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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

Beyond the Metros: Bringing IT Opportunities to Tier II and III Cities

Sajan Pillai
Thursday, January 6, 2011
Sajan Pillai
When we started our operations in 1999, we were looking for the perfect location for our offshore development centers. Our choice surprised everyone around us. “Why would you choose Kerala?” asked our well-wishers. Kerala’s industrialization in 1999 included ER&DC, Keltron, and a few small private companies peppered over Technopark. No global company had a significant presence in the state, and prospects were hesitant to take the plunge.

We decided to look at the facts rather than believe the propaganda. The quality of education in Kerala is among the best in this part of the world. The people, too, are surprisingly cosmopolitan from years of exposure to different cultures and from considerable migration to and from the state. The workforce is highly stable and productive, while the government at the time was slowly waking up to the potential of a service economy. We decided: Kerala had to be the right place.

Today, we have grown to 500 times our original strength, largely because about 60 percent of our workforce is located in Kerala. When we looked at the big cities—what we now call Tier I, at least in the Indian context—we saw the advent of a whole lot of industrial clusters, corridors, estates, hubs, and other business units. When looking at possible target sites, we envisioned a model that took two basic elements into consideration. First, that the concept of outsourcing was primarily driven by the desire for cheaper talent and reduced operational costs. There was also social displacement—the need for people to immigrate to find work. The Tier I cities were becoming saturated with people and were nearing the limits of their infrastructures. It became very apparent that these limits would have an adverse impact on our ability to reduce costs while operating in these locations.

Tier II and III cities were a refreshing alternative, once the model was seen to work. Suddenly, there were a whole lot of them to invest in. Competition among these cities is intense, and this is where key differentiators can come into play to help with cost reductions. In terms of social displacement, the use of Tier II and III cities makes use of what you might call an IT “necklace strategy” that builds mega-centers offering employment opportunities to the masses in more dispersed areas around, rather than in the country’s biggest cities. Eliminating much of the social displacement in this way is one of the biggest social benefits of Information Technology. And being a service industry, there are no environmental concerns to worry about, either.

Attrition is a costly affair in most organizations—the cost of replacing an employee is estimated to be 1.5 times the employee’s annual compensation. UST Global has been successful in keeping attrition to a level well below industry standards, primarily due to efficient employee engagement practices. Since employment must have consequences more far-reaching than simple contentment with a job well done, a well-engaged workforce results in happy employees, which in turn reduces attrition. Traditionally, businesses have tried to speak the language of “employee satisfaction,” but that is being rapidly replaced in favor of “employee engagement.” In this context, engaged employees are an essential factor for any business, but the requirements don’t end there.


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