The Next Generation Boom in Services Industry

An article originally intended for L!VE, our student magazine @ SJMSOM:

Working in one of India’s leading software services exporters, what will be your reaction if you were to be transferred to Belapur? Confused. You shouldn’t be, if these are any indications of the times to come. Welcome to the next generation of expansion in the software service industry. The software industry of Bangalore, Mumbai and Gurgaon is now moving deeper into the country. The new centers of information technology are no longer the big metros but low cost centers like Jaipur, Trivandrum and Chandigarh.

Unsurprisingly, the high cost of operation in the metros coupled with the high rates of attrition prevalent among the leading companies has made them look other places for a better option. The Tier II cities have a distinct advantage in this regard for many companies. The reported cost differential is around 10 percent for non-voice based services and higher for voice based services create a huge margin of operational profits for the firms. Also, thanks to the large population of the country and increasingly effective education system, the number of university graduates coming from these cities is enough to take care of the major manpower requirements for the companies.

All major outsourcing companies have scouted out new locations, away from the hustling bustling metropolitans to locales such as Kochi, Baroda and Coimbatore etc. These include companies like Wipro Spectramind, Infosys Technologies and Cognizant Technology Solutions. Kochi and Coimbatore are coming up as feasible alternatives to Bangalore and Chennai in south, while Pune has already cemented its place in the outsourcing pantheons because of its close proximity to Mumbai and its rich educational system, providing close to 1,00,000 graduates every year, acting as an essential resource pool for the companies.

One another reason associated to moving to Tier II cities is the low cost of transportation involved in the cities, because of their small geographical stretches and comparatively low count of vehicles compared to outsourcing hubs. The average employee starting out in the service industry is a college graduate, who mainly relies on public transport for commutation to the workplace. As an unwritten rule, the companies have decided to include transportation costs as part of the compensation packages, providing for company buses and cabs, which again hit the operating margins of the companies. Though the outsourcing industry has funneled in loads of money into the metropolitan cities, the infrastructure development has been unable to maintain pace with the rapid growth and the lack of development in transport facilities are not helping the cause of these cities.

An additional impact of the gradual shift towards Tier II cities has been the entry of many smaller service providers, specially the ones catering to niche sectors like high-end data analysis. The Tier II and Tier III cities make the entry level costs of these companies substantially less and are fostering the entrepreneurship ventures of many technology specialists. The presence of sufficient talent pool in these cities helps these firms by reducing their attrition rates and hence, their training and recruitment costs are also going down, further promoting the cause of the Tier II cities.

However, all is not well with the migration plans of these companies. The primary concern of all the companies is the infrastructure related issues that generally accompany the Tier II cities. The doubt that whether the smaller cities will be able to rise over the infrastructure handicap and dicey connectivity, to actually make the small city boom happen still looms large in the minds of the senior management of many companies. It is estimated that 30% of the workforce of all leading IT/ITES companies is going to be based in these Tier II and Tier III cities. Hence the onus is on the respective public bodies to develop the amenities in these places to provide for the large workforce.

Another area of concern for the companies is bringing quality talent to these cities, especially with respect to the senior management and experience middle management employees, to these smaller cities. Obviously the promise of better work-life balance is not a good enough reason for these executives to relocate to these new situations and hence, companies might be forced to offer relocation bonuses or other such perks to facilitate the shift of work force to the new places. Also, an interesting trend that has been observed in the recent recruits is that, they do not want to leave the glitz and glamour accompanying a metropolitan city for relocation for some nondescript city offering little or no life outside office hours or during weekends.

Another major impact of this relocation to smaller centers in the country will be a more symmetric distribution of the outsourcing pie between the large hubs and the fast catching up wannabes. The recent years had seen a skew in favor of the metros, with the retail and real estate booms in the city projecting them as the face of modern India. These recent developments will enable the smaller players in this field to develop their own identity in this market and present a more representative picture of modern India. Already signs to this effect are visible with an increase in spending by real estate giants in these centers and the entry of retailing giants like Reliance and Big Bazaar in these cities. The development of these new consumption centers is also good for related sectors of manufacturing and allied services, giving them further impetus for growth.

However, none of this is going to happen in near future. The challenges are still clear for all of us to see. Firstly, the infrastructure needs a great impetus from the government. It is heartening to see projects like the Golden Quadrilateral being visualized because they will improve connectivity of the smaller cities with the outsourcing hubs. Also, the telecom revolution in the country should help ensure that the network and data connectivity are maintained at requisite levels for the companies to show confidence in these cities. Finally, the public amenities need to be improved to attract the skilled labor into these cities rather than switching jobs in the major cities themselves. The rise of latent talent and potential in the smaller cities is not under any sort of doubt, it is just the timing of the event that is debatable. The sooner it happens, the better.

Why Bangalore is not a metropolitan ???

It pains me as I write this. I wonder a 100 times if I do want to write this but then to "call a spade a spade" is no crime and here I let go.
It is said that travel broadens horizons, and how. Lately, I have been doing some amount of travelling ( to the extent of bankruptcy) to the 2 truly metropolitan cities in the country, Mumbai and Delhi, with the effect that I decided to sit back and take stock of the situation prevalent on home turf.
People may argue that I am no authority to talk about Bangalore, being a "outsider" and of course, the fact that grass is always greener on the other side. I cant get into a justification mode, just read the post and decide for yourself.
Bangalore was always the retired man's paradise. With lush gardens and laid back lifestyle, you couldn't ask for more at the age of 60 to rest till you are handed back to nature. But then something happened. With the economic forces of globalisation and cheap skills coming into play, it was but obvious that Bangalore, with its strong educational framework, will be the fulcrum of activity for all knowledge based industries. Bangalore rose, and how, in the books of all corporate houses and with the government all the more happy to oblige, we witnessed a growth unheralded, unbelievable and most importantly, unplanned.
With the increase in economic brawn, Bangalore witnessed a strong influx of people from all parts of the country. Not that the city wont welcome us with open arms, it did but what it lost in return was its tranquility and innate serenity. Soon Bangalore was bustling, not in the arms of traditional theatre and drama but in the sweaty pubs and discos.
The scene with Mumbai and Delhi has been different. They have been the big cities, always. The growth of these cities had little to do with a cost-cutting phenomenon in the West and more with the genuine surge in economic and political rise of the country. As such, the growth story of these two cities has been more organic and as a result, more planned.
The present day Bangalore is a picture perfect example of what can go wrong in urban planning and development. The overcrowded roads, the new airport controversy and the haphazard construction of the metro are only aggravating the agony of old-timers in Bangalore.
Bangalore suddenly looks like the illegitimate child of the Indian growth story, trying to earn brownie points with one and all through cheap labour and cheap liquor, while the "real" family is the toast of many a high-society dinners. This is not to blame the city for its current state nor am I taking any credit away from the stupendous IT story that has become synonymous with Bangalore. I , like many others , have been the beneficiary of the boom that's Bangalore and am positive that Bangalore deserves its place in the echelons of the high and mighty but its still a long way from the home run in that race.
And so here I left my story a month back... time to pick up the threads again...
Lot has changed in the period though, I am destined to go to Mumbai in a couple of months and now my observations on the city will be derided as a parting admonition and act of selfish what-might-have-been stories... but as I stated before I cant afford to get into justification mode.
Adding to the turmoil, the political environment has displayed a distinct distaste for public welfare (don't get me started on the Airport thing...reeks of small town conman ship). They have been distant from ground realities and mud-headed in planning. The resultant of their hubris is the dislike exhibited by old-timers, or should i say Bangaloreans, towards the breed that is us ... the new entrants or the immigrants ( isn't that the truth!!!).
That just about brings me to the actual reason for penning my thoughts here. I started at the time when MNS was wrecking Mumbai with a Nazi-like temperament and one day a colleague actually narrated a story about his friend being harassed by some locals. It seems the local people were not interested in robbing him, their only intention was to cause harm to the person amid almost violent chants of "you IT people". That really set my engine running... why are we being blamed for all this ? What is my fault if I am asked to report to office along with another 40 thousand people .. leading to traffic jams and packed buses ? Is it my fault that the flight costs have come down so I want to fly back home for vacation and hence the resultant high load on the old airport, has "forced" the government to shift the airport to a new place, which takes me more time to reach than probably the air journey itself ? Please tell me if it appears that I am having fun shelling out extra money for each and every auto trip, when funnily the trip costs more because of my profession rather than the distance travelled.. ?
A metropolitan is a term used very loosely these days... population has, for all practical purposes, been used as criteria. But then at the rate India is growing in numbers we can look forward to many metropolitan cities can't we ? A metropolitan is a microcosm, which when we enter showcases the whole country for us...
Bangalore, unfortunately, is going nowhere with that. If it is truly representative of the country then it can be worrying for India. It shows a cluttered country where the old-order dislikes the new and the new could care less... where the host is distrustful of the guest and the guest has become indifferent, a feeling arising from the fact that no amount of persuasion will work with the host. The life goes on with a under current of distrust, which will one day find expression under some stupid pretext. And till such day we'll pretend that we live in the country's coolest metropolitan...
The staunch believers ( and I hope there are many) will refute me stating the recent events in Mumbai... so should Mumbai be stripped off the metropolitan status too ? Maybe yes, that would obviously depend on the level of involvement of the real Mumbaikar in these protests, which in turn tells us how much the real Mumbai believes in the cause and thus we can gauge whether the same under current, that I talked about here, exists there too. In that that unfortunate case, we can sadly label Mumbai too as an impostor. Maybe someday I would sit and analyse Mumbai as a metro after I have spent some considerable time there.
But even then I would love to come back to Bangalore and check out if it has outgrown its regionalist robes and donned the real colors of a metropolitan city...