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`Chennai most attractive city for offshoring services'

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Beats traditional toppers, says A.T. Kearney report

STUDY REPORT: Mr Arjun Avtar Sethi, Principal, BPO & OffShoring, A.T. Kearney, Chicago, US, and Ms Marcy Beitle, Partner and Vice-President, Organisation and Transformation, A.T. Kearney, New York, US, at a press conference in Chennai on Saturday.
STUDY REPORT: Mr Arjun Avtar Sethi, Principal, BPO & OffShoring, A.T. Kearney, Chicago, US, and Ms Marcy Beitle, Partner and Vice-President, Organisation and Transformation, A.T. Kearney, New York, US, at a press conference in Chennai on Saturday.

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The cities were benchmarked as attractive based on three major categories - financial costs, people skills and business environment.

Chennai, April 1

Chennai is the most attractive Indian city for offshoring services beating traditional top cities such as Bangalore, Mumbai and the National Capital Region (Gurgaon, Faridabad and Noida), according to A.T. Kearney's Indian City Services Attractiveness Index 2005, a report by the US-based A.T. Kearney, a management consulting firm.

Hyderabad follows a close second and Kolkata is emerging as a credible alternative to cities with more established offshoring services industries, which include information technology, ITeS (information technology enabled services) and business process outsourcing, said Mr Arjun Avtar Sethi, Principal, A.T. Kearney.

The cities were benchmarked as attractive based on three major categories of financial costs (compensation, infrastructure costs and cost of living); people skills (availability of educational skills and attrition rates) and business environment (city infrastructure, quality of life and government support). Chennai emerged as a leader across all categories followed by Hyderabad, NCR and Bangalore, he told newspersons.

Chennai, Hyderabad, NCR, Bangalore, Mumbai, Kolkata, Pune, Kochi and Jaipur were assessed for their attractiveness for placing offshoring services. For the index, the company got feedback from top officials of 15-20 `Fortune 100' companies in the US, and doing large offshoring services out of India either directly or through vendors. It also got feedback from various vendors and A.T. Kearney's clients in India, said Mr Sethi.

According to Mr Sethi, Chennai is a leader based on available labour and low attrition rates whereas Bangalore suffers due to high attrition rate. It was found that in Mumbai and Bangalore, the attrition rate was 50-55 per cent (out of every 100 people, 50-55 leave the company) compared to 35-40 per cent in Chennai. The 10-15 per cent difference has a significant effect for companies on training cost, which could be $10 an hour for an employee.

Kochi, Kolkata, Hyderabad and Jaipur are less attractive in people skills due to lack of available skilled labour, he said.

Financial category

On the financial category, Mr Sethi said tier two cities of Hyderabad, Jaipur, Kochi and Kolkata have a significant cost advantage over NCR and Mumbai. NCR is a leader based on infrastructure, international travel connectivity and large expatriate community. Hyderabad is set to gain as it establishes itself as a BPO hub and the expatriate community grows, he said.According to Mr Sethi, a number of people from Bangalore and Hyderabad are moving to Chennai. Further, Chennai's cost of living was cheaper than in NCR or Mumbai. For example, if its costs Rs 100 in NCR for a basket of goods consisting of essential commodities such as vegetables, egg, bread, onion and fuel, it would be 35 per cent less in Chennai, he said.Ms Marcy Beitle, Partner and Vice-President, A.T. Kearney, said the index was done for the first time on India city specific and will become an annual event. The company's Global Offshore Location Attractiveness Index, in which India heads the chart, has been a tool over last few years to help companies decide on the appropriate countries for offshoring. However, with maturity of supply markets, clients increasingly need to make difficult choices between cities in each country.

Related Stories:
India most popular offshoring destination, says PwC survey

(This article was published in the Business Line print edition dated April 2, 2006)
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