Tier2 and Tier3 Cities Are Ready For IT

It always comes to hear that time is now ripe to go to Tier2 and Tier3 cities for IT and ITES companies. Being part of a big city or Tier1 city and being an SME, we keep wondering too whether should we go or not and if yes is the time ripe and if so, can SEMs go first or it is the business of the large corporations such as a Infosys, or a Wipro or a TCS to setup the operations and the ecosystem first and then the SMEs to follow?

Shimoga is a small town around 300 k.m north of Bangalore and it is considered as Tier3 city (Mysore and Mangalore probably fits under Tier2 tag). There are many such towns and cities in different cities which are considered as potential Tier2 and tier3 destinations for IT/ITES. Infact Shimoga happens to be the home district of the current CM and there is lot of hope and aspirations of the local community for attracting many IT/ITES companies over there and infact there is already an ITES company operating for last couple of years.

There are lot of advantages – you are away from the hustle and bustle of big cities and being part of a quiet relatively unpolluted environment, lower living costs, no traffic jams for sure, better quality of family life etc but the biggest advantage will be the land/realty price and especially more attractive if government can provide (thru SEZ etc) very subsidized land. But then again lot of cons go with that – lack of availability of talent, even if local talent exists will be tougher to pull them from the lure of big cities, fewer schools to support the ecosystem, additional expenses (which is not an issue for BIG IT companies) of setting up of every infrastructure item that is required, the quality of life off-office hours, the schools, the shopping malls, the night life what most of the IT and the ITES crowd expect – all these will be missing, and more than finding talent, retaining the talent will be a bigger issue expect for those who are from that town and love to stay and work there. Then again the expenses of running a firm in big cities is becoming extremely tough and challenging with rising inflation, fuel costs, real estate costs, attrition rates, traffic chaos, ever reducing of the quality time spent with the family, and in general dissatisfaction towards the ever busy polluted city life. The issue has become a chicken-egg issue with waiting to see which one will happen first – the IT companies moving to Tier2/Tier3 or is it the ecosystem first and then IT companies more there. Still better big companies opening it up first on a big scale so that they can or have the potential to make others to create the needed ecosystem to start with them but the early advantage will be lost for SMEs and as the land/rental prices would have increased, stealing the lone big advantage one could have got.

Many companies are finding it very difficult to hire talent and still tougher to hold onto them. Today’s talent is in spite of all the deficiencies and cons, still sticking onto metro life style with shopping and entertainment in the weekend which is clearly lacking in the tier2/tier3 cities. A NASSCOM- Kearney assessment of 50 leading locations for IT-BPO sector has pointed out that a lack of recreational facilities was a handicap for the tier-II and III cities. But the study on `location road map for IT-BPO growth’, had predicted that the share of sectoral employment in the top seven locations will decline to around 60-75% over the next decade and that will subsequently result in the rise of tier II and tier III cities’. SM Doshi, partner A T Kearney India, said, “But that cannot be achieved by only installing physical infrastructure like power lines and mass-transport system in tier II and tier III cities. Efforts should also be made to create an ecosystem that comprises social infrastructure with the trappings of metropolitan life”.

The industry experts believe that the first mover advantage does no way help IT companies attract skilled employees to these locations. When an ITES employee was asked by his company to get ready for a stint in a Tier3 location he decided to hunt for a new job. There are currently over two million employment provided by India’s IT-BPO sector, and over 90 percent of which is captured by the seven leading cities of Bangalore, Mumbai, NCR, Hyderabad, Pune, Chennai and Kolkata. Less that 10% is relegated to tier2 and tier3 cities and a very low ratio indeed.
So do SMEs make the bold move and couple it with Government incentives and move also to Tier2 and Tier3 cities and to get that early mover advantage or wait until the Big ones move or there is a critical mass built and then move.

3 Comments

  1. Landscape Management
    Posted July 23, 2008 at 2:14 am | Permalink

    Tier2 and Tier3 cities may attract the right kind of companies but may not be a favorite with the employees. As mentioned above, most of them rank entertainment as a requirement since most of the are bought up in cosmopolitan cities.

  2. Posted July 24, 2008 at 4:46 am | Permalink

    Warning bells are ringing on Bangalore’s future as a leading BPO destination. It is not a full-blown crisis yet but the portents are disturbing. Of late, we don’t hear of too many companies coming to Bangalore, whereas we have seen many BPO companies starting operations in cities like Chennai, Noida, Kolkata and Kochi. I feel Karnataka is losing its advantage as a BPO destination. Industry sources say that BPO hiring numbers in Bangalore have been lower by up to 30 per cent in the April-June quarter, but these are expected to pick up in the current quarter. The decline in the number of new companies from the US or Europe setting up shop in Bangalore is the high cost of operations in the city, economic crises in their home country and 2008 being an election year in the US. Currently, it is only the existing companies located in Pune, Chennai, Hyderabad and Gurgaon that did not have a base in Bangalore are now setting up operations. On the other hand, large firms which already have 10,000 or more staff in the city are automatically looking elsewhere for expansion. It is not gloom all around. The primary reason cited by the industry for Karnataka’s failure to attract new BPO investment is lack of infrastructure. Industry nodal body Nasscom has sounded off a warning that Bangalore has displayed symptoms of warding off investments on account of increasing cost of operations.For more view- realtydigest.blogspot.com

  3. ramu
    Posted April 21, 2009 at 11:22 am | Permalink

    chennai and all over world rates going to raise.this recession thing happens once in every 8yrs.in 1992 it happened like vrs scheme.in 2000 it happened via y2k computer problems.now with subprime problem in u.s.remember its already a developed country,and we have just started to get develop,still 20 years of growth left in india,for next two years its going to only go up in realestate.here and there some correction might come in price.but no one buys land for business purpose to sell in 2 or 3 months.,as its a subprime problem,real estate value fell somewhat,it fell only in building flats,punters started to sell the properties in mkt in mid may 2007.once problem arouse in 2008,they started to make panic with bloody msgs in media about falling economy and real estate values because of that,people hesitated to buy.now those punters again bottom fishing in real estate,around 1lakh crores going to be invested in real estate soon.this all a cycle in economy.those who feel left in this bull run in real estate will just keep on praying and giving bullshit msgs like price will fall more and bla bla.and they will feel more soon.shit this kind of msgs and try to buy a land soon…jai hoooooooooo …and for your kind info..i am a professional online share trader and analyst…..news from market,.market started to raise,rest will follow soon.already real estate stocks doubled in last one month.you can check in nseindia.com………all the best for losers,who keep on crying……..already rates started to appreciate in omr and ecr route.check with brokers…fresh buyers,dont feel left out…use your brain…….no money has gone waste when you invest in land…

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