Loading ...I keep hearing time and again 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? I don’t know the answer and I have been analyzing the pros and cons of the same for quite some time and let me analyze the same here and let me think loud (in this case let me pen down as I think along).
Recently I had been to Shimoga as part of IT delegation initiated from the state Govt of Karnataka for encouraging IT/ITES companies to set shop over there. Shimoga is a small town around 300 k.m north of Bangalore and I consider it as say Tier3 city (Mysore and Mangalore probably fits under Tier2 tag). I am sure 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 which I feel is a very small % today. 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.
I have read a lot of studies done on the movement of IT to Tier2/Tier3 but none are very encouraging for SMEs. 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 percent over the next decade and that will subsequently result in the rise of tier II and tier III cities’. “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,” said SM Doshi, partner A T Kearney India.
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. Poeple’s usual grouse – what will I do after office hours or during weekends? If I am in Tier1 or big cities there are lot of options from malls, to multiplexes to pubs to many more options. 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. I am divided but I am more biased towards moving first coupling with government benefits and then more such SMEs move, hopefully teh ecosystem builds around it and yes will be a risk but then again business is always taking calculated risk. What do you readers’ advice?
Manjunath M Gowda, CEO S7 Software
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Comments
i would like to give an example of mysore, when infosys moved there, after some time the rapid infrastructural changes happened from Mysore to Bangalore , including mysore city
so if the leaders take a chance to move, rest will follow them. But it is right choice, Decentralization will bring
the living cost down.
Renu
No wonder that India is doing great in IT. But Why is that IT companies should be set up in Tier I cities? I am not sure if it is driven by Government policies or IT companies mindset.
As pointed out by Vishal, its a general perception about IT guys being fond of Malls, multiplexes, pubs etc.. which is very far from truth… yeah may be true to some extent for people who are very young in IT.
And the consequences of setting up IT companies in Tier I cities… Numerous problems…
cost for developing SEZ’s, Roads, flyovers, people move to cities in search of jobs (whether a person is skilled or unskilled), oooops…
Being in IT, a company can deliver products/services from anywhere, whether it is Tier I or II or III… whatever..
so why stick to Tier I… people like us should start a transformation process in this area. Thanks…
Dear Mr Gowda,
As a IT Consultant i agree the point that you have made , however I am opposed to the idea wherein you say that people are unwilling to move to Tier 2 cities , I would wish to sahre that in cities like Mumbai , where cost of living in very high and it is almost impossible to but a flat , people are more than willing to move to tier 2 cities . At this juncture moving to tier 3 cities and resouce rentention is a problem , but the same is not an issue for Tier2 cities.
Also the general perception of IT Guys being fond of Multiplexes and Malls is a myth , moreover most of the tier 2 cities aleady have the necessary infrastructure to support IT Firms as well as Employee Needs and the missing one wil automatically come when the demand and market presents itself.
IT Firms can also take advantage of the move to tier2 cities by being a part of the Infrastructure building and running them , thogh it would be difficult for the smaller firms to catch up with this idea , but for them they can always go for partnerships with local authorities and generate some extra revenue from there also.
I believe that moving to Tier2 (and not Tier3 cities as of now) , presents a good opportunity to build on.
Thanks,
Vishal Shukla