Its news that IBM is to launch a software outsourcing development in Noida. One of the top 5 upcoming and favorite destinations for IT outsourcing and business process outsourcing? Smaller cities such as Noida are gaining attention as outsourcing costs continue to rise in established centers such as Bangalore. There are many reasons supporting the shift of software and bpo companies from metro cities to mega and small cities. Before discussing the same, let us have a brief look at the growth of the IT and BPO industry.

Few facts questioning prediction of a slowdown in growth of IT and business process outsourcing (BPO) industries:

  • Exports expected to reach $10.5 billion to $11.0 billion this year- The National Association of Software and Service Companies (NASSCOM)
  • Sector employment up by 138, 000 from previous year.
  • Fiscal year 2006-06(ending March) witnesses exports of $8.4 billion, up 35% from the previous year.

This growth in the software outsourcing India industry has made the real estate and labor costs soar and the competition for skilled labor has resulted in attrition levels as high as 30% a year(in Asia), says NASSCOM. The Software outsourcing India industry also faces tremendous competition from South Asian and Latin American countries and adding fuel to fire, the appreciating rupee has made exports less impressive.

Thus, the IT and BPO companies are starting to set up operations in Tier II cities such as Noida, Mangalore, Chandigarh, Ahmedabad, Pune, Indore, etc which are much smaller in size and can provide the right environment for Offshore Development Center. Major companies such as TCSInfosysSatyamMphasisWipro, etc have set up their centers in Tier II cities such as Trivandrum, Vishakapatnam, etc. We can’t deny the fact that Tier I cities will remain to be established centers due to developed cities, infrastructure, etc. However, smaller cities are attracting bigger companies to set up their operations there due to lower cost(untapped real estate market, local human resource consisting of college students, etc) and better support factors. So the current strategy is to set up operations in multiple cities to reap the benefits of Tier I cities(established markets, availability of qualitative resources, developed supporting industries, etc) as well as Tier II cities(cheap labour, low attrition rate, government support and incentives). Thus we can say that muti-located companies is the new mantra for Software Outsourcing industry in India.