Despite a global economic slowdown and increase in employee related costs, India continues to draw IT and BPO companies due to a large pool of available talent pool armed with specialised skill sets. In the last four months, more than half a dozen IT, BPO and start-up companies have opened development centres in Karnataka.

Chinese telecom equipment maker Huawei plans to open a product development centre in Bangalore built over 1 million square feet that can seat 4,000 people. eBay has opened a global development centre in Bangalore and plans to hire 1,000 people by 2015. The company plans to recruit senior technologists with product development experience to create new technologies for its ecommerce business. Competitor Walmart also opened a centre to undertake Walmart’s e-commerce work in India. Others like HP have opened a 2,00,000 square feet development and support centre in Bangalore.

Similarly, Nasdaq-listed Pegasystems has opened a new development centre totalling 55,000 square feet in workspace. The Bangalore centre will support its global operations and will deliver R&D, engineering services, industry solutions framework and customer support to its global Fortune 500 clients, similar to other software majors.

In July, Xchanging, a London Stock Exchange (LSE) listed IT and BPO company opened a new centre in Shimoga Special Economic Zone and aims to hire 3,000 people by 2013

So, at a time when the Indian IT majors are facing an uncertain global economic climate and increasing anti-outsourcing sentiment, why are companies opening up development centres in India? According to companies and analysts India despite its higher costs, availability of talent makes it an attractive proposition.

Alan Trefler, Founder and CEO, Pegasystems is of the opinion that talent available for data analysis or database concepts in addition to taken for granted skill sets like Java or SQL programming is higher in India.

“No other location in the world offers the large pool of quality talent that can be found in cities like Bangalore that offer a bundle of distinct and mutually reinforcing benefits which companies can leverage for competitive advantage,” said Peter Schumacher, CEO, Value Leadership Group.

A further proof of this can be seen from the fact that in August, Ellucian, a company that provides technology for higher education opened a new development centre in the heart of Bangalore. All this points to manpower availability for skills those are more than plain vanilla outsourcing work that companies indulged in earlier. “Companies are focusing on areas like predictive analytics for the US financial sector, regulatory compliance related work etc. as compared to call centre kind of jobs,” said Sanjoy Sen, Senior Director, Deloitte.

A lot also has to do with the specific talent that is needed in a particular geography. Companies in the developed markets (including Japan) have been struggling with this. Sidhant Rastogi, Director, Zinnov said, “In most cases companies setting up their centres were unable to find the right talent in the right number in their native geography, or could not source talent locally in the near future.” Whether it’s in areas like SAP consulting, networking or cyber security, India has options with 5.5 lakh engineering students graduating every year.

Startup story

Technology product startups based in the Silicon Valley and other places are following bigger companies to Bangalore. Snap MyLife Inc. headquartered in Princeton, New Jersey that provides cloud-based applications, opened its India development centre in February.

Companies from other countries are similarly setting up development centres in Bangalore. New Zealand-based Pingar, with offices in Hong Kong, India, the United Kingdom and the US entered India in February in partnership with CMC to develop and implement software products in India and abroad.

Bangalore is attractive for these companies due to the wide choice of talent pool available across different areas for technology companies. A couple of years back, top IT companies like Infosys and others started to move into Tier 2 cities like Trivandrum, but for product start-ups, Bangalore is a big draw.

“Despite high commercial real estate, we see the good quality of technical engineers for developing products like ours in Bangalore,” said Jiren Parikh, President and CEO of Snap MyLife. According to analysts and industry watchers, what has changed now is the increased maturity and the perception of building products that create higher value. Others share a similar point of view. “People migrate to different companies since they don’t get to build products and Bangalore has a wide talent pool to choose from. Also, opportunities in areas like cloud and mobility is making employees consider product companies,” said Vinodh Kumar, Global Director of Engineering, and Head of BloomReach India. The company is three years old and was started by ex-Google employees.

Snap MyLife currently employs 35 product engineers and according to company executives and will triple its employees in the next few months.

Pingar India is planning to increase its current staff in Bangalore of 13 to 35 over the next few months. “These positions will be focused largely on new business development and technical engineering support,” said Peter Wren-Hilton, CEO, Pingar. BloomReach did not give out its India hiring plans but said that has about 80 employees in the US and the company plans to hire aggressively in India. Karnataka has around 200 engineering colleges, according to state data.

Tier II play

To cut costs and contain attrition, MNC are increasingly moving into Tier 2 cities, says a recent Zinnov study. It went on to add that while 96 per cent of MNC R&D companies are located in cities like Bangalore, increasingly they are moving to Tier 2 cities like Ahmedabad, Jaipur, Chandigarh, Coimbatore, Vadodara, Nagpur, Pune and Trivandrum. Further, the study highlighted that there are around 2 lakh employees who work in R&D centres for multi-national companies.

This R&D talent pool is growing at the rate of 9 per cent every year and is expected to reach 250,000 by 2015. Chandramouli C S, Senior Director-Globalization Advisory, Zinnov, said, “MNCs started expanding to Tier-2 cities due to advantages like higher catchment area, lower attrition, cost arbitrage, etc.” Typically, Tier 2 cities were a preferred destination for IT and BPO companies who were grappling with commercial real estate and attrition costs. This trend is being seen now with multinationals like Dell, Nokia, Amazon and others who are looking at tier 2 cities that would be in addition to their existing centres in major cities.

Cost of living in Tier 2 cities in India is 10-25 per cent lower compared to Tier-1 cities and provide cost advantage of 15-40 per cent in commercial real estate costs. “Salary costs and other expenses go up in a tier 1 city over a period of time,” said Manohar Joshi, Director –Systems, IonIdea Inc. IonIdea set up a development centre in Hubli a few years ago.

Also, fresh talent pool in Tier 2 cities is estimated to form 35 per cent of the Indian R&D workforce going ahead. A majority of the work being undertaken involves testing, customer support and bug fixing. These typically tend to be lower level work in terms of profile but which is critical to a company’s operations, analysts say.

While India continues to be a draw, competition from countries like China in terms of engineering skills is catching up. Add to that, 25 per cent of graduates are unemployable and as a result organisations spend about a billion dollars every year in training them. The sooner Indian educational institutions address these issues, the better it would be for the sector. Else, Indian companies will be forced to look to their neighbour across the wall for software talent too.

venkatesh.ganesh@thehindu.co.in

(This article was published on September 20, 2012)
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