What is attracting IT giants to smaller cities?

In February, it was reported that Accenture was setting up offices in Jaipur and Coimbatore. With this move, the company aims to access more talent and give its employees greater flexibility regarding where they want to work from. In the past, Accenture has primarily operated in Indian metros.

In March, IBM Consulting told a financial daily that it was opening new IBM Client Innovation Centres in Kochi and Coimbatore.

And in December last year, Tata Consultancy Services had announced that it would invest 100 million dollars to establish a new outsourcing facility in Indore.

Infosys has also earmarked 27 million dollars for a software centre in Indore. The IT giant is also investing a similar amount to set up a campus in Nagpur. In September last year, Wipro had opened a software hub in Vishakhapatnam that will employ 2,000 people.

Meanwhile Zoho is taking things a notch further. In March last year, it had announced that it would open additional satellite offices, which seat 20 to 30 employees, in rural and non-urban areas across India. Then, in September, Zoho said that it had plans to hire about 2,000 people for its rural offices by December end.

These are not isolated incidents, but part of a broader trend that started some time before the pandemic for some companies, and then found broader traction with the overall tech industry once the full effects of the pandemic were felt.

Citing a Pareekh Consultants’ study, a financial daily has said that IT, IT-enabled services, and engineering services companies have created a physical presence in 27 tier-II cities. These cities include the likes of Kakinada, Vizag and Vijayawada.

Clearly, tier-II cities have been the biggest beneficiaries as tech firms look beyond the metros. However, reports and industry insiders suggest that tier-III cities also stand to benefit.  

Nasscom Senior VP & Chief Strategy Officer Sangeeta Gupta told Business Standard that the digitization tsunami, as well as the acceptance and expanding investment in new technologies, has raised demand for digital skills.

This, she says, has resulted in a talent war that is widening the demand-supply imbalance. Businesses can overcome the talent shortage by recruiting workers in smaller cities, thanks to innovative working models that remove geographical restrictions.

According to Gupta, with significant cost arbitrage, thriving infrastructure, and smart city efforts, tier-II cities have become more appealing for tapping into talent pools.  

The NASSCOM strategic review 2022 revealed that currently over 35 technology companies have 50+ delivery locations and are further growing their coverage across Tier-2 and Tier-3 cities.

Tech Mahindra has been one of the early adopters of this trend. And the factors that have driven its decisions  shed light on why IT companies are aggressively looking beyond the metros.
 

So, what are the other factors driving this trend? First, the adoption of the work from home model due to the Covid-19 pandemic has highlighted that employees don't need to be based in metro cities to execute projects.

Many young employees had to return to the smaller cities from where they hailed due to work from home. Companies will find that some of them might be hesitant in returning to metros with its hour-long office commutes and sky-high rents.

As dining and entertainment options in these smaller cities catch up with the bigger metros, there's even less of a motivation for young graduates to leave their hometowns.

Tech companies are also adopting worker-centric models thanks to the pandemic. And, they have good reason to do so.

Microsoft conducted a survey of 30,000 employees and found that 80 per cent wanted to work remotely. A Zerodha survey found that only 8 per cent of employees wanted to return to the office full time. Meanwhile, 67 per cent said that they would move to Tier-II or Tier-III cities and towns if working from home was allowed permanently.
 

With smaller cities now coming up on the IT and technology sector’s radar, growth, employment opportunities and development should spread more evenly across the country, instead of being limited to a handful of metros. This would be a welcome development, if the trend sustains.