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DQ-IDC E-Readiness Survey: "Yesterday's Midgets, Tomorrow's Giants?"

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DQI Bureau
New Update

Two years ago, a colleague went to Kolkata. A small, little known arm of the

ruling party had called for a "bandh" (strike), and the entire city

had its shutters down. The bandh had support from most quarters, including the

people. Said a tech manager, "You know, if Kolkata doesn't have these

bandhs, the people start getting itchy."

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Two

years down, the change is evident. The bandhs are still there: August 2,

December 3. But their impact has been middling to low in general, and negligible

on tech and BPO services in particular, both of which are both protected under

the Essential Services Act, with security from the state.

Are we talking about a "Red" government? In a state that is a power

surplus state, a rarity in India, only because the companies that would have

consumed the electricity had left the state en masse due to bandhs and labor

problems?

Today "reform" is not a dirty word in West Bengal; neither is

capitalism. The government is pushing ahead with reforms and has convinced the

industry that it means serious business. Remember that West Bengal is the first

state in the country to place tech services under the Essential Services Act.

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How

E-Ready are the Top Indian States?

  Current

Business
Education/Manpower Physical

Environment
ICT

Infrastructure
  Score* Rank Score* Rank Score* Rank Score* Rank
Andhra

Pradesh
28 4 71 5 67.3 8 15.8 10
Chandigarh 0 14 99 2 62.7 12 87.8 2
Delhi 13 7 46 9 71.1 5 100 1
Goa 0 13 78 3 100 1 39.7 3
Gujarat 0.8 11 34 11 74.2 4 19.1 9
Haryana 24 5 52 7 80.9 3 13.3 11
Karnataka 100 1 75 4 65.4 10 19.5 8
Kerala 1.20 9 50.40 8 67.4 7 21.9 6
Madhya

Pradesh
0.6 12 32.1 12 70 6 7.6 12
Maharashtra 47.1 2 56 6 65.7 9 26.4 4
Punjab 1 10 45.3 10 81.6 2 24.1 5
Tamil

Nadu
42.1 3 100 1 62.8 11 20.3 7
Uttar

Pradesh
15.2 6 29.4 14 60.6 14 5.6 14
West

Bengal
8.8 8 29.9 13 61 13 6 13
*Score

relative to top scorer for this parameter
Industry performance (revenues from STPI)



Obvious leaders: Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh and NCR


Last three: Madhya Pradesh, Goa, Chandigarh


Educational facilities/infrastructure and availability of skilled manpower


A mix of large and small, old and new: Chandigarh, Tamil Nadu, Goa, Karnataka and Andhra Pradesh. Per capita availability of teachers, literacy levels, graduates per 1,000 population and enrolment in computer related courses show these states in an advantageous position.


Laggards: Madhya Pradesh, Gujarat, West Bengal and Uttar Pradesh


Quality of physical infrastructure


Clear winners, small is beautiful: Goa, Haryana, Delhi, Chandigarh and Punjab lead the pack. Also, while considering other factors like urbanization rate, surfaced roads (km per 1,000 population) and availability of affordable power Madhya Pradesh, Kerala, and Uttar Pradesh fare poorly.


ICT infrastructure availability and usage


In terms of sheer availability of telephone connections, number of Internet subscribers, number of PCOs and PC penetration per 1,000 population, the smaller states Delhi, Chandigarh and Goa lead the country. Amongst the larger states, Maharashtra, Tamil Nadu and Karnataka do well.







For BPO and tech services are indeed a big deal. The 2004 World Investment

Report of the UN Conference on Trade and Development (UNCTAD) ranks India among

the top four Asian investment destinations and the top 10 developing country

recipients of FDI in 2003. The prospects for higher foreign investment flows are

brighter in 2004 as the global economy rebounds this year.

At least for the various state governments, BPO and IT are the route to

nirvana, for mitigation, if only partial, of unemployment and revenue generation

issues. No wonder then that all the state governments are wooing the IT and BPO

top honchos, some with success and many without.

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Let's roll out the statistics on how important BPO/IT is for the various

state governments. Take the case of Karnataka (read Bangalore). According to

government statistics, today there are over 160,000 professional working in the

technology sector and the number is the largest for any one place on the planet.

100,000 of these work in IT companies while the remaining 60,000 work in the

ITeS-BPO sector. The number of working professionals is expected to cross

200,000 during the year 2004-05 with many IT and BPO companies rapidly expanding

their manpower.

Or the case of the Andhra Pradesh government, which is targeting a 30% share

of the IT and BPO export market by 2009. Or West Bengal, which has been hard

selling the state as an IT destination like no other, hopes to earn 10% of the

country's revenue from the infotech sector by 2006-07 and 15% by 2010.

It is not only just the state governments that are gung-ho about the BPO/IT

potential they can exploit. The central government has equally ambitious plans

for the same. According to a statement by the minister for IT and

communications, Dayanidhi Maran, earlier, "It is expected that IT software

and service exports will account for 30% of all foreign exchange inflows in 2008

from the figure of 8% currently".

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State governments are going out of their way to woo IT/BPO companies. While

the pitching pace has picked up in recent times, various states governments

realized the importance of good infrastructure and good marketing quite early

on. The competition is so intense that today all state government IT policies

seem largely to be cut-and-paste jobs of the original one.

A similar situation exists for any new policies. One state announces a new

initiative and within a short time you will see it in the policy document of all

the states. For example, seeing the success the West Bengal government has had

with bringing the IT/BPO segment under the Essential Services Act, Kerala has

also initiated the same some time ago. Today almost all the state governments

offer exemptions/concessions to capital and operating expenses like capital

subsidies, rebate on registration and transfer of property charges and

exemption/concession from stamp duty, sales tax holiday on IT software, etc. So

merely having an IT policy is no longer a differentiator.

Dataquest and IDC look at which states are eReady-which states have the

right mindset and the right infrastructure and which can attract IT/BPO

investments. Why conduct this survey at the state level and not the city level

as many other surveys, one might ask. The state-wise reckoning allows us to

study the extent to which the eReadiness phenomenon has percolated to the

country in the larger sense, instead of just remaining confined to its metro

avatar. We believe that if you have the basic infrastructure in place and a

proactive government, it is just a matter of political will to put the

accelerator on developing another city as the next IT/BPO hub. In retrospect,

one of the key flaws in many state IT policies has been to excessive dependence

on one city, only to then see the investment flowing out of the state once the

city has reached saturation or maturity levels. Bangalore is one of the best

examples of the same. Mumbai would have followed the same path but thanks to the

development of Navi Mumbai and nearby Pune, Maharashtra is yet to see ebb of

investments.

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The development of alternative hubs is important from a long-term

perspective. So while the Mangalores and the Mysores may not be able to compete

directly with the Kolkatas, if the government starts looking at developing the

smaller towns in the same way as it gives impetus to the big already-made names,

it will not be long before these start attracting investments. However, if the

base infrastructure is not in place, it will be a long time before the state can

offer the industry alternatives. We rate as very important the ability of state

governments to aim at overall development. Hence, the survey's wide-angle

focus.

What are the factors that help determine where to locate one's

organization? What would the CEO look for? While deciding on a new location is

obviously a tricky affair, the deciding factor is obviously the manpower

availability, not only within a city or a state, but the region. As per the data

available, states/UTs like Goa, Chandigarh, Haryana, Punjab and Delhi lead the

same.

Barring Delhi, which has good educational facilities and hence excellent

manpower resources, the other states in the northern region fall far short.

Traditionally, the southern states, Tamil Nadu, Karnataka and Andhra Pradesh,

figure in the top slots, along with Chandigarh and Goa, both union territories.

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Why then has IT/BPO activity in Chandigarh and Goa not picked up? We think

that these states have still to gain the critical mass-sufficiently large

concentrations-of qualified and experienced professionals needed to let any

industry take off in any given state/location. Therefore, Chandigarh and Goa

will have to contend with their overall smaller population of skilled

professionals and hence may not be on the investment horizon of big-ticket BPO/IT

services companies.

Once manpower supply is ensured, the CEO is next likely to evaluate operation

cost, and this includes factors like cost of living and cost of office space.

This is a no-brainer too: if the cost of living or cost of office space is high,

the operation cost would automatically be high and vice versa. Our survey shows

that this is where states like West Bengal (Kolkata) and Maharashtra (Pune) are

scoring over their expensive brethren like Karnataka. No wonder, today

investment is flowing into what were once "second" tier cities, with

Mumbai and Bangalore losing favor with large companies.

Policies are easy to replicate. It is tangible benefits investors want. The

companies we polled were unanimous in rating as the top factor influencing the

choice of location the special benefits and incentives offered to specific

industries, like land at nominal rents for setting up a facility. And no one

understands this better than the state governments. Andhra Pradesh is a case in

point. According to news reports, the state government has decided to extend

various time-bound incentives for those companies creating "intellectual

property" in software products. The government has agreed to provide even

"free land" to those companies focusing on high-end research and

development areas. Why? The state wants to become numero uno among the

neighboring IT hubs, including Bangalore, and attract high-end research

companies to set up their bases in Cyberabad.

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What the Survey Says



Two aspects-legacy and perception — require careful consideration. On

the legacy variable, read available infrastructure or export revenues, Karnataka

was the clear leader. While it needs to do a major re-haul of its infrastructure

in Bangalore, it is evident that Karnataka is way ahead of other states like

Delhi and Chandigarh. Karnataka has a history of over 20 years in this business

and it is no surprise that it tops the survey and will perhaps continue to do so

for a couple of years more. An analogy would be to look at Punjab, which has the

highest per capita income in the country, thanks to the tremendous success of

the Green Revolution.

However, the numbers do not reflect the ground realities, which say that

companies are moving out of Karnataka (read Bangalore). Mumbai would have been

another city with similar problems, but for the development of Navi Mumbai and

Pune because of which Maharashtra continues to see inflow of investment in the

state.

What

the IT Businessman Says
Awareness

amongst IT



resellers about G2B initiatives
Overall

'ease' in dealing



with Govt departments
Improvement

in service levels due to computerization
  Score

(%)
Rank   Score

(%)
Rank West

Bengal
Score

(%)
Rank
Chandigarh 100 1 Madhya Pradesh 95 1 Andhra Pradesh 100 1
Delhi 100 1 Karnataka 75.7 2 Madhya Pradesh 93.3 2
Haryana 100 1 West Bengal 73.7 3 Tamil Nadu 93.3 2
Punjab 100 1 Gujarat 54 4 U.P. 90 4
U.P. 100 1 Andhra Pradesh 51.9 5 Average 73.3 5
West

Bengal
96.80 6 Tamil Nadu 47.6 6 Delhi 67  
Andhra

Pradesh
96.7 7 Average 44   Karnataka 63.3 6
Madhya

Pradesh
96.7 7 Kerala 42.9 7 Chandigarh 63.2 7
Average 88   Delhi 36.7 8 Kerala 61.3 8
Goa 86.7 9 Maharastra 34.6 9 Punjab 60 9
Kerala 80 10 Goa 27.4 10 Goa 60 9
Maharastra 80 10 U.P. 24.4 11 Haryana 50 11
Karnataka 73.7 12 Chandigarh 24.2 12 Maharastra 50 11
Tamil

Nadu
73.3 13 Punjab 16.5 13 Gujarat 50 11
Gujarat 53.3 14 Haryana 5.1 14   36.7 14
IT

reseller business community: States like Madhya Pradesh and West Bengal,

not exactly perceived as top IT hotspots, have an IT reseller community

that is very happy and satisfied with the government's inputs to the

state's IT development. The three southern states of Andhra Pradesh,

Karnataka and Tamil Nadu also have IT reseller communities that are fairly

satisfied with their interactions with the local/state government

administrations. On the other hand, states like Punjab, Maharashtra, Goa

and Haryana need to do a lot of work to shore up the confidence of their

IT reseller business community in the local/state administration.




Of course, it has to be mentioned that dealer survey results are not
absolute but relative to the different expectations in the different

states. So for states like Delhi the expectation level might be very high,

compared with low satisfaction level in states like West Bengal and hence

a small change may reflect a large swing in the satisfaction levels.

If vital infrastructure is not in place, investors are not even willing to

look at a state, obviously, as a location worth considering. Take the case of

states like Bihar, where basic infrastructure is abysmal compared to other

states. There were a few companies in the STPI there in 2002, but by 2004, these

had either closed down or moved out. At the other extreme would rate states like

Delhi and union territories like Chandigarh. They would get top-notch ratings on

most parameters but their biggest drawback is their lack of new office space.

But the lack of space can paradoxically have a good effect-it might take some

of the custom on to neighboring cities/states, a good example of this being the

national capital region. Investment has been flowing to cities like Gurgaon and

Noida, thanks to Delhi, even as other Haryana and Uttar Pradesh cities continue

to be stay out of investor favor.

So does the number one state in terms of infrastructure automatically top in

terms of getting IT/BPO investments? Chances are, not. Perception comes in here.

Even when infrastructure is satisfactory, "perception" is a

determining factor. If CEO/industry perception is favorable, investment results.

Today CEOs perceive West Bengal more positively vis-à-vis Kerala despite the

latter's having had a head start. The result: today West Bengal is one of the

major names attracting investments in the IT/BPO space. While Kochi has been

repeatedly cited as a top location for BPO companies, the big guys still prefer

the other "K" city-Kolkata. An instance of when it all lies in the

beholder's eye.

While we have captured the first part of the eReadiness matrix, Dataquest and

IDC are doing a survey of the Top 50 CEOs to gauge their perception, the second

part, on where they are likely to make their next round of investments, the

results of which we will be bringing to you in the next issue.

Yograj Varma in New

Delhi

Methodology

A shortlist of 14 leading states was initially created from the 28 states and

7 union territories by conducting an evaluation on five broad socio-economic

indicators:

  • exports of STPI registered companies in the state
  • general graduates per 1,000 population (a key parameter for BPO investors)
  • enrolment in computer-related courses like BSc, BE and MCA per 1,000

    population (a key requirement of software services companies)
  • urbanization rate, and
  • Internet subscribers per 1,000 population.

This led to the emergence of the following list:

1. Andhra Pradesh



2. Chandigarh


3. Delhi


4. Goa


5. Gujarat


6. Haryana


7. Karnataka


8. Kerala


9. Madhya Pradesh


10. Maharashtra


11. Punjab


12. Tamil Nadu


13. Uttar Pradesh


14. West Bengal











Each of the 14 short-listed states was then evaluated on the basis of 13

factors categorized into four broad sets:

  • Business/market performance: primarily reflected by exports of STPI-registered

    units
  • Educational facilities and infrastructure
  • Physical and social Infrastructure
  • ICT infrastructure

The composite scores obtained were then used to arrive at a relative ranking

of states such that each state could be placed on a life-cycle stage curve

(S-curve), reflecting not just socio-physical infrastructure availability but

also the stage of maturity and size of its IT industry. Thus, a state like

Karnataka, home to the "Silicon Valley of India" — Bangalore, was

placed high on the life-cycle maturity cycle, whereas "new entrants"

like West Bengal and Kerala were placed around the introduction/early growth

part of the cycle.

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