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.

Infrastructure
in Hand

City International
Bandwith  (MBPS)
Connectivity to
Mumbai (MBPS)
Tele-
Density
Colleges Vehicles/
KM
of Road
Load Shedding
(Hours per day)
Power Tariff 
(Rs per unit)
Real Estate
(Rs per SQ. FT/Month)
Ahmedabad 8 14 74 784   4.83 16
Bangalore 155 15.5 204 1567  2-4 4.15 30.3
Chennai 68 155 15 100 303   4.15 25.2
Hyderabad 34 155 15 158 1230   4.3 24
Kochi  310* 155 15.7 32 161 0.5 3 15.5
Kolkata 34  79** 9.5 67 567   3.41 25
Mumbai 780 14 159 488   4.97 87
NCR 102 310 14.5 85 139  4-6 4.25 57
Pune 622 13.9 102 1450 4 4.1 35
BALANCE
SHEET:
The infrastructure facilities
that the super nine cities currently have to offer

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.

Who
offers the best deal for Indian IT companies?

City

Telecom Power Real
Estate
Manpower City
Perception
Entrepreneurship
History
Policy
Initiatives
Ahmedabad

9 4 2 4 8 6 3
Bangalore

8 7 6 6 1 1 6
Chennai

4 2 5 5 3 4 4
Hyderabad

5 3 3 2 2 5 1
Kolkata

6 1 4 3 7 7 5
Kochi

2 6 1 1 9 9 2
Mumbai

1 5 9 9 4 2 8
NCR

3 9 8 8 5 3 7
Pune

7 8 7 7 6 8 9
CITYLIGHTS:
Ranking of cities on parameters
that influence a company’s decision to set up shop

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

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