| Bangalore: still the hotspot |
| Saturday, 14 April 2007 | |
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Accenture (NYSE: ACN) is expected to have more employees in India than in the US by December this year. The company, with its Indian headquarters in Bangalore, is likely to end the year with approximately 35,000 employees in India.
India’s status as the top outsourcing destination has never been in doubt. However, much of the growth has been concentrated in a few cities such as Bangalore, Mumbai, Delhi, Hyderabad and Chennai. Bangalore has especially been the face of the Indian outsourcing industry. Bangalore’s lure lies in its highly talented and technologically savvy workforce that allows quick ramp-ups, and operating costs that are a fraction of those abroad. Moreover, better cyber security and IP laws create a more favorable environment compared to countries like China. The evolution of Bangalore The growth and development of Bangalore can be traced back to 1991, when Software Technology Parks of India (STPI) was set up in the city, followed by an exclusive international satellite gateway. The state government of Karnataka (Bangalore is the capital of the state) was the first government in the country to announce an IT policy, and the next few years saw the number of companies setting up in the STPI rise to over a thousand on the back of easy clearances and attractive sops. Estimates suggest that the city attracted FDI of more than $2 billion in 2006-07, and there’s more in store for the coming years. IBM announced in 2006 that it intends to spend $6 billion in the next three years to build service centers and a telecoms R&D facility in Bangalore. The company intends to use the skills and expertise of the local workforce to make India a cornerstone of its global integration strategy. Cisco announced a $1.1 billion investment in December last year, again targeted at creating more jobs in Bangalore. Cisco expects a fifth of its top talent to be located in India and has even transferred a top executive to oversee its technology operations in India. Dell, Intel, Microsoft, EDS and Accenture are also betting on the city in a big way. Moving up the value chain The city started by being an information technology hub, but soon began to leverage that position to host some of the largest BPO / KPO companies. From the early cost-sensitive, volume based work there is now tremendous demand for top-end technology and knowledge driven work from diverse areas. Lending testimony to this is the rising number of foreign companies setting up captive units:
All these companies are banking on the educated, skilled manpower in the city to help rationalize costs and improve time-to-market for their products and services.
Going forward The going’s good so far for India’s ‘Silicon Valley’, but lately there have been many disappointments. The city’s crumbling infrastructure – from bad roads, traffic snarls, power shortages and inadequate airport facilities – has failed to keep pace with its rapid growth. The massive growth in opportunities for the young workforce has led to alarming attrition rates, of over 50 percent in some cases. The average pay packet for an IT professional in Bangalore is estimated to be above Rs. 600,000 ($14,000) per year with wage rates increasing at 15 to 20 percent annually. The State Government of Karnataka, which has in fact been instrumental in creating Bangalore’s position in the first place, and the local Municipal Corporation has failed to keep up to expectations, despite widespread public outcry. But despite its many problems, the city has attained a ‘premium tag’. It is for the administration to now see what it can achieve with the right push in public policy in future.
ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities.
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