Ahmedabad, Jaipur next hot destination for business processing, IT services

With the Indian IT services and business process management (BPM) industry key to maintain its cost advantage has started to explore tier II and III cities for expansion. Ahmedabad, Jaipur, Kochi & Kolkata have emerges as front runners next only to Tier I cities or ‘Leader’ locations which continue to be the preferred choices for IT-BPM industry.

The report by Cushman & Wakefield and Nasscom ‘Emerging Delivery Locations in India: The Rising Tide, further elaborated the growth opportunities in these ‘Challenger’ locations by evaluating their performance across parameters such as business environment, talent, infrastructure and cost differential which were benchmarked against the average for Tier I cities.

“The BPM industry has always been known for its versatile nature, and we have been able to stay ahead of the curve because we were not a stationary target. With changing client needs and the growth in broadband penetration, the latest trend that we are witnessing is that more and more companies are entering tier 2 & 3 towns. Hence, it is the need of the hour that we build a robust ecosystem in these towns to help organizations in their functioning,” said R. Chandrasekaran, President, Nasscom.

The report also highlighted that the front runner cities are followed by Bhubaneswar, Coimbatore, Trivandrum and Visakhapatnam as the second choices while Chandigarh and Indore as promising locations.

“India’s Tier II markets are at an interesting cusp of growth. While many of these locations have been in the frame as next destinations for a very long time, it is only now that realistic signs of their emergence are visible. However, these locations have to be backed by strong state government and local government policies order to grow as IT-BPM destinations,” said Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.

The largest increase in the number of IT-BPM registered units in the last five years was noticed in Coimbatore followed by Visakhapatnam and Jaipur.

The highest overall cost differential was recorded at Kochi at approximately 25 per cent compared to Tier I benchmarks. Kochi has the highest differential in terms of people cost at nearly 22 per cent while Indore clocked the highest differential under the “other costs” at 40 per cent.

The employee headcount more than doubled in seven out of the 10 cities in the last five years. The highest increase was witnessed in Coimbatore followed by Visakhapatnam and Ahmedabad. With more than 1.3 lakh employees, Ahmedabad also had one of the highest employee headcount, preceded only by Kolkata clocking nearly 1.7 lakh employees.

Most of the emerging cities have recorded attrition levels below 10 per cent, which is less than half of the levels of 22-25 per cent reported in Tier I cities.

The number of student enrollments has increased in most (nine) emerging cities, surpassing the Tier I benchmark of 23 per cent growth over last five years. Kolkata, Jaipur and Visakhapatnam noted the highest increase in last five years.

While Kolkata recorded the highest export revenue at nearly $1.8 billion, Visakhapatnam recorded the highest growth in export revenues in the last five years followed by Kochi and Chandigarh. Other cities too exhibited healthy growth in export revenues in the range of 60-80 per cent in the last five years.

Enabling infrastructure such as Grade A IT office space recorded healthy growth in few cities in the last five years. Coimbatore, Visakhapatnam and Ahmedabad each witnessed increase in Grade A stock of IT and IT SEZ space by more than 10 times in the last five years.

While the rental values in most of these cities are lower by 55-65 per cent as compared to the Tier I benchmark rental values; Coimbatore and Indore offer the lowest rentals.