ITES players eye B-class cities

Having established their presence in the metros, Indian ITES vendors are now eyeing B-class cities for expansion, says Abhinav Singh

The metros are getting a little crowded as new entrants are chasing the same talent pool. This is resulting in rising staff costs and attrition, says Prakash Gurbaxani

A few years ago, no one in a B-class city would have heard of ITES centres—they were restricted to big cities such as Delhi, Mumbai and Bangalore. But the Indian ITES sector now plans to make its presence felt in tier-two cities. Though the sector is still at an early stage of development, the next few years will see key players scaling up significantly—and offering employment opportunities for the labour pool in B-class cities, something that was highlighted at the recently concluded ITES-BPO Strategy Summit 2003 in Bangalore.

Untapped talent pool

A major driver for this trend is that some B-class Indian cities, including Pune, Chandigarh and Mysore, have excellent institutions that produce English-speaking graduates who come to metros in search of better opportunities. Explains Prakash Gurbaxani, chief executive officer, TransWorks (which was recently acquired by the Aditya Birla Group), "The metros are getting a little crowded these days. There have been several new entrants in the metros, be it in the NCR region, Mumbai or Bangalore, which has resulted in the same talent pool being tapped by all the players including pure-play Indian companies, large US- and UK-based service providers, and large software companies. This is resulting in rising staff costs and attrition. Higher attrition in turn results in higher recruitment and training costs."

Many Indian ITES players are hoping that a shift to B-class cities will ease the pressure on the metros and bring down wage levels, which in turn should help ITES players operate at lower costs. Says Zia Shiekh, chief executive officer of Infowavz, "Tier-two cities are ideal because they have a sizeable population and a limited number of ITES players, so the competition for labour is still limited vis-à-vis the metros, where there is fierce competition to attract and retain the best talent."

Before setting up his centre in a B-class city, an ITES player will take into consideration the cost of real estate, the quality of the talent pool, and administrative costs, says Pavan Vaish

Improvements in telecom

In recent times, the telecom infrastructure in B-class cities has become comparable with that of metros. Gone are the days when small Indian cities had legacy networks that were not compatible with the latest technology. ITES players can well bank upon this advantage. K Ganesh, president, contact centre business at ICICIonesource remarks, "With the entry of a large number of private telecom service providers in B-class cities, connectivity has improved like never before, and when A-class levels of connectivity is available to Indian ITES players in B-class cities, they will definitely be tempted to expand to the latter."

Lower cost of operations

The lower cost of operating in B-class cities is a definite plus. People in these cities are ready to work for lower wages as compared to their counterparts in the metros; also, the lower cost of living will not immediately tempt them to demand higher wages. The low real-estate prices are also tempting. Says Pavan Vaish, senior vice-president, strategic initiatives, Daksh e-Services (a Gurgaon-based Indian ITES player), "Before setting up his centre in a B-class city, an ITES player will take into consideration the cost of real estate, the quality of the talent pool, and administrative and other costs. Indian B-class cities rate very high on all these parameters."

Less migration to metros

With the entry of a large number of private telecom service providers in B-class cities, connectivity has improved like never before, says K Ganesh

If more centres come up in B-class cities, it would lessen the migration of talented young people to metros. Being away from the hometown has been identified as one of the major causes of the high rates of attrition in the ITES sector in metros. This in turn has been harmful to companies as they spend huge amounts on recruiting and training their manpower. Comments Alok Sethi, chief operating officer, MsourcE, which already has a centre in Pune, "Instead of uprooting people from their hometowns and moving them to metros, a unit can be set up in a B-class city as long as it is economically viable. It would help to establish ITES centres in places where people are. This would lead to lower attrition rates, and hopefully, lower wage levels, because the demand for people in metros would then fall."

What about the future?

As of now, not many Indian ITES players have actually set up shop in B-class cities, though many are thinking of doing so. But there are certain factors that need to be looked at by companies before they venture beyond the metros.

Many ITES companies cater to overseas clients, who like to come and get a first-hand feel of the service provider’s Indian operations. For this to happen, the most important thing is to locate the centre near an airport, preferably an international one. In recent years, work of strategic importance is being delegated to Indian ITES players by overseas clients, work that requires domain and special skill sets. It may not be immediately possible for ITES players to upgrade their B-class city centres to A-class city standards which are good enough to deal with highly complex processes. Clients, particularly overseas ones, expect ITES companies to deliver results in short time-frames. The time involved in fine-tuning new centres in B-class cities may prove to be a disadvantage for these companies. The ability of ITES players to effectively administer multi-location centres across the country will also be important.

Any way you look at it, the concept of expanding the ITES business beyond the metros is ready for take-off. It remains to be seen how successful the flight will be.

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