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At your IT service,
India's Hyderabad
NEW DELHI - A
recent study by an industry trade group highlighted
concerns that may limit the future growth of
Internet-enabled services (ITES), a sector that since
the late 1990s has been one of India's strongest
economic engines.
The three-month-long study by the
National Association of Software and Service Companies
(NASSCOM) assessed the competitiveness of nine Indian
cities as destinations for ITES companies: Ahmedabad,
Bangalore, Chennai, Hyderabad, Kolkata, Kochi, Mumbai
(including Navi Mumbai), Pune and NCR (Delhi, Noida and
Gurgaon). The cities were assessed on factors such as
manpower availability, real estate, telecom
infrastructure, policy initiatives, power
infrastructure, city perception and entrepreneurial
history.
India's US$1.5 billion
ITES sector, growth engine for the $10.1 billion
software industry, spans call center services and
backoffice operations such as accounting and payroll.
Its sales grew 67 percent in the year ending March 2002
and are expected to grow over 60 percent this calendar
year. The industry - pegged to grow $543 billion
globally by 2004 - was responsible for roughly half the
92,000 jobs created in the Indian software sector last
year.
According to the report's findings,
Hyderabad has emerged as the most competitive city for
ITES, with Chennai, Kochi and Kolkata also earning high
rankings for their infrastructure offerings, policy
incentives and low-cost manpower availability. On the
other hand, Ahmedabad, which ranks highly on the
availability of low-cost manpower, loses out on
competitiveness as a result of weaker policy incentives
and infrastructure availability. Bangalore, Mumbai, NCR
and Pune ranked low in infrastructure availability,
policy support and availability of low-cost manpower.
"About 90 percent of all
Internet-enabled service companies in India are concentrated in
major cities, while others have not been able to attract
more than two companies each," said Kiran Karnik,
NASSCOM president. Our study reveals that despite a
large number of ITES companies being based in Mumbai,
NCR and Bangalore, these cities are facing increasing
competition from other cities. Cities such as Hyderabad,
and Kochi are emerging as attractive ITES destinations
primarily due to rapid improvements in infrastructure
(power, international bandwidth and urban
transportation) and lower manpower costs due to lower
cost of living and lack of alternative employment
opportunities in these cities."
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. 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 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 New Delhi and Mumbai.
The third phase of growth has been more
geographically dispersed - with new locations emerging
such as Hyderabad, Pune, Bangalore, Chennai, and more
recently, Kochi. The growth has been driven by three
factors: the desire of state governments to attract
entrepreneurship, the rapid improvement in key
infrastructure such as power, telecom bandwidth, and
real estate; the need for ITES companies to lower
operating costs (especially employee costs, and
transportation).
Increasing competition But
Karnik said the software industry, viewed as India's
best hope of creating thousands of high-paying jobs and
earning needed foreign currency, could see China
emerging as a big rival as it offers many of the same
advantages as India, plus a lot more.
'Their
infrastructure is superior to ours and it's going to be
like this at least the next decade. Their roads are
better (and the) power situation is better,' Karnik
said. 'So three-four years from now I would worry about
China as a competitor.'
In order to assess the
competitiveness of different locations, the relative
importance of parameters such as telecom and physical
infrastructure, IT orientation and policy support
provided, each city was ranked on a scale of 1 to 10, in
order of increasing importance. Weights were then
assigned to each of the factors. The score for each city
was derived by multiplying the rank for each factor with
its particular weight and then dividing the sum total of
all the factors for each city by the total weight. The
study also highlighted the importance of qualitative
parameters such as entrepreneurial culture and
perception of policy environment.
"Given the potential of the
industry to create jobs and generate foreign exchange,
NASSCOM will actively work with the various state
governments and ITES companies in order to create a
conducive policy environment and a world class
infrastructure to develop the ITES industry in different
states," Karnik said.
Ahmedabad
According to the profile of the ITES companies operating
in the city, Ahmedabad is strong in website services and
web applications, call/contact centers and back-office
operations. However, in other services, such as database
management, data processing, network management and
remote maintenance, the city is relatively weak, though
it has the telecom infrastructure to support these
services. The recent communal riots have raised security
concern for businesses. The government needs to address
the issue proactively if it has to attract ITES
companies. Though the city's power infrastructure is
reasonably good, the same can't be said about the public
transport system The city has a fairly good educational
infrastructure, however many students migrate to Mumbai
each year in search of better prospects. This drain
needs to be stanched to retain local talent.
Bangalore
Though Bangalore has a range of ITES
companies, it seems to be stronger in the call/contact
center, transcription, and back-office operations
services. However, perhaps because of its
IT-orientation, the city has also been able to attract a
reasonable number of companies into database
management/development, data processing, engineering,
design and GIS services. Given this, the city should
still be able to attract other forms of ITES companies.
The city's infrastructure, especially power and telecom,
are not keeping pace with the IT expansion. While the
government promises uninterrupted power supply, the
reality is far removed, and many ITES firms have to
maintain their own back-up systems. This cranks up
costs. The city's public transport infrastructure is
very weak and this has resulted in many people buying
their own vehicle. There is a lack of a neutral accent
among the local populace which necessitates training for
call center services. While real estate is not a
problem, property costs in Bangalore are higher than
those in Chennai.
Chennai
Chennai, despite a
relatively sturdy infrastructure, hasn't been able to
attract as many ITES firms as Bangalore. However, from
the profile of the companies operating in the city, it
seems that the city is strong in call/contact center,
content management/development and animation, data
processing/management/digitization, and website
services/web applications. Chennai loses out to the
likes of Delhi and Bangalore in the 'perception game'.
The city is perceived to be conservative and lacking in
infrastructure. It would help if the government found a
way to highlight the success stories of companies based
in Chennai. The lack of a neutral English accent among
the local populace is a problem that needs to be
addressed. However the city is well placed for services
like back office accounting and transcription.
Hyderabad
Though the city scores high on
infrastructure and policy, it has been able to attract
only certain kinds of ITES companies. The current ITES
population in the city is favorable towards engineering,
design, GIS and data processing and seems to lag in the
contact center and transcription businesses. The Andhra
government is aggressively marketing Hyderabad as a
choice destination for ITES companies. Thus, it has to
take much greater care of the city's infrastructure. The
city's public transport infrastructure can definitely
stand improvement. The state's ITES policy is perhaps
one of the best in the country and puts a lot of
emphasis on quality manpower. The government must now
deliver on those intentions and support institutes that
train manpower suitable for ITES. Accent is a major
problem that needs to be addressed through training
support.
Kochi
Kochi is an upcoming city in
Kerala and is aggressively being promoted by the state
government as an IT destination. Though it doesn't have
any ITES companies of significance yet, it holds a lot
of potential to attract many. Though it has the lowest
power tariff among the nine cities in the study, it
still experiences some power outtages. Like most cities
in India, Kochi lacks a decent public transport
infrastructure. Compared to its larger brethren, Kochi
has only a few colleges. As ITES companies would mainly
hire graduates, the state needs to ensure abundant
supply of trained manpower. Kochi loses out in the
perception game. The government needs to ensure that the
city moves up this scale to start attracting new
businesses.
Kolkata
The profile of the ITES
companies in Kolkata suggests that it is relatively
strong in data processing and back-office operations.
However, in other areas, the city hasn't been able to
attract many companies. The government needs to address
several issues, especially on policy, to attract
companies from other kinds of services. The main issue
that needs to be tackled to place Kolkata firmly on the
ITES map is perception. Although the state government is
aggressively promoting Kolkata as a destination for ITES
firms, it needs to do more. Offering more incentives -
possibly following the Andhra model - and showcasing the
success stories coming out of the city could be the
first step toward achieving this. The state also needs
to increase its tele-density, and bring it at par with
other leading cities The city's public transport system
needs to improve dramatically, as does the quality of
the road network.
Mumbai
Next only to NCR as the
preferred choice of destination for ITES firms, Mumbai
is strong in call/contact centers, back-office
operations, and data processing. However, it seems to be
quite weak in transcription services and network
management. The city holds the potential to attract all
kinds of ITES companies, but at the same time, it needs
to take some steps to maintain and improve its
competitiveness. Mumbai is plagued by high real estate
rates. Even a depressed real estate market has failed to
bring down the prices on par with the other metros.
Though Mumbai has adequate trained manpower, the cost is
among the highest in the country. Though Mumbai has the
best public transport infrastructure in the country, the
same can't be said about its road network. The city's
congested roads need to be de-clogged.
NCR (Delhi, Noida and
Gurgaon)
By far the leader in ITES in
the country, NCR, unlike Bangalore, hasn't been able to
attract every type of ITES company. For instance, from
the profile of the companies operating in the region, it
seems to be particularly strong in call/contact center,
back-office operations, website services, web
applications and data processing, with call /contact
centers leading the way. This region too has the
potential to attract every kind of ITES firm, given some
of the following initiatives: A lot remains to be
achieved on the physical infrastructure front. Delhi's
power supply needs immediate attention, as it
necessitates backup power systems at companies, thus
increasing costs. The public transport infrastructure in
NCR is quite inadequate. This adds to the companies'
operational costs and thus is not a cost effective
destination. As in many other parts of the country, the
lack of a neutral accent may be a problem for some ITES
firms, especially those in the call center business.
Pune
Though Pune hasn't managed to attract many
ITES companies, those that are there seem to be evenly
distributed between the call/contact center, data
processing and back-office businesses. But the other
services are conspicuous by their absence.
Infrastructure tops the list of concerns. A reliable and
continuous power supply needs to be provided. Currently,
ITES companies need to have their own backup power
systems to supplement the utility's supply. Some other
concerns are: A rickety public transport system forces
firms to spend on transportation. Additionally the road
network needs to be expanded on a fast track.
Ranking of nine Indian cities by ITES compatibility:
1 HYDERABAD
2 KOCHI
3
CHENNAI
4 KOLKATA
5 AHMEDABAD
6
BANGALORE
7 MUMBAI
8 NCR
9
PUNE
(Asia Times/NASSCOM)
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