IT-BPO industry: Moving beyond the metros

A detailed NASSCOM-AT Kearney Study assesses the potential of 50 leading Indian cities as IT-BPO hubs.

The big news about the Indian IT-BPO industry is not just its rapid growth, but its proliferation across the country’s landscape. The sector, which initially came up in and around the metros, is now building traction in India’s second and third tier cities and townships to leverage the manpower and other benefits offered by these locations.

A large part of this trend has been the result of the following factors:

• Until now, growth in the IT–BPO sector has been centered around India’s primary cities.
• Of the total direct employment of about two million in the IT-BPO industry, over 90 percent is captured by the seven leading locations, including Bangalore, Mumbai, NCR, Hyderabad, Pune, Chennai and Kolkata.
• Apart from employment, these cities have realized significant benefits in terms of improved branding and visibility, consumption led economic growth, improvements in social conditions.
• At the same time, these cities are under extreme pressure on account of escalating costs, infrastructure concerns, paucity of skilled manpower.
• There is an acute need for tier 2 and 3 locations that can offer the same benefits as their tier 1 counterparts and attract IT-BPO investments

Recognizing the importance of nurturing a second line of IT-BPO locations, NASSCOM and leading global management consulting firm AT Kearney conducted a Study titled the “Location Roadmap For IT-BPO Growth: Assessment Of 50 Leading Cities.” A first of its kind survey, it has analyzed 50 tier 2 and 3 cities in India and discussed their potential as preferred investment destinations for the industry.

The Study provides a microscopic look at these cities, with a focus on their strengths, shortfalls, opportunities offered and threats they face. The aim of the report is not only to identify emerging IT-BPO hubs, beyond the seven key cities in India, but also showcase a roadmap to achieve uniform economic development in India. According to the report, besides leading to inclusive growth, the move to second rung cities will take the pressure off the metros, add to the stability of employees and reduce migration to large urban areas.

The Study talks about how the development ushered in by the IT-BPO industry in the major metros of India, can be spread across other, lesser known locations in the country to reduce economic disparity. The 50 locations have been broken down into different categories and the survey indicates that for each of them and even beyond, there is significant potential to create a success story. The Study is being positioned as a strategic planning backgrounder for State Governments, educational institutions, policy makers and local industry bodies when they look at means to attract investment into their regions and plug the loopholes within those regions.

Insights offered by the Study
The 50 locations have been evaluated on the basis of key parameters such as the knowledge pool and skill-set availability, infrastructure, social and living environment, enabling business environment and Government support. Based on their stage of development for IT-BPO, the cities have been categorized into four groups—Leaders, Challengers, Followers and Aspirants.

Meanwhile, here’s what the Study has indicated

• There is a paucity of employable talent in India, of which approximately 50 percent of the additional talent requirements will have to be met from Tier 2 and 3 cities in India
• Necessary physical and social infrastructure will have to be created in these cities
• Rapid growth had led to current IT-BPO hubs facing rising real estate costs, increased attrition and saturated infrastructure, forcing companies to look beyond these “Leader” locations
• Over the next decade, the share of the sectoral employment in the top seven locations will decline to around 60-75 percent with total direct employment in these locations growing to about 5-6 million. Absorbing this growth will pose a significant challenge to the physical and social infrastructure in these locations.
• At the same time other locations have an opportunity to capture a share of about 2-3 million direct IT-BPO jobs that will be added in non-leading locations—which is more than the total current employment in the sector
• Non-leader cities typically have about 30 percent lower operating costs as compared to Leader cities
• Labour costs in Follower and Aspirant locations can be even lower for generic/lower end work and small scale of operations
• Challenger locations, with similar cost structures as Followers and Aspirants, have an advantage on account of their better infrastructure, social and living environment

Growth tips for the top 50 locations
The Study also shows that the locations studied face myriad challenges in terms of moving to the next level of development and need to take proactive steps to continue on the growth curve. Leader locations, for instance can become global powerhouses and sustain their advantages provided they develop and communicate clear long term positioning for the city and address key infrastructure through radial infrastructure/satellite cities around them.

Challenger locations, the Report indicates must build an IT ecosystem focused on select areas to derive long term positioning, quickly scale up employment in the IT-BPO sector by supporting IT SEZs and attracting major national IT/BPO companies, focus on labour pool development and encourage reverse migration from leader locations.

The lessons for Follower Locations are related to identifying niche positioning opportunities to enhance location attractiveness, improving infrastructure to levels of Challenger/Leader locations, enhancing awareness about the IT-BPO industry among educational institutions, and increasing the size of the graduate pool, by setting up more technical institutes. Finally, Aspirant locations, according to the Study, need to set up Plug-and-Play facilities to facilitate smooth start up and running of operations, enhance awareness about BPO within the educational institutions, support finishing schools to enhance soft skill development and improve telecom infrastructure and the business environment.

Overall, the Study suggests that for the IT-BPO sector to develop at a rapid pace all 50 cities must take a holistic view of IT, International and domestic BPO, each of which offers a large opportunity. At the same time, they need to enhance the quantity of the talent pool available within their domains, and
ensure that it is suitable and employable. To do so, they must invest in improving their education system, through relevant curriculum, finishing schools and capable faculty. Enhancing awareness about the IT-BPO industry as a key career destination, is another imperative. Finally, of course, the cities
have to improve their physical infrastructure and urban environment, while emphasizing on the conducive business climate of the location to drive broad-based growth

QUOTE

NASSCOM Speak

“The development of only a few select set of cities has put severe pressure on the infrastructure, costs and also increased migration of resources. We see immense potential in the next set of locations if the right steps are taken now. The growth projections of the industry indicate that even the existing seven existing centers will see significant growth. However, what is needed is proactive planning and meticulous execution to support this growth.”
Som Mittal, President, NASSCOM

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