Hyderabad, Kochi...

It came as a big surprise, rather a shock for many. But that was not what the

National Association of Software and Services Companies (Nasscom) had aimed to

achieve when it initiated the study on India’s hot destinations for IT-enabled

services (ITeS). However, the surprise element was so powerful that most in the

media were simply carried away by the ‘ranking’ byte.

While the report does rank the nine cities, Nasscom VP Sunil Mehta asserts

that this was done only to ascertain the competitiveness of each city and the

initiatives necessary for improving it. More importantly, the report attempts to

answer key questions... One, why is it that the majority of ITeS companies, 90%

to be precise, are concentrated in a few cities? Two, what makes these cities

different? And third, within the set of nine cities, why are some able to

attract more investment than others?

The winds are a-changing



According to Nasscom, the ITeS industry in India is experiencing the third

wave of growth; both in terms of geographical areas of operation and services

offered, based on drivers such as state government initiatives in the areas of

policy, power, telecom and real estate. The third phase of growth–following

the emergence of captive centers of large multinationals and numerous

entrepreneurial ITeS ventures–is characterized by the domination of new

locales such as Hyderabad, Pune, Bangalore, Chennai and Kochi. "In the

first phase, the industry was dominated by captive centers of large

multinationals such as GE, American Express, and Swiss Air who set up operations

in leading metros of the country such as New Delhi and Mumbai. In the second

phase, the growth of the industry attracted numerous entrepreneurs–in many

cases, employees of multinationals who quit their jobs to set up their own ITeS

ventures–again in and around Delhi (NCR) and Mumbai (including Navi

Mumbai)," the report suggests.

The Nasscom report on these nine cities–NCR (National Capital Region

including New Delhi, Noida and Gurgaon), Bangalore, Chennai, Hyderabad, Kolkata,

Kochi, Mumbai, Pune, and Ahmedabad–threw up a number of factors that clearly

contribute to the high concentration of ITeS companies in these cities. The

factors ranged from the availability of telecom infrastructure and physical

infrastructure like power, real estate, and local transportation, to the

availability of manpower, perception of the city in terms of its IT-orientation,

and the policy initiatives of the respective state governments. These were also

the parameters that Nasscom used to measure the competitiveness of the top nine

destinations.

Why the clusters?



Telecom infrastructure, deemed one of the most important ingredients for

ITeS, is one area where these cities score high. For instance, barring Pune,

Ahmedabad, and Bangalore, all the cities have direct international bandwidth.

And even these three cities are connected directly to Mumbai, the hub for

international bandwidth, through high-speed links. Besides, all the cities are

connected through high-speed links to Mumbai. And except for Kolkata, all the

cities have tele-densities in excess of 14%, compared to about 3% for India as a

whole. Even Kolkata’s tele-density is thrice the national average.

INFRASTRUCTURE: According to the report, the availability of power–rated

another important factor beside telecom–is better in these nine cities

compared to the rest of the nation. There is variance in tariffs–from as high

as Rs 4.97 a unit in Mumbai to Rs 3.00 in Kochi, but most of these cities pay a

tariff of more than Rs 4.00 a unit. While Pune, Bangalore, NCR and Kochi

experience pre-scheduled power cuts ranging from 30 minutes to four to six hours

a day, the rest of the super nine cities, the report says, are virtually free of

blackouts.

The report suggests that despite the real estate rates in Mumbai and NCR

being highest in the country, they were able to attract the majority of ITeS

companies mainly because the respective state governments were aggressively

promoting Noida, Gurgaon, and Navi Mumbai. Since then, increasing rates have

pushed NCR and Mumbai down the ‘affordability’ list as other cities started

getting their act together. The cost of real estate in Mumbai ranges from Rs 287

to Rs 50 per square feet per month.

MANPOWER: Since manpower is one of the key advantages that India

enjoys in the global ITeS market, the cities with trained manpower were able to

attract more investment. However, the cost of manpower shows wide variance–from

Rs 17.04 per hour in Kochi to Rs 51.59 per hour in Mumbai.

PERCEPTION: While most cities score well in the category, Bangalore

was ranked the highest because of the state’s IT policy. Similarly, Hyderabad,

with its IT-friendly government, was also a preferred city. However, Kolkata,

Ahmedabad and Kochi lag behind, and the recent riots in Ahmedabad have harmed

its image as a business center. Entrepreneurs hailing from a city are more

likely to base their companies in that city. Bangalore, Mumbai, and Delhi scored

higher, whereas places like Kolkata, Pune, and Kochi lost on this front due to

lack of precedents.

POLICY: The top nine cities typically provide large policy

incentives-right from incentives for real estate, exemption from income tax and

capital subsidy to turnover incentives. Many governments have already traveled

that extra mile. Hyderabad, for instance, provides incentives for almost

everything from real estate and power to telecom and labor. In addition, it

provides an escort service, wherein a government executive interacts with the

government departments on behalf of the company.

The survey also threw up some contrasting examples. NCR, which does not score

very highly on policy initiatives, still has been able to attract a number of

ITeS companies. On the other hand, Hyderabad, which has the best policy for ITeS

companies, hasn’t been able to attract as many. Another example is Bangalore,

which has been able to attract a number of ITeS companies mainly because of the

perception about its IT-orientation.

On the final count, the cities when pitted against each other on the basis of

the relative importance of these parameters, shows that what matters is the

combination of it’s competitiveness mainly from the infrastructure it provides

and the policy incentives that it offers. However, taking into account all the

factors, Hyderabad topped the rankings while ‘technopolis’ Bangalore was

relegated to sixth place, trailing behind Kochi, Chennai, Kolkata and Ahmedabad.

Another high-profile ITeS location, the NCR comprising Delhi, Noida and Gurgaon

was eighth, with Mumbai at number seven and Pune at the bottom. So what does it

mean to these and a dozen cities attempting to get the maximum share of the pie?

Cities that fared low in the survey may dismiss the rankings by projecting the

number of companies that are operating in the geography, the denial would do

more harm than good in the long run. If Ahmedabad can slip ahead of Bangalore,

there’s hope for all the wannabe ITeS cities and towns planning to cash in on

this new wave.

SHUBHENDU PARTH in New Delhi