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As Bangalore chokes, tier II cities smell deals

As Bangalore chokes, tier II cities smell deals
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First Published: Mon, Nov 12 2007. 11 47 PM IST

M.N. Vidyashankar, Karnataka IT secretary
M.N. Vidyashankar, Karnataka IT secretary
Updated: Mon, Nov 12 2007. 11 47 PM IST
Bangalore: When Quality Engineering and Software technologies Inc. (Quest), an engineering software services company that supports customers including Airbus (for the A380 project), and Boeing (for the 787 Dreamliner project) in the design of airframe and engines, decided to set up a software special economic zone (software SEZ), it decided to go back to its roots, to Belgaum.
M.N. Vidyashankar, Karnataka IT secretary
Quest had been founded in 1997 in Hubli, some 420km northwest of India’s software and offshoring hub Bangalore. Belgaum is about 94km away from Hubli. Yet, it wasn’t history that influenced Quest’s move.
The company now works largely out of offices in Bangalore and, according to Vijay Menon, vice-president, marketing, costs are one reason why its SEZ is coming up in Belgaum. The zone, he added, would be spread across 250 acres and the first phase would be completed by 2008.
Even as costs soar and Bangalore becomes expensive and grid locked—some companies are moving to cities such as Hyderabad, Chennai, even Kolkata.
But Karnataka’s tier II cities are also sensing an opportunity and marketing themselves as cost-effective alternatives to their larger cousin. In 2006-07, Karnataka accounted for one-third of the country’s software and back-office services exports of Rs51,700 crore, according to Software Technologies Park, Bangalore, and Karnataka state information technology department.
Of this, Bangalore alone accounted for Rs50,050 crore.
Karnataka’s tier II cities exported software and services worth Rs1,650 crore in the same period according to the state IT department, a growth of 50% over the previous year compared with a 28% growth for Bangalore.
That number, while low, isn’t insignificant. Software and back-office services exports from all of Gujarat in 2006-07 totalled Rs550 crore; Orissa Rs732 crore; and Kerala Rs800 crore, according to the IT departments of the respective states.
Indeed, leaders such as Infosys Technologies Ltd and Wipro Ltd have started ramping up their presence in cities such as Hubli, Dharwad, Mangalore, Manipal, and Mysore.
Smith Dornan Dehn, a Manhattan-based international media and intellectual property firm, which has clients mainly in New York, Los Angeles and London, recently opened a knowledge processing outsourcing centre in Mysore. “It is good to set up our operations in Mysore. Cost of living is much lower here and rentals (too) are lower. Commuting takes much lesser time (in Mysore compared with larger cities),” said Sanjay Bhatia, head of the firm’s operations in India.
Other reasons why companies seem to prefer Karnataka’s tier II cities in addition to operating costs, include quality of life issues for employees and lower attrition levels.
“If we look at attrition, it is as high as 40% to 45% in Bangalore-based business process outsourcing units.
In smaller cities, it is about 5% as most of the employees live with their families and expenses are lower, compared with Bangalore,” said M.N. Vidyashankar, IT secretary of Karnataka.
“Several of the tier II cities have excellent manpower and companies can tap them. Our aim is to spread growth across the state and we will help companies with whatever infrastructure is required to do the same.”
The government-owned Software Technology Parks of India (STPI) is also planning incubation centres in Mysore and Gulbarga. The STPI already has such centres in Bangalore, Mangalore and Hubli.
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First Published: Mon, Nov 12 2007. 11 47 PM IST