HomeBUSINESSBehind tech companies’ Tier-II foray

Behind tech companies’ Tier-II foray


Last month, Tata Consultancy Services (TCS) and Infosys, India’s top two IT services companies, announced new centres in tier-II cities such as Coimbatore, Guwahati and Nagpur. It’s not new for IT services companies to look beyond the traditional metro hubs. But so far, such small-town centres had come through nudges by state governments keen to take development beyond the metros. Now, a large push is coming from employees themselves.

The past two years have demonstrated that it’s possible to meet work standards sought by global clients even with staff working from home. During this phase, a significant number of employees went back to their hometowns, and are open to continue exploring such options in the post-pandemic world.

Meanwhile, amid a supply crunch, the balance of power has tilted towards IT employees. During the pandemic, many large organizations embarked on large digital transformation projects, adding revenues to IT services companies. Russia’s invasion of Ukraine sent more work their way. “IT services industry in India is in the early phase of a multi-year technology upcycle, with spending on digital transformation earlier planned for the next decade now being compressed into a 3-5 year period,” ICICI Securities wrote in an April 2022 research report.

This change in balance of power is most evident in attrition numbers. TCS, whose attrition ranged around 8-11% through the pandemic, reported attrition of 15.3%, 17.4% and 19.7% in the last three quarters. At Infosys, attrition is now repeatedly crossing 20%.

Small-town preference

Attrition is expected to moderate in the coming quarters. TCS and Infosys have added about 155,000 and 85,000 employees, respectively, since mid-2019. TCS’s net headcount increased by 35,000 in the March quarter alone, the highest in its history. Intake of freshers in large numbers tends to bring down attrition.

What the numbers may not reflect is the movement of experienced employees, who are key to executing large projects. Setting up more tier-II centres could give companies another lever to retain them. According to a survey by BCG and Nasscom, 70% of IT sector employees prefer hybrid work—a combination of remote and onsite. Given that many went back to hometowns, this also translated to a preference for smaller cities. According to this report, about 65% of IT sector employees want to move out of metros. Tier-II centres would bring the office closer to some employees who moved back to their hometowns.

Open options

However, this does not mean that IT companies will scale back larger centres, which have served multiple purposes for them. These centres made it easier for companies to deal with the local administration for infrastructure and other approvals. It gave them economies of scale needed to provide support facilities such as transportation and food. It boosted client confidence, especially in the early days. In the Tholons Global Innovation Index, 2021, the metros lead Indian cities, though tier-II centres like Jaipur and Ahmedabad now also feature in the top 100.

The urgency to retain employees outweighs metro leanings. According to ICICI Securities, tier-I IT companies have added 230,000 employees in the last five quarters, without a corresponding increase in seating capacity. This gives them the headroom to expand in smaller cities. Employees want to shift there for multiple reasons, key among them being the lower cost of living.

Talent advantage

According to Zinnov’s Emerging Cities Analysis published last year, infrastructure can be cheaper by 50% in smaller cities than in metros. The quality of life is also improving. Five of the top 10 cities with population above 1 million in the government’s ease of living index for 2020 were tier-II cities ranging from Ahmedabad to Indore. While infrastructure is stretched in some larger cities, it is improving in smaller ones.

For companies, smaller cities also provide options to scale up. According to Zinnov, there is a pool of 2.3 million potential employees available to the technology sector in the top 15 emerging cities. Some cities also have adjacencies that feed into this ecosystem. For example, Coimbatore is assisted by “the highest availability of engineering colleges”, according to Zinnov. The tier-II expansion of IT firms will enlarge the self-perpetuating cycle of college, jobs and livability.

www.howindialives.com is a database and search engine for public data.

Subscribe to Mint Newsletters

* Enter a valid email

* Thank you for subscribing to our newsletter.


Source link


Most Popular

Recent Comments