Mon, Nov 5, 2007 9:12 EST

Outsourcing to Bangalore? That's So 2002.

Posted by: Stephanie Overby in Best Practices

Topic: Partner/Vendor Management

Current Rating: Comments: 4

Bhubaneswar, Lucknow, Gandhinagar, Ahmedabad— these are just a few of the new hot spots for outsourcing shops in India. Never heard them? Don't feel too bad. Yet.

A recent article in India's Economic Times says the country's tier one outsourcing providers are increasingly looking to tier II and even tier III towns to set up their latest IT and BPO campuses, as real estate prices and cost of living have skyrocketed in the bigger cities that served as the unofficial headquarters of India's IT services boom.

Bangalore is out. Kochi is in.

That's no surprise to anyone with more than a passing interest in the offshore outsourcing industry. But while attracting entry-level employees to jobs in the tier II municipalities hasn't been terribly difficult, management talent has proven a little harder to sway, says a Satyam spokesperson in the story. Middle managers are more concerned about issues like schools, healthcare, and quality of life than their younger counterparts. Incentives including one-time bonuses of 50,000-100,000 rupees (about $1270-$2540), help with issues like school admission for the children of employees that make the move, and extra time to settle in are being used to entice would-be transfers.

Some workers may have career concerns, wondering if the move to the second-tier locations is more of a detour than a move up the ladder. "Most tier II centers are currently bottom-heavy and complexity of work is not that high, Pari Natarajan, CEO of outsourcing research firm Zinnov, tells the Economic Times.

Outside of India, in less mature outsourcing markets like Latin America, IT services providers are jumping to second tier cities from the get go, in an attempt to side-step the rush to set up shop in a major metropolis. "You can take some of the best practices from India and look at second-tier cities to set up a large center," says Juan F. Ferrara, chief operating officer for the Americas for India-based IT service provider Genpact. "You’re already seeing that in Brazil and Argentina... where (companies) are already in second and third-tier cities."

So what happens when India's tier II—or even tier III—cities grow as saturated or expensive as their more mature counterparts? Will offshore service providers or their customers consider locating the work in the U.S.? Don't bet on it, says an India@Wharton article. There were several media reports this year of a few Silicon Valley companies bringing jobs back from Bangalore in response to rising wages and retention problems. But India@Wharton says such cases will remain the exception, not the rule.

Tier IV, anyone?

Stephanie Overby
Senior Editor
CIO magazine and CIO.com

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Tue, Nov 6, 2007 13:49 EST

Beyond Bangalore

Posted by: K Sridharan
Rating:

Sometimes problems are simple - simple to state, not so simple to solve of course.

In case of outsourcing, qualified man power will NEVER be the constraint in India. At a raw level we're talking about a sixth of the world's population here and whichever way you slice and dice, that's a ratio that is not going to change for a while.

The real problem is electricity. It is not the widely cliched 'lack of infrastructure'. It is electricity.

Stephanie Overby is wondering about Tier-2, 3 & 4 towns. How about tier-99, the ultimate village in India? Here is the case in point.

Read Friedman's opinion piece in NYT 10/31/07.
http://www.nytimes.com/2007/10/31/opinion/31friedman.html?_r=1&hp&oref=slogin

Granted, this is not common but as you will readily observe, there is NO infrastructural issue here except....electricity.

BTW in 2001 there were 32 towns with population over a million and literally hundreds of towns on the verge of a million. At the 2% (population) growth rate do we really think there's going to be a dearth of outsource'able towns
in India? These towns typically have 4 to 5 sizable colleges, one or two professional schools and frankly better standard of life than the top five (Mumbai, Bangalore, Chennai, Delhi, Kolkota/Hyderabad).

Places such as Pune, Ahmedabad, Coimbatore etc offer a great value for companies in terms of infrastructure, access and human resource pool which is perhaps more stable (locals don't migrate out too willingly)

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Sat, Nov 24, 2007 0:44 EST

Kochi smiles

Posted by: nobin jose
Rating:

Definitely,.
Kochi will Shine , and Smile.
Smart City will Boost the IT boom.
One major problem is kerala's political Issues.
Strikes , Hartals..usual there.
Let the IT field free from these political dramas / staging .
It is serious.

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Fri, Feb 22, 2008 4:51 EST

How about a blended perspective?

Posted by: Siddharth Sethi
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This is so true - outsourcing to Bangalore is so passe.

Bangalore and its high profile IT cousins are so overcrowded that it has become extremely difficult to think of working there.

However, the fact remains that the best talent pool, especially in niche segments, continue to make Bangalore their home. They are not willing to move to the tier 2 and 3 cities.

Companies like mine - InfoBeans - are trying a hybrid approach. We have an office in Pune and one in Indore - in Madhya Pradesh - the heart of India. Indore offers all the advantages of a developing tier 2 city. Pune offers all the advantages of a metropolis.

The above combination helps us effectively create a team structure with the best of both worlds. Lost cost and a good life in Indore, while a much better talent pool available in Pune.

You can read more about how smaller Indian IT companies like mine are coping with the changing scenario at my blog here.

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Mon, Dec 29, 2008 18:51 EST

Why not other places?

Posted by: arobbio
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Hello,
This was a great article and I think that beyond what you describe here, another factor for prospect clients to consider is how insecure India has become. I believe that these two facts combined with the challenge of coordinating work when companies are separated by such a big time zone difference can be an explanation of why outsourcing companies in South America such as mine are growing so fast and why large IT companies (Google, IBM, etc.) are using near-shore more and more.
I some information about Argentina as a growing Outsourcing destination here.

Thanks again for the great article!

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