Two recent reports – the Economic Survey and Infosys ESG – suggest that tech firms and global capability centres (GCCs) of multinationals are increasingly expanding their operations beyond metros, thanks to a newer base of talent available after their relocation during Covid.
What is driving them to smaller cities is high availability of talent that migrated during pandemic and didn’t return to their work locations post pandemic plus cost benefit across operations, said Munira Loliwala, vice president for strategy and growth at TeamLease Digital.
“Hiring is 60-70% more cost effective, infrastructure more viable and scalable. These locations offer cost arbitrage, standardisation, lower attrition rates, better government policies and subsidies,” she said.
As per TeamLease data, emerging tech hubs such as Chandigarh, Jaipur, Ahmedabad, Indore, Bhubaneswar, Vizag, Coimbatore and Kochi have a combined installed tech talent of 490,000-540,000. That is around 10% of the total technology talent pool of about 5.5 million available in the country.
“GCCs are increasingly evaluating tier-II towns to expand their operations, influenced by the reverse migration seen during the pandemic and the cost arbitrage offered by such relatively under-penetrated markets,” the Economic Survey of 2024 released on July 22 said.
Discover the stories of your interest
“As per a CBRE research report, during the first half of 2023, about 22% of GCC centres were set up in tier-II cities, driven by the availability of existing and fresh talent,” the survey said.Also read | Indian talent gets senior-level roles as GCCs mushroom
Infosys in its ESG (environmental, social and governance) report of FY24 released in May said it has decided to open offices in tier-2 cities to help employees preferring to work out of their base locations following the Covid-19 pandemic and opened two offices in Visakhapatnam and Coimbatore in FY24.
“This strategy is expected to have a two-fold impact: It can boost the local ecosystem and reduce construction in the big cities, thereby reducing pollution and water stress,” it said.
Three other tech companies either consolidated or expanded their presence in smaller cities last month. Hitachi’s subsidiary GlobalLogic opened a 50-seat facility in Ahmedabad, HCLTech launched a global delivery centre in Patna, and IBM launched its Gen AI innovation centre in Kochi.
Newer sets of data from industry association Nasscom are still awaited.
Also read | Smaller cities are stealing the show in data centre expansion
For a long time, smaller cities were often overlooked as potential tech hubs due to the significant migration of skilled professionals to larger urban centres, seeking better opportunities and infrastructure, said Rohan Lobo, partner and technology & transformation industry leader for GCCs at Deloitte India.
“However, with a significant number of tech professionals recently reverse migrating and IT services companies increasingly establishing new centres closer to this talent pool, tier 2 and tier 3 cities are now emerging as the new battleground for talent acquisition and development,” he said.
Substantially improved infrastructure, including reliable power supply, robust telecom networks, and affordable high-speed data, in smaller cities post Covid-19 helped this trend. Also, online and hybrid learning have expanded access to global knowledge, thereby improving the employability of talent in the hinterland, Lobo said.
“GCCs are leveraging this expanded pool of resources to enhance productivity per unit cost,” he said. “Additionally, many state and central governments are providing incentives to attract GCCs, as well as the supporting ecosystem, including startups and technology service providers.”
Also read | Sops, tier-2 cities top focus in tech’s Karnataka GCC Policy wishlist
A recent Nasscom-KPMG report said GCCs while making strategic geographic expansions are building niche skill hubs and centres of excellence in metros and shifting process operations into tier-II and tier-III cities.
The country’s largest tech firm TCS is also looking to expand in smaller cities.
“We are looking at a few (tier 2) centres where essentially the approach is to look at the current employee base – where are they coming from?” K Krithivasan, chief executive officer and managing director of TCS, told ET in a recent interaction. “We are looking at other places where a big portion of people are coming in from where we don’t have a centre and then create a centre in such places,” he said.
HCLTech, through its New Vistas programme, tries to increase employee retention by providing them the flexibility to work in or near their hometowns.
“Our New Vistas locations in India have expanded to support delivery operations for all our service lines and boast higher talent retention rates. Employees from these centres represent 15% of our India headcount,” the company said in its annual report for FY24 released on Monday.
“Our New Vistas centres allow us to access abundant talent in upcoming hubs in India while creating local employment opportunities. HCLTech has state-of-the-art facilities and strong leadership at its expansive network of New Vistas locations – Lucknow, Madurai, Nagpur and Vijayawada,” it said.
