place in heart, Thiruvananthapuram will forever remain as a nostalgic green patch in the hearts of many employees of Tata Consultancy Services (TCS). For, it is at the TCS training centre located at the Technopark, Thiruvananthapuram, that they would have learned their first lessons of working for India's largest software company.

TCS established the 58,000-sq.ft facility at the Technopark in 1998. And for a long time thereafter, TCS was the only big name Kerala could drop before the outside world in its quest to attract investment in information technology. But things have changed now. Infosys and Wipro, the next two biggies in the pecking order of the Indian software industry, have also set up their facilities in the State now. Infosys has chosen the capital city, while Wipro has opted for the commercial hub of Kochi to locate their respective development centres. Surely, with all the top three companies present in the State, Kerala has earned its place in the Indian IT map.

Along with Thiruvananthapuram and Kochi, a number of smaller cities elsewhere in the country are rapidly coming up as the future software and business process outsourcing (BPO) hubs, intensely competing with the likes of Bangalore, Hyderabad, Delhi and Mumbai, India's established tech-spots. Places such as Pondicherry, Coimbatore, Mysore, Mangalore, Hubli, Visakhapatnam, Pune, Jaipur, Chandigarh, Jalandhar, Bhubaneswar and Indore, that have long been eclipsed by cities like Bangalore, are now strongly pitching to attract investment from technology companies. Such efforts have begun to bear fruit as more and more IT companies sprout in these places.

One such recent announcement was from TCS. The company is setting up a 20-acre facility in Gandhinagar where it will employ some 2,000 people. And not just Indian entities, multinationals too are now eyeing these spots to set up their software outsourcing centres. For instance, HSBC has chosen Visakhapatnam to set up its IT-enabled services centre. Computer Sciences Corporation (CSC), the $15-billion IT services giant, has a development centre at Indore, which in fact was its first unit in India.

According to estimates by the National Association of Software and Service Companies (Nasscom), smaller cities will generate at least 30 per cent of India's software export revenues in the next few years. Many of these small centres are now seeing their export revenues growing at healthy rates. For instance, the companies located in the Software Technology Parks of India (STPI) facility at Mysore have nearly doubled their total exports during April-February 2004 to Rs 130 crore from Rs 70 crore in the previous financial year. Units in Pondicherry recorded a 41 per cent growth in revenues in the last financial year.

So what is driving this growth in smaller cities?

Cost factor

One key reason that makes software and BPO companies look beyond the established technopolises is cost. Infrastructure costs are significantly lower in a place such as Kochi compared with, say, Bangalore. An official with a global real estate service firm corroborates this argument: "You cannot compare the real estate costs of Bangalore and Hyderabad with places like Kochi, where it is definitely cheaper by 40-50 per cent."

Tamal Dasgupta, Corporate Vice-President and CIO of Wipro, has this to say as to why his company has chosen Kochi as its eighth centre: "Wipro studied several smaller towns before settling on Kochi. The city, with a population of 1.6 million, has relatively affordable real estate, reliable power, good schools and a privately-run airport. It sits along a beautiful, palm-fringed coastline, and has one of India's largest seaports." An added advantage of Kochi is its scenic beauty, which provides `ample opportunity to the customer for leisure getaways.'

However, the quality of real estate available in smaller cities often lags behind that in the Metros and this is an area where more development needs to take place. "There is no supply of Grade A space in these markets that could meet the corporate demand.

The IT/BPO firms look at Grade A buildings, with good ground to ceiling heights, large floor plates, good infrastructure and ample parking facilities", points out Ram T. Chandnani, Head, South India Operations, of CB Richard Ellis, another multinational real estate service firm.

State governments are going out of their way to get IT companies come to their soil since the technology industry is one of the largest creators of jobs and there is a great deal of glamour associated with `bagging an IT company' to set up shop. Many States have offered incentives such as tax concessions to woo IT and BPO companies in the past. Now they dangle similar carrots to encourage firms to go beyond the main cities. For instance, Andhra Pradesh has announced various incentives to IT companies for locating their facilities in the Tier II cities in the State. This is to ensure that development is balanced and spread out, rather that confined to one big city.

A bigger saving in cost for IT companies is the relatively lower salaries prevailing in smaller cities. Salaries account for the lion's share of expenses for technology companies. According to Chandnani, this is a more telling reason for branching out, than the availability of cheaper real estate and other infrastructure. "The prime reason why companies are looking at other smaller cities such as Kochi, Mangalore and Coimbatore is because they want to attract local talent from these smaller cities. The workforce would be available at a lower CTC (cost to company) in these cities compared to larger cities such as Mumbai, Delhi and Bangalore," he says.

People factor

For many techies, Hewlett-Packard is the last stop, as the computing giant has everything an employee aspires to have in his/her employer: size, global scale, cutting edge technologies, great HR practices and brand name. But Arun Rishikesan wanted something more: a job in Thiruvananthapuram, where he grew up and where his heart always was. So after two years with HP in Bangalore, this Indian Institute of Science (IISc) alumnus quit, succumbing to the call to head for home. "My parents were settled there and I wanted to be with them," Arun, who since has joined IBS Software Service, a software developer based in Thiruvananthapuram, says.

He says his hometown offers a much better quality of life than Bangalore, which is getting crowded by the day. Though it sounds like a comedown of sorts to leave an MNC giant in Bangalore to join a much smaller company in Thiruvananthapuram, Arun says it was well worth the move. Over the past five years, he has risen from a project leader to the post of Vice-President in IBS.

Arun's tribe of people who resent life in a big city is growing. And their urge to go home is prompting companies to expand so that they can move people like Arun to a place of their choice rather than lose them. "Everyday, growing cities like Bangalore are seeing close to 5,000 new faces making the city their new home. Of course, this means that infrastructure is being put to test and resources are becoming scarcer and more expensive," admits Wipro's Dasgupta. But he argues that perception about quality of life is an `individualistic choice'.

"Smaller cities that have adequate infrastructure, including housing, schools, hospitals and some entertainment to support the employees' needs, will become attractive destinations for employees," he says, adding that Wipro does give its employees an option to work in the centres of their choice depending on the project availability and career path chosen.

For companies, this tendency of employees to return to their roots is but a small issue. They are perennially battling another people-related problem: attrition. With boom times promising to come back to the Indian IT industry, the level of attrition in software companies is bound to go up. One way to tackle this is moving out of places where poachers are on the prowl to places where that attrition rate is much lower. For one thing, employees in smaller cities tend to be more loyal and less footloose compared to their counterparts in the metros. Though salaries are lower, they prefer to stick around in the comfort of a secure job. "The salary per unit cost of living is better here," is how Pradeep Kumar of IBS Software explains his decision to move to Kerala after stints in Bangalore and London. His colleague Amitabh Prem Raj points out that there is more recognition to gain from a smaller set-up than being one among a thousand techies in a large firm in a big city.

The never-ending need for qualified people also contributes to this trend, especially with regard to the ITES (IT-enabled services) sector. Wipro cites the large pool of English-speaking young people churned out by the 25 colleges in Kochi as one reason for its entry into Kerala. With States realising that IT is the future for their youth, massive efforts are rolled out to have a large pool of engineers and computer-savvy people so that skilled employees are readily available for the tech firms.

Customer factor

When 9/11 happened and the subsequent Afghan war broke out, clients of Indian software firms began to insist that their vendors should have a disaster recovery plan in place. Many clients made it mandatory for their vendors to have a back-up facility elsewhere in the country than within the same city to mitigate any geo-political risk. According to an STPI official, major companies are now looking at Tier II cities as potential hubs for disaster recovery hubs. This is a compelling reason to go places.

When outsourcing became a vexatious issue, Bangalore was one place in India that Americans became rather familiar with, as the city was perceived to be taking away all the jobs. Pronouncing `Bangalore' today comes easy to many Americans now. But in the coming days, `Thiruvananthapuram' could prove to be quite a mouthful!

Picture by G.P. Sampath Kumar

vipin@thehindu.co.in

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