ITES

ITES-BPO industry needs to reach out to new destinations

India scores well in the ITES with its unbeatable people, skills and cost advantage mix. But growth thus far has been restricted to the metros and this has to change. A Nasscom report on the state of infrastructure for ITES companies has clearly brought out the need to evenly distribute this growth engine across the country

Despite the global recessionary environment, the Indian software and services industry has bucked the trend and continues to post a strong double digit growth. The industry recorded revenues of $10 billion last year in a tough market environment. Much of this inflow of business into India has been due to the outsourcing wave. Increasing cost pressures on global corporations, a growing focus on core operations by customers and technological advances has made offshoring for global customers a critical tool to boost their growth. The range of processes that may be moved to a remote geography, or offshored, to take advantage of dramatic cost savings is broad and getting broader everyday. As a result, offshoring—once seen as somewhat adventurous, though desirable—would necessitate cities to market themselves well both in India and overseas and is now becoming a necessity for businesses that want to maintain their competitive edge.

Among the offshoring options available globally, India is by far the most attractive destination. It has an extraordinarily large pool of English-speaking skilled manpower who view ITES as an aspirational career option. Further, it provides an assurance of the highest quality (over half the global SEI CMM Level 5 companies are in India), very high productivity, as experienced by all customers, and a conducive policy environment with strong government support. In addition to this, India is a popular choice for customers seeking outsourced services because it is able to offer a 24X7 service and reduction in turnaround times by leveraging time zone differences. In certain remote services categories, Indian players have achieved high productivity levels with the emergence of BPO vendors with deep process skills and the ability to offer integrated outsourcing solutions.

At the core of India’s great attraction as the outsourcing destination is its unbeatable value proposition. While customers are initially attracted by low costs, they stay on and expand because of the quality and productivity that India offers. In fact, with the huge interest in offshoring, India’s remote services industry has taken off extremely well, witnessing a growth of 67 percent in 2001-02.

While India as a whole represents tremendous potential for the ITES industry, much of this contribution from the ITES-BPO segment comes from companies located in the major metros. Many MNCs and third-party Indian vendors have set up their operations in these major metros and are looking at expanding their horizons further in these cities. Nasscom conducted an extensive study last year to assess the competitiveness of nine Indian cities as destinations for IT-enabled service companies. The study evaluated the top nine cities, including Ahmedabad, Bangalore, Chen-nai, 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. The study revealed that about 90 percent of all ITES companies in India are concentrated in nine major cities while others have not been able to attract more than two companies each.

Since the ITES-BPO industry is very people-centric, there is an abundance of skilled manpower available in other major cities apart from the metros, which can be tapped by the industry. Also, there is increased pressure on companies to have a decentralised presence and spread their operations across destinations to meet their business continuity needs. States also need to proactively take steps to improve their infrastructure and image to attract companies. The Nasscom study analysed the top nine cities on some key parameters to assess their competitiveness to emerge as a favourable ITES destination.

Telecom infrastructure

India’s telecom infrastructure has become a priority area for the country, with the government focusing on making it world- class. Telecom infrastructure, deemed one of the most important ingredients for ITES, is an area where Indian cities, barring a few like Pune, Ahmedabad, Chennai and Bangalore, need to improve their standings to transform themselves into cities conducive for ITES operations.

Physical infrastructure

Physical infrastructure includes power, manpower, real estate—all very important for running a successful ITES business. Inadequate roads, power shortage and rising pollution are among the topmost worries.

Power

Power has and will always remain a key factor for any industry. The availability of power was rated as one of the most important factors for ITES companies to set up their operations. While the power situation was better in some cities like Kolkata, Chennai, Hyderabad, Ahmedabad and Mumbai, the power situation in Kochi, Bangalore, Pune and NCR needed to improve.

Real estate

Although real estate rates in Mumbai and NCR have been some of the highest in the country, they were able to attract many ITES companies even 2-3 years ago. This was mainly because the respective state governments were aggressively promoting Noida, Gurgaon and Navi Mumbai. However, since then, increasing rates have pushed NCR and Mumbai down the affordability list as other cities started getting their act together. The rates vary hugely, both between cities and within the cities—especially in Mumbai, NCR, Bangalore and Chennai.

Manpower

The availability and cost of trained manpower is another issue that needs to be looked into to make cities conducive for ITES operations. Since manpower is one of the key advantages that India enjoys in the global ITES market, cities with trained manpower are able to attract more ITES firms.

Perception

Perception plays an important role in deciding the location of new units. Cities should market themselves well both in India and overseas to attract MNCs. Bangalore was ranked the highest in the Nasscom study because of the state’s IT policy. Similarly, Hyderabad, with its IT-friendly government, was also a preferred city.

Entrepreneurship

This intangible also influences companies in deciding to set up shop. Again, a majority of the respondents felt that a city’s entrepreneurial history helps attract investments. Also, entrepreneurs hailing from a city are more likely to base their companies in that city.

The ITES industry in India is experiencing the third wave of growth— the first two were powered by multinationals and software majors/entrepreneurs who started operations in Delhi (NCR) and Mumbai. The third phase of growth has been more geographically dispersed—with new locations such as Hyderabad, Pune, Bangalore, Chennai, and more recently, Kochi emerging.

This growth has been driven by three factors. Firstly, the desire by state governments to attract entrepreneurship, resulting in attractive policy environments and incentives. Secondly, the rapid improvement in key infrastructure such as power, telecom bandwidth, and real estate in newer locations, and thirdly, the need for ITES companies to lower operating costs (especially employee costs, and transportation). There is clearly a win-win situation for both the industry and states to work in tandem for their mutual benefit. New cities need to emerge as favourable ITES destinations if India has to achieve a strong position globally in the ITES-BPO segment.

— Nasscom