Chennai, Hyderabad will usurp lead

Gartner rings Alarm bells for Bangalore

Hyderabad and Chennai will replace Bangalore and Mumbai as favoured Indian destinations for IT outsourcing by 2010. This is according to Gartner which on Monday released its report on IT Outsourcing to India - Analysis of Cities.

Commenting on the report, Partha Iyengar, vice president, Gartner said: "Bangalore and Mumbai will soon cease to be the default centres for offshoring. Ready availability of skilled labour force with lower attrition rates in cities like Chennai, Hyderabad and Pune will lead to companies setting up centres there instead. In the long run other factors including global footprint of service provider, service line capabilities and expatriate Index will also play a greater role for global MNCs or IT Service Providers setting up or expanding in these cities."

The study has categorised and evaluated the cities into four tiers based on various factors including infrastructure, skills availability, skills retention, access, cost of living, political support and quality of life.

According to the study, the Tier 1-1 cities like Hyderabad, Chennai and Pune are at a vantage point. These cities have most, if not all, of the capabilities of the Tier 1's, but, for various reasons, have not achieved the same level of mind-share and visibility.

These cities are the most likely to take on the mantle of Tier 1 in the near future, either in addition to or replacement of the current Tier 1's. Hyderabad rates almost at par with Mumbai in all factors evaluated but has scored much higher on the cost of life and quality of living where Mumbai has received the lowest ratings.

However other factors that are inhibiting this growing favourability and need to be addressed are increased attrition, inadequate infrastructure, escalating costs and lack of good quality real estate.

Pune which ranked lowest in infrastructure support will need significant investment to be at par with cities like Mumbai and Bangalore or even cities like Chennai and Hyderabad in the future.

The report also stated that certain drivers enable these cities as favourable destinations for outsourcing.

These include improving infrastructure, overall skills availability, good quality educational institutions and active political support. The improving infrastructure in Hyderabad has enabled the city to top the ratings in the infrastructure category.

On recommendations to companies planning to set up centres in India Iyengar said: "When choosing the destination for offshoring, companies should look beyond Mumbai and Bangalore. They will need to assess the strengths and weaknesses of various cities, as what they plan to outsource or in-source could very well determine the location. They should also factor the expatriate attractiveness of the location which could be an emerging 'swing' factor. Further, if an Indian is involved in the selection, care should be taken to overcome the parochial biases and preferences of the individual, in making the selection."

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Gartner's cities of choice

• Tier 1: Bangalore, Mumbai and New Delhi
• Tier 1-1: Chennai, Hyderabad, Pune, NOIDA, Gurgaon, Navi Mumbai
• Tier 2: Kolkata, Mangalore, Mohali/Chandigarh, Bhopal
• Tier 3: Coimbatore, Mysore, Nashik, Kochi, Nagpur, Jaipur, Simla, Indore