Bangalore: In an effort to cut cost of operations, Indian back-office service providers such as Firstsource Solutions Ltd, HTMT Global Solutions Ltd and Infovision Group, are building centres in smaller cities and towns to serve local customers as against the centres they have in metros and other large cities that are largely focused on global clients.

Real estate and manpower costs are lower in smaller cities, also termed tier II cities, such as Mysore, Durgapur, Hubli and Vijayawada as compared with, say, Mumbai, Bangalore, or the National Capital Region (Delhi and its environs).

Sometimes, such small cities also come with the added benefit of having better communication infrastructure or Internet bandwidth.

Added benefit: Employees at Convergys Gurgaon office. Real estate and manpower costs are lower in smaller cities compared with bigger cities

“It was inevitable (that we would have to) to move a big part of our business to smaller cities to keep our costs under control,” said Aditya Gupta, president, Infovision Group, which earns three-fourth of its business from local customers such as Bharti Airtel Ltd and HSBC Holdings Plc. Infovision has centres in cities such as Baroda, Jaipur, Kanpur and Coimbatore to serve local customers.

Sometimes, the location is also driven by where the customers (end-users) of such customers (telcos such as Bharti Airtel and banks such as HSBC, for instance) are located.

HTMT Global Solutions, owned by the Hinduja Group, serves customers of Bharti Airtel in the eastern part of the country from an 800 people unit in Durgapur. “The city was best suited to serve in local language of the region,” said Partha Sarkar, chief executive officer of HTMT Global Solutions.

HTMT is looking at cities such as Jalandhar and Dehradun for future expansion. It has larger centres in cities such as Bangalore, Chennai and Hyderabad for overseas customers.

Analysts say different locations for local and overseas customers will help companies manage not just their costs, but also their human resources.

“People in small cities and domestic business could be given a career path in centres for overseas customers. It could be a good incentive,” said Sumit Sarawgi, analyst with Everest Group, an IT and back-office research company.

However, some companies use their centres in tier II cities to serve local customers. HSBC and Genpact Ltd serve global clients out of centres in Visakhapatnam and Jaipur, respectively.

Firstsource Solutions, which operates centres in tier II cities such as Indore, Vijayawada, Kochi, Hubli, Puducherry and Trichy, has deployed a little over one-fifth of its 16,000 workforce to cater to domestic clients.

Sanjeev Sinha, the head of domestic business at Firstsource, said the company involves the clients in deciding on delivery locations.

Trinet Solutions Pvt. Ltd, a Delhi-based back office company, said it expects about 60% of revenues in the current fiscal would come from operations in tier II cities such as Meerut and Karnal. “Our operation in Delhi is more of a showcase as majority of clients are located there,” said Anuj Gupta, a director at Trinet.

The company, which serves clients such as Barclays Plc., and Tata Teleservices Ltd, said its overall cost of operations is lower by a quarter in smaller cities but added that the challenge is in getting talented mid-level managers.