Ahmedabad, February 16, 2009
The Hindu Business Line
As the favourite locations for shared services and outsourcing start to become saturated, newer cities are emerging, offering new and improved incentive packages and talent that are better geared for IT and ITeS industry.
Among 31 emerging cities are Ahmedabad, Jaipur and Nagpur, according to a KPMG report released here.
In its report, Exploring Global Frontiers – The New Emerging Destinations, KPMG has identified relatively unexplored cities for IT and BPO.
Although dominated by cities in the developing countries, the list of favourite cities also includes some onshore and offshore or near-shore developed city-country pairs, which may be valid competitive alternatives to locations such as Bangalore, National Capital Region, Chennai, Mumbai, Pune and Hyderabad.
While these cities are regarded as “emerged destinations”, several smaller Tier-II and III Indian cities have the potential to attract IT-BPO investments, the report said.
Factors supporting these cities to join the list include presence and development of infrastructure, incentives provided by the State Governments, availability of human resources and low-risk possibilities, besides favourable business environment, access to good talent and good quality of life. Some of these destinations are hot tourist spots and, therefore, more visible on the world map.
Also, there are other locations that are relatively unheard of but are seeing traction as they have historically had good education system and are improving their infrastructure.
The report highlights that enterprises are moving offshore not only to benefit from lower costs and gain access to a diversified talent pool, but also to get an added “first-mover” advantage if they tap relatively unexplored cities. They can also acquire various incentives such as Government grants due to a heavier hand at the negotiation table as “first movers”.
Countries in the developing markets are offering lower cost destinations for outsourcing services and also access to their markets having high growth potential. Some cities are independently promoting their capabilities and programmes. To create a unique selling point, specific services such as accounting, research and development, and animation are being promoted.
Egidio Zarrella, Global Partner-in-Charge, IT Advisory, KPMG, said that over the long run, companies are likely to pursue rationalisation measures. In the IT-BPO industry, these measures are likely to focus on the search for lower cost business alternatives globally, that could also allow companies to provide diversity to their global operations.
The though the “established locations” may be considered as the epicentres of outsourcing, entities are beginning to look at alternative locations due to a variety of drivers.
He said it is imperative for enterprises comparing the alternatives to consider the risks and rewards associated with the emerging locations versus the more established locations. “A one-size-fits-all strategy may not be appropriate with location selection. Companies should consider their needs and align their vision with what different locations offer when considering their location assessment strategy.”
The report identifies that even the best and affordable workforce cannot compensate for inadequate telecommunications infrastructure that require companies to invest millions of dollars in dedicated lines and redundancies. Similarly, some cities with large and affordable skill pools lack modern commercial real estate to house sophisticated IT operations.
Local political conditions and business practices in some locations may make setting up and running a business a costly and frustrating experience.
A large number of graduates do not imply the availability of adequate skills, as the quality of education systems may vary within a city or country.
Viral Thakker, Partner-in-Charge, Sourcing Advisory Services in India, KPMG, said that cities now identified have the benefit of learning from the success stories of the larger cities in the country.
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