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By Ron Moreau
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India's robust outsourcing industry grew up in the country's major cities--New Delhi, Mumbai and Bangalore, to name three. Prominent information-technology firms like Wipro, TCS and Infosys set up shop in those places, took advantage of smart but inexpensive technical talent, and flourished. In the mid- to late 1990s, Bangalore became one of the world's hottest IT centers. The city was clean, leafy, uncongested and offered financial incentives to businesses. Many firms grabbed them and turned the southern city into a symbol of India's low-cost tech prowess.
But nearly a decade later, Bangalore's success is turning into a liability. The city's infrastructure is creaking; citizens face power shortages, maddening traffic jams and poor public transportation. The cost of living has soared. Other big cities are experiencing similar urban problems, including high real-estate prices and worker salaries that are rising by 10 to 15 percent annually.
That's an alarming trend for an industry largely dependent on cheap labor. To lower their cost structure, top outsourcing firms are now moving both new and existing operations to smaller, cheaper cities--among them, Cochin, Jaipur and Pune. Some in India are calling these cities "mini-Bangalores." According to the National Association of Software and Service Companies (NASSCOM), about 30 percent of India's outsourcing revenues ($12.5 billion last year) will be headed to smaller cities within a few years.
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Some major firms are already making the move. Last year General Electric Capital International Services (GECIS), a subsidiary of the giant U.S. company, opened a customer-service call center in Jaipur, a city of 2 million people that's fabled for its royal palaces. The GECIS call center employs 200 local youth to handle voice and online customer service, but the firm has bigger ambitions for the area. It's now building a large, modern facility on the outskirts of Jaipur that will house 2,500 employees within two years. Wipro, India's second largest IT firm, is following GE's lead. It has bought 10 hectares in the new $100 million Infopark in the southern coastal city of Cochin, and is building a $22 million campus that will eventually employ 5,000 workers in its software development and business-process outsourcing operations.
Wipro studied several smaller towns before settling on Cochin. The city, with a population of 1.6 million, has relatively cheap real estate, reliable power, good schools and a privately run airport. It sits along a beautiful, palm-fringed coastline, and has one of India's largest seaports. There are 25 colleges in the city, and as elsewhere in India, they produce a large pool of literate English-speaking young people. "People simply like living there," says Wipro vice president Tamal Dasgupta. The starting salary for Web designers and software developers is about $130 a month, half the pay for the same job in Bangalore.
The shift is not merely a matter of saving money. Officials at IT firms now in the provinces say their employees tend to be more loyal. In Delhi, Mumbai and Bangalore, competition is fierce for top-notch tech graduates. Trained engineers are not only more difficult to hire in the megacities, they're ready to jump at the first better offer. In less-developed provincial capitals, there's less competition for good graduates and a lower employee-attrition rate--roughly 5 percent, say experts, compared with about 30 percent in Delhi. For these reasons, says Sunil Metha, vice president of NASSCOM, "There's no doubt that the movement of outsourcing to tier-two cities will quickly gain momentum."
The move to the provinces couldn't come soon enough for local youth. "The broader impact of this outsourcing movement is that it will help to redistribute income, wealth and opportunity around the country," says Metha. Unemployment rates among high-school grads in the state of Kerala, where Cochin is located, run as high as 30 percent. What's more, Kerala's IT secretary, Aruna Sundararajan, says that up to half the state's university graduates have been forced to look for work in other states.
Now the prospect of new jobs is slowing the migration of skilled young people to bigger cities. Ambily G. graduated at the top of her class at a Cochin engineering college earlier this year, and was planning to leave for Bangalore to find a job. But in May, a North Carolina-based e-commerce firm named Bang! Technology hired her to work in its new outsourcing operation in Cochin. The firm sells NASCAR-related products like hats and T shirts on its Web site. Wearing a yellow shalwar kameez, Ambily tracks the account statements of the Web site's 8,000 members at her computer terminal. "I'm so happy to stay home and have a challenging IT job," she says.
The outsourcing shift may even lead to "brain gain" for the provinces. Bang!'s Cochin project manager, Jignesh Patel, says he will be expanding his 14-person work force to 140 early next year. He's confident that he can not only recruit new talent locally but also lure experienced Cochin and Kerala workers back from outsourcing firms in Bangalore. "I know a lot of local people who want to come home and work in Cochin," says Patel. Cyber Futuristic, a young Web hosting and telemarketing company in Jaipur that just landed a marketing deal for a Fortune 500 insurance company, has already hired many Jaipur natives who'd been working in call centers in Delhi and Gurgaon, located some 250 kilometers to the east. Some took a pay cut to work close to their families in Jaipur. They say they don't miss the big city, since shopping malls, multiplexes, pubs and international restaurants like the ones in Delhi are sprouting up.
Experts say that IT workers in places like Bangalore don't need to fear for their jobs just yet. As the outsourcing pie continues to grow, megacities will get the big deals while smaller cities snatch more modest but still lucrative contracts. Cochin entrepreneur Ravi John, who runs a tech company named Digital Mesh, also disputes the notion that the rise of outsourcing in India is a zero-sum game in which only Indians win. He maintains that the small U.S. companies for which he handles Web and software applications would simply go out of business if he and his small 14-man operation were not there to help. "I do jobs for $25,000 that would cost millions in the U.S. or Europe," he says. "Without me these small companies couldn't survive."
As the U.S. economy recovers, John's Web site has gone from receiving one inquiry a week to two or three a day. One of his most recent contracts is to write the software and design the interactive Web site for a Vietnamese dating service run by a Vietnamese-American in Los Angeles. Next month he's more than doubling his staff, thanks to a new back-office bookkeeping contract from a large British business group. "The only limitation is your imagination," he says. With that kind of optimism, India's tech industry is spreading its wings, and sharing the wealth.
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