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August 12, 2002 | 1554 IST
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Hyderabad, Kochi best Indian ITES destinations

A correspondent in Mumbai

Hyderabad has emerged as the most competitive city for IT-Enabled Services companies. Kochi ranks a surprise second, while Bangalore is number six and is followed by Mumbai.

The rankings are based on the findings of an extensive study conducted by the National Association of Software and Services Companies to assess the competitiveness of nine Indian cities as destinations for firms in the ITES segment.

The three-month long study evaluated the top Indian cities, including Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Kochi, Mumbai (including Navi Mumbai), Pune, and Delhi, Noida and Gurgaon (the trio collectively called NCR).

The cities were assessed on factors such as manpower availability, real estate, telecom infrastructure, policy initiatives, power infrastructure, city perception and entrepreneurial history.

"About 90 per cent 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. Our study reveals that despite a large number of ITES companies being based in Mumbai, NCR and Bangalore, these cities are facing increasing competition," says Kiran Karnik, President, Nasscom.

"Cities such as Hyderabad and Kochi are emerging as attractive ITES destinations primarily due to rapid improvement in infrastructure (power, international bandwidth and urban transportation) and lower manpower costs due to lower cost of living and lack of alternative employment opportunities in these cities," says Karnik.

Ranking of Indian cities

City  Rank
Hyderabad  1
Kochi  2
Chennai  3
Kolkata  4
Ahmedabad  5
Bangalore  6
Mumbai  7
NCR*  8
Pune  9
* Delhi, Noida, Gurgaon

According to Nasscom, the ITES industry in India is experiencing the third wave of growth; both in terms of geographical areas of operation and services offered.

In the first phase, the industry was dominated by captive centers of large multinationals such as GE, American Express, and Swiss Air who set up operations in leading metros of the country such as Delhi and Mumbai.

The second phase saw the industry grow because numerous ambitious people quit their jobs to set up their own ITES ventures in and around Delhi and Mumbai.

The third phase of growth has been more geographically dispersed - with new locations emerging such as Hyderabad, Pune, Bangalore, Chennai, and more recently, Kochi.

The growth has been largely driven by three factors. First is the desire of by state governments to attract entrepreneurship, which has resulted in attractive policy environments and incentives being offered.

The second is the rapid improvement in key infrastructure areas like power, telecom bandwidth and real estate in newer locations.

The last is the need for ITES companies to lower operating costs, especially employee costs and transportation.

"Given the potential of the industry to create jobs and generate foreign exchange, Nasscom will actively work with the various state governments and ITES companies in order to create a conducive policy environment and a world class infrastructure to develop the ITES industry in different states," says Karnik.

In order to assess the competitiveness of different locations, the relative importance of parameters such as telecom and physical infrastructure, IT orientation and policy support provided, each city was ranked on a scale of 1 to 10, in order of increasing importance. Each factor was given a particular weightage.

The study has also highlighted the importance of qualitative parameters such as entrepreneurial culture and perception of policy environment. It is important to note that these are indicative scores and the attractiveness, or otherwise, of a city could also be a function of a company's business mix and strategy, says Nasscom.

To illustrate, a company in the inbound call business would have to invest significantly in training its employees in accent neutralization, thereby offsetting the lower employee costs in a particular city.

Ranking based on different factors
  Telecom Power Real Estate Manpower City perception
Entrepreneurship History
Policy Initiatives
Ahmedabad  9  4  2  4  8   6  3
Bangalore  8  7  6  6  1  1  6
Chennai  4  2  5  5  3  4  4
Hyderabad  5  3  3  2  2  5  1
Kolkata  6  1  4  3  7  7  5
Kochi  2  6  1  1  9  9  2
Mumbai  1  5  9  9  4  2  8
NCR  3  9  8   8  5  3  7
Pune  7  8  7   7  6  8  9

Though the cities covered have already herded a number of ITES firms, there are many areas that need to be addressed to make them globally competitive. These requirements vary in each city.


According to the profile of the ITES companies operating in the city, Ahmedabad is strong in Web site services and Web applications, call / contact centers and back-office operations.

In other services, such as database management /development, data processing / management and network management/remote maintenance, the city is relatively weak, though it has the telecom infrastructure to support these services.

This shows that the manpower available in the city is best suited for call / contact centers and back-office operations.

In order to attract the entire range of ITES companies, the city needs to address the recent communal riots that have raised security concern for businesses.

The public transport and the cost of power which is one of the highest in the country also reduces the competitiveness of products and services coming out of the city

Another problem is that despite good educational infrastructure, many students migrate to Mumbai each year in search of better prospects. This drain needs to be stanched to retain local talent


Though Bangalore has many ITES companies, it seems to be stronger in the call / contact center, transcription, and back-office operations services.

But, perhaps because of its IT-orientation, the city has also been able to attract a reasonable number of companies into database management / development, data processing / management and engineering, design, and GIS services.

Given this, it should still be able to attract other forms of ITES companies. However some of the issues that need to be looked into are power and telecom infrastructure that are not keeping pace with the IT expansion.

While the government promises uninterrupted power supply, these seem hollow claims and many ITES firms have to maintain their own back-up systems, which cranks up costs.

The city's public transport infrastructure too is very weak and this has resulted in many people buying their own vehicle. There is a lack of a neutral accent among the local populace which necessitates training for call center services.

Though real estate is not a problem, property costs in Bangalore are higher than in Chennai.


Chennai, despite a relatively sturdy infrastructure, hasn't been able to attract as many ITES firms as Bangalore. The profile of the companies operating in the city indicates that the city is strong in call / contact center, content management / development & animation, data processing / management / digitisation and Web site services / Web applications.

The city loses out to the likes of Delhi and Bangalore in the 'perception game.' It is perceived to be conservative and lacking in infrastructure.

Accordingly, the study reveals that it would help if the government found a way to highlight the success stories of companies based in Chennai.


Though the city scores high on infrastructure and policy, it has been able to attract only certain kinds of ITES companies. The current ITES population in the city is favourable towards engineering, design, GIS, and data processing / management / digitisation and seems to lag in the contact center and transcription businesses.

The Andhra Pradesh government is aggressively marketing Hyderabad as a choice destination for ITES companies. So there needs to be a greater emphasis on the infrastructure. The city's public transport, for one, needs improvement.

The state's ITES policy is perhaps one of the best in the country and puts a lot of emphasis on quality manpower. The government must now deliver on those intentions and support institutes that train manpower suitable for ITES.

Accent is a major problem that needs to be addressed through training support.


Kochi is an upcoming city in Kerala and is aggressively being promoted by the state government as an IT destination. Though it doesn't have any ITES companies of significance yet, it holds a lot of potential to attract many.

But the city needs to address the following infrastructure issues: Though it has the lowest power tariff among all the cities surveyed, it still experiences some power cuts. Like most cities in India, Kochi lacks a decent public transport infrastructure

Compared to the larger cities, Kochi has only a few colleges. As ITES companies would mainly hire graduates, the state needs to ensure abundant supply of trained manpower.

Kochi too loses out in the perception game. The government needs to ensure that the city moves up this scale to start attracting new businesses


The profile of the ITES companies in Kolkata suggests that it is relatively strong in data processing / management / digitisation and back-office operations.

However, in other areas, the city has not been able to attract many companies. The main issue that needs to be tackled to place Kolkata firmly on the ITES map is perception.

Although the state government is aggressively promoting Kolkata as a destination for ITES firms, it needs to do more. Offering more incentives - possibly following the Andhra model - and showcasing the success stories coming out of the city could be the first step toward achieving this.

The state also needs to increase its tele-density, improve the city's public transport and the quality of the road network.

  Highlights Concerns
Telecom Pune, Ahmedabad and Bangalore have direct international bandwidth. All cities expect Kolkata have tele-density in excess of 14 per cent.
Power The variance in the ranking comes due to the tariffs existing across various cities. Kochi has a low tariff of Rs 3/unit and it goes as high as Rs
4.97/unit in Mumbai
Pune, Bangalore, NCR and Kochi experience pre scheduled power cuts.
Real Estate Increasing real estate cost have pushed NCR and Mumbai down the 'affordability' list.  There is a large variance in the rates within larger cities, for example real estate cost in Mumbai ranges from Rs 287 to Rs 50 per square feet per month. However the variance is lower in cities like Ahmedabad and Pune and thus they are ranked higher in real estate.
Manpower Manpower cost varies depending on the city's cost of living. The city's attractiveness also depends on the number of trained manpower.  Manpower cost is as high as Rs 51.59/hr in Mumbai as compared to Rs 17.04/hr in Kochi.
Perception  Perception plays an important role while deciding the location of a new unit. Bangalore ranked high because of the state's IT policy. Kolkata, Ahmedabad and Kochi lag behind in the IT initiatives undertaken by the government. Recent riots at Ahmedabad has harmed its perception even more as a business centre.
Entrepreneurship Bangalore, Mumbai and Delhi have a large number of start- ups and have more entrepreneurs hailing from the city who in turn set up base in the
Kolkata, Pune and Kochi don't score very that high, as they do not have many start-ups.


Next only to the Delhi-Gurgaon-Noida belt as the preferred choice of destination for ITES firms, Mumbai is strong in call / contact centers, back-office operations, and data processing / management.

However, it seems to be quite weak in transcription services and network management / maintenance.

Mumbai is plagued by high real estate rates, too. Even a depressed real estate market has failed to bring down the prices on par with the other metros.

Though Mumbai has adequate trained manpower, the cost is among the highest in the country. The public transport infrastructure while best in the country is offset by the poor quality of the roads.

Delhi, Noida and Gurgaon (NCR)

By far the leader in ITES in the country, NCR, unlike Bangalore, has not been able to attract every type of ITES company.

For instance, from the profile of the companies operating in the region, it seems to be particularly strong in call / contact center, back-office operations, Web site services / Web applications, and data processing / management / digitisation, with call /contact centers leading the way.

The physical infrastructure needs to be worked upon immediately. Delhi's intermittent power supply needs to be redressed as it necessitates back-up power systems at companies, thus increasing costs.

The inadequate public transport infrastructure also adds to the companies' operational costs and thus renders it as a cost ineffective destination.

Like in many other parts of the country, the lack of a neutral accent may be a problem for some ITES firms, especially those in the call center business.


Though Pune has not managed to attract many ITES companies, those that are there seem to be evenly distributed between the call/contact center, data processing/ management / digitization, and back-office businesses.

But the other services are conspicuous by their absence. Infrastructure tops the list of concerns. A reliable and continuous power supply needs to be provided. Currently, ITES companies need to have their own back-up power systems to supplement the utility's supply.

A rickety public transport system forces firms to spend on transportation. Despite the government's sops for ITES units on the FSI norms, real estate rates in Pune are not very low.

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