Stung by an appreciating rupee, high wages and increasing real estate prices, big, medium and small IT firms have made a successful entry into tier-II cities.
Encouraged by their progress, many small IT firms are now exploring tier-III cities such as Udupi, Manipal, Hubli and Belgaum in Karnataka, Kozhikode in Kerala, Tirunelveli in Tamil Nadu, Jaipur in Rajasthan, and Durgapur and Kharagpur in West Bengal.
The reasons are manifold. These cities have a good number of engineering colleges, and the firms do not find it difficult to meet their modest requirements of staffing, usually in the low hundreds, at affordable costs and without being plagued by high attrition.
"Smaller IT companies cannot compete with an Infosys or Wipro in software services across domains. They have to specialise in niche areas and require a smaller workforce. It is easier for them to recruit in smaller towns where the big boys are not competing. Consequently, they can bring down their operating costs," said V Ravichandar, CEO, Feedback Consulting.
For instance, Zeta Infotech operates a remote R&D centre from Manipal for Synopsis, an electronic design automation software provider.
Similarly, software product development services company Robosoft Technologies operates a centre in Udupi. The company has been able to attract local talent and Robosoft now employs more than 300 people.
"We have lower operating costs. The quality of life is good (less traffic problems, less pollution, good environs for creative work) for our people. Udupi, Mangalore and Manipal have many educational institutes and engineering colleges. They have good healthcare facilities too," said Rohith Bhat, MD, Robosoft Technologies.
Another firm, Karmic, which offers design services, has set up a 220-member centre in Manipal.
"The experience has been very good. We have trained about 240 engineers in the difficult area of chip design and 220 of them are still with us. We have already opened a centre in Coimbatore and hope to open centres close to where professionals hail from, based on their inputs," said Karmic Founder S S Mahant-Shetti.
Kerala, which is developing Kochi as an IT destination, is already witnessing the emergence of new locations. Thiruvananthapuram-based International Business Services, which provides IT solutions to the transportation and logistics sectors, is planning a 25-acre campus in Kozhikode.
"The state government will hand over the land shortly. We want to establish our presence all along the Kerala coast," said IBS Founder & CMD, V K Mathews. IBS has two centres in Kochi and Thiruvananthapuram.
Jaipur, too, has its share of small IT firms. At present, there are eight firms working out of the Rajasthan capital. Intecons, which provides software services, has set up a centre in Jaipur.
"The company started with a target of local clients and Jaipur was comparatively less competitive with fewer software service providers. But it is a developed town and needs all IT-related facilities. We are targeting overseas clients and the company is 95 per cent export-oriented as of now," said Ashwani K Goel, CEO and Director, Intecons.
Smaller towns in West Bengal such as Kharagpur and Durgapur are also attracting the attention of small players in the IT sector. Sankalp Semiconductor, which provides services to the semiconductor sector, is planning to open a centre, its third, in Kharagpur or Durgapur.
"At present, we have two centres in Hubli and Belgaum. We will start another centre in an engineering college in West Bengal. We will train them in our line of service," said Sankalp Founder Vivek Pawar.
Kharagpur is home to an IIT and Durgapur has a regional engineering college. A high tech cluster is coming up in Kharagpur, which has new ventures promoted by IIT graduates, and can absorb regional talent down the line.
Nasscom has been promoting a number of secondary and tertiary cities with engineering talent.
According to Sreedhar, MD, TMI Network, which provides recruitment services, "It makes sense for companies to move to smaller cities. It has been a business policy to be 'near the customer' for manufacturing businesses. In IT, the aim is to be 'near the talent'. Companies are moving where talent is available. Candidates get jobs as well as quality of life."
Sreedhar said that the trend will continue till there is talent availability.