IT, ITES boom in Tamil Nadu

INDUSTRY IMPACT 2005

Tamil Nadu is today among the most preferred destinations for global sourcing in India. The year 2005 has turned out to be a watershed for the information technology (IT) and informatic technology enabled services (ITES) sectors in the state.

The two segments are witnessing unprecedented boom in the state. The state capital, Chennai, now houses all of the top 10 Indian IT companies' either one or multiple production centers. A major encouraging feature of this boom is that medium-sized companies are also witnessing higher growth.

2005 "" A boom year
Industry experts feel that unveiling of the state's 'IT Enabled Services (ITES) policy' and offering a slew of incentives with the intention of making Tamil Nadu the global outsourcing capital will provide major thrust to the IT and outsourcing sector.

In the past, 80-85 per cent of the companies in the state were IT firms, but in the last six months to one year, there has been an increase in the number of outsourcing companies coming in to set up shop, says Lonnie Sap, chief operating officer, OfficeTiger.

According to R Rajalakshmi, director, Software Technology Parks of India (STPI), Chennai, there are around 800 units operating in the state. During April-October 2005, 94 new units have come up with more than half (49) being ITES firms.

The 345 units, spread over two million sqft in the state, recruited 15,000 people during April-October (as reported to STPI).

For the year 2004-05, the software exports from the state grew 41 per cent to Rs 10,703 crore from Rs 7,621 crore in 2003-04. According to STPI, the state's IT exports stood at around Rs 5,000 crore at the end of October. STPI-Chennai projections indicate that the total exports of the state is expected to be about Rs 14,000 crore by the end of this fiscal.

Recently, chief minister J Jayalalithaa announced that the state government was planning to develop the second IT park at Siruseri, along the IT Corridor of Chennai as the total space in the first IT park, spread over about 1,000 acres, had been sold out.

Key differentiators
Many agree that quality of human resources is the key differentiator of the state, which is ranked first in skilled technical manpower annual turnout. The state is home to 230-plus engineering colleges and more than 300 arts, science and commerce colleges. The annual turnout of engineering graduates in the state is over 79,000, the largest in India. Besides, the state produces 58,500 diploma-holders from polytechnics.

The World Bank, in its latest report, says that the state has an educated, hard working and disciplined workforce and a capable civil service.

"The commitment, work culture and ethics of people of Chennai are the major advantages for a company that differentiates it from other cities," says Sap.

R Chandrasekaran, managing director, Cognizant, feels that intrinsic worth of Tamil Nadu is very high from both educational and physical infrastructure standpoints.

The state and Chennai score heavily in terms of all other infrastructural issues like cost of land or lease rental, connectivity, availability of technology providers, health and schooling provisions, among others "" all contributing to a decent standard of living, says Ranjit Pisharoty, president and chief technology officer, Lason India & Convener, IT & BPO panel, CII-TN.

"We try to tell companies that you initially come for cost, what makes you stay here is the quality and what makes you grow is the value you add," says C Chandramouli, secretary "" IT, Government of Tamil Nadu, adding that companies, which set up shops here were growing because of the quality of manpower and expanding their business offerings.

Trends & business models
Through road shows, conferences, and high profile visits of overseas investors, Tamil Nadu gained significant mindshare in 2005 among the people who matter, says Chandrasekaran.

In Chennai, professional support services have picked up in a big way with emerging verticals being legal outsourcing, R&D, medical transcription, financial services processing, adds Sap.

Pisharoty says that much more of distributed software development (for instance, design at one place, programming and coding elsewhere and testing at a third place) seems to be the order. This helps tap specialised domain experts at distributed centres. Another trend seen in BPO companies is an increase in research, analyses, reporting and judgmental decision-making applications as BPO companies move on to knowledge processing outsourcing.

He adds that 2005 saw mid-Tier IT companies collaborating with BPO companies to leverage each other's capabilities for an integrated solution. So also, call centers collaborating with BPO companies for effective capacity utilisation is a trend started in 2005.

The move to Tier II towns and the hinterland gained momentum with companies realising that talent and infrastructure at these locations are worth a look from a strategic perspective. However, the industry feels that the attractiveness of the Tier II towns needs exposure.

Concern and challenges
Industry experts feel that the state government should focus on the rapidly increasing demand for infrastructure, education programmes and policies.

Sap says that Chennai can learn some lessons from Bangalore and ensure that its infrastructure scales up to meet the projected exponential business growth in the IT and outsourcing sector. The city planners need to calibrate the infrastructure load Chennai can take, and beyond the threshold, development activity needs to be consciously re-directed to other urbanised locations.

Chandramouli says that the government is working with industry and academics to improve the curriculum and training quality with a view to making the professionals industry-ready, "Vice-chancellors of universities are sensitised," he says, adding, "we are not resting on laurels and will ensure that the momentum is kept going."

Sreeram Iyer, group head - global shared services centre and head - technology & operations India, Scope International Pvt Ltd (BPO arm of Standard Chartered Group), says that the government should provide a single window agency for IT & ITES in ELCOT (nodal agency of the state for implementing IT policy), to ensure clearances without delay.

Future: combination of software and hardware

In the recent months, the state has also attracted several hardware companies. Nokia and Flextronics are coming to Chennai along with the cluster of their vendors. Motorola is also exploring the potential. Some of the biggest hardware manufacturers from Taiwan are also expected to set up their facilities. Software and hardware will make a good combination in the future, says Chandramouli.

Pisharoty also agrees that tremendous interest shown by European, South African, Southeast Asian and Asia-Pacific countries in the last few months is a good enough sign.

"We are also keen to ensure that the investors find friendly environment here. We are even looking at their housing and other facilities," Chandramouli says. He cited a project on similar lines like the 'Little Japan,' a township that would address the housing, cultural, educational, entertainment, social and culinary needs of the expatriate community of Japan.

"We are very bullish and expect more global firm to set up shops here in 2006," he says adding that a delegation from the state will visit Europe soon.

Chandrsekaran says that different locations may be seen as specialists in different areas like technology software, systems software, engineering services, embedded systems, infrastructure management.

Industry experts feel that Chennai also needs to get active on the public relations front to ensure that its perception quickly catches up with its enviable reality.