“The question for CEOs globally is no longer - “Should my company go to India?” but instead “Can my company afford not to be in India”?
Cost-effective services, the latest technology solutions, and a large pool of English-speaking skilled human resources are some of the reasons that make the Indian IT industry a radial point for outsourcing IT services across the globe.
Besides, there are multiple reasons for which companies outsource some part of their business process. According to Hexagon consulting studies, India is a preferred destination for companies planning to outsource partially or complete business processes for several reasons. Therefore, the reasons that make India an ideal place to outsource or set up an ODC could be understood from the following points:
- Cost-effective services
- Latest technology solutions
- A large pool of highly skilled English speaking workforce
- State-of-the-art infrastructure
- Focus on core competencies and deliverables
- Better communication and client support
In addition to these, the Indian outsourcing market has grown by leaps and bounds, with more and more overseas companies outsourcing everything from accounting to customer support to IT services to teleradiology.
Earlier, the concentration was on big metropolitan cities like Chennai, Delhi, Mumbai, Bangalore ruling the Indian outsourcing industry. But, now the landscape is changing, with tier 2 cities eclipsing over 35 Indian big cities spanning 16 states. Today, smaller cities are joining the outsourcing business, with the same skill sets, expertise, and resources that the big Indian cities offer.
Not to forget, NASSCOM (National Association of Software and Services Companies) and the Indian government have been promoting smaller Indian cities to ensure equal opportunities and sustainable development of the country and building a resurgent IT country. In other words, smaller towns have gained popularity as an outsourcing destination because of ample space, skilled resources, lower attrition rates, lower cost of living, and lesser cut-throat competition, ensuring business growth and success.
Benefits tier 1 and tier 2 Indian cities offer as software offshoring destinations
Tier 1 Cities Benefits
Cities like Delhi, Gurgaon, Bangalore, Chennai, Hyderabad, and Mumbai have been at the forefront of the IT revolution in the country from the offset and are presently thriving hubs of IT and BPO.
ICT Infrastructure Availability and Usage
There is no doubt that ICT (Information and Communication Technology) infrastructure is crucial in determining the IT health of an outsourcing destination. According to the DataQuest survey, this parameter received the second-highest weightage as PC penetration, and internet penetration presented how up-to-date the population was in IT adoption.
Therefore, Tier-1 cities have expected toppers, making it a HubSpot to outsource or have an ODC in tier 1 India cities.
Availability of Larger Talent Pool Across Technologies
With human resources a crucial factor in achieving maximum weightage, it’s easy to get access to professionals with various skill sets in tier 1 cities. Besides, the companies have an established R&D center making it a hotspot of emerging technologies. The professionals have extensive knowledge, experience, and different skills to provide their clients with a more varied selection of business solutions. This approach ensures the project is completed with a timely timeline.
To put it simply, the quality of the workforce in tier 1 cities is experienced compared to emerging towns to meet the huge demand for a workforce with a bespoke skillset.
Quick Scaling Demands Are Easily Met
Tier 1 Indian cities established companies have a large number of resources, making it easier to meet the clients' needs. Whether the project complexities require 100+ professionals to work on their project or some specific resources solely are needed for a particular time, the company offers different engagement models to address the needs.
For instance, if a complex project requires 200+ professionals to work dedicatedly on it, an established company in a tier 1 city can meet these requirements easily as they have a huge in-house team. Besides, the experts are well-versed with the latest technology stacks to build a bespoke digital solution.
Tier 2 Cities Benefits
However, tier 1 cities face stiff competition for both back-end and front-end outsourcing and setting an ODC from emerging destinations. Several companies have chosen India tier 2 cities looking for greener pastures.
However, the emergence of Tier-II Indian cities as new outsourcing hotbeds has stopped the outflow and discovered better options for outsourcing majors. Let’s have a look!
Tier 2 cities are cost-effective in outsourcing and having an ODC in India. Investing money in hiring companies offering ODC set up in Tier 2 cities is the best idea because several companies started their business by investing a smaller amount of capital, and the profit earned was manifold.
Though it may sound like an unconventional idea, it always reaps wonders. So, invest less and get more.
Learn more about the factors affecting the development cost in India to make an informed decision.
Besides, infrastructure is also imperative to set up any business. It eclipses the cost of living, office space expenditure, and good infrastructure units. And, in comparison to tier 1 cities, tier 2 cities, the cost of infrastructure is low, along with office space rents. Initially, one can easily set up a business in minimum space with minimal rent, and when the business kicks off, one can easily think big and scale as per the needs.
Lower Attrition Rate
Currently, attrition is a big challenge. Whether voluntarily or involuntarily, the companies located in tier 1 cities face a higher attrition rate than tier 2 cities, marking a difference of 10% in attrition rate. Attrition is one of the biggest challenges as it increases the high cost of replacements and greater waiting time leading to loss of revenue.
Considering the difference, many IT companies have already established themselves in 27 tier-2 Indian cities, while some like TCS, TechMahindra, and others are migrating to these locations. To be precise, tier 2 cities like Chandigarh, Coimbatore, Kochi have the highest market activity and scale of operations, therefore offering sizable experienced pools for offshore IT services delivery.
In tier 2 cities, the attrition rate is quite low as the firms established there hire good local resources with the intention of a long-term relationship. This kind of approach helps to hold the team for the long.
Lesser Distance and Higher Productivity
In tier 1 city companies, “productivity” is usually considered a major issue. People are surrounded by various elements that make it daunting to take out six productive hours, and commuting is one of them. High productivity and lesser commuting time are inversely proportional.
In big cities, the usual commuting time varies from 2-4 hours whereas, in tier 2 cities, the workplace is just at a short walk away. This time difference makes tier 2 cities a good pick as people living there are ready to work extra hours (9-10 productive hours) to deliver milestones on time.
Favorable Tax Policies
Several Tier 2 Cities are considered as a tax-free zone or, if not, a handful of the areas are called a Tax-free zone.
SIDCUL, a Government department, provides tax incentives to companies that establish plants on their industrial estate. 100% tax exemption is given for the first five years and approximately 30% for the next five years. In Tier 2 Cities, the government provides this facility to both small and big firms. Also, interest rates are lower for companies establishing a business here.
The Skill Set
How YTII Can Help You Establish Your ODC in Tier 2 Indian City With Tier 1 Benefits
Undoubtedly, India has become one of the primary destinations for companies across the globe to outsource IT projects. And finding the right Indian offshoring company like Your Team in India that addresses your business's growing needs can bring you success in no time. YTII, since 2008 stands firm on the principle of agile operations and has successfully created excellent digital solutions to add value to clients’ businesses.
We are a dedicated team of 200+ IT professionals who are well-versed with the latest technologies like AI, ML, IoT and Robotics. We can assist in quickly augmenting an offshore team to help you achieve your development goals. You gain the first mover's advantage over the bottleneck competition cost-effectively with us. Thus, with YTII, you enjoy the perks of tier 1 city resources in a tier 2 city setup.
Reach out to learn more about our development process through our successfully created projects.
So, while hiring a software development company in India proves to be an excellent opportunity for your business, it’s equally important to consider the factors mentioned above before choosing between tier 1 or tier 2 cities.