As offshore locations face the combined pressure of escalating costs and gap in talent availability, the need to tap into unexplored locations is becoming paramount. IT service providers are exploring new, lesser known locations to cut down their delivery costs. So its no longer a Bangalore, Delhi, Mumbai or Hyderabad. Tier-2 cities like Bhubaneswar, Chandigarh and Jaipur are coming up as cost effective locations for offshore outsourcing.
The ‘DTZ Occupier Perspective: India Office Demand Survey for 2011-12' reveals that IT/ITes companies have their preference for Tier 2 cities like Bhubaneswar, Chandigarh and Jaipur, while Ahmedabad has emerged as the BFSI sector's favourite Tier-2 destination.
Increasing operative costs, higher cost of living and high attrition rates in Tier-1 cities are compelling service providers to search for better options elsewhere. Tier-2 locations offer advantages like cost arbitrage, fresh talent pool and low attrition rates. According to a Zinnov report Location Analysis: Emerging cities of India, cost of living in Tier-2 cities is 10-25 percent lower as compared to Tier-1 cities. Also attrition rates are lower as there is lack of competition and unwillingness to move to Tier-1 locations.
Fresh R&D talent pool in these locations is an encouraging factor for multinational companies to set up their R&D centers and secondary locations. According to the report, around 35 percent of the fresh R&D talent pool is distributed in Tier-2 locations.
Although the opportunity is big, Tier-2 locations are in a nascent stage in terms of establishment as IT hubs. H. Karthik, vice president, Everest Group was quoted in CIO, "Some countries, particularly offshore, less developed outsourcing locations also have less developed infrastructure and connectivity." Industry experts assert that it will take several more years for a Tier-2 location to be another Bangalore.
The article was first published in Globalservicesmedia.com