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January - 2011 - issue > In My Opinion
Beyond-the-Metros-Bringing-IT-Opportunities-to-Tier-II-and-III-Cities
Sajan Pillai
Monday, January 3, 2011
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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.

For sustained commercialization and confident investment, we need an amalgamation of four fundamental aspects: government support, resources, quality talent input, and facilities. There is no substitute for any of these, but investors should be made aware that these are available together in one place. This calls for solid marketing on behalf of the government. While a beautiful countryside is nice to have, it is hardly enough. Investors need to be convinced of the commercial advantages they can expect from investing in a country like India. I can speak from UST Global’s experience of expanding operations into Manila, Philippines and Chile. In both cities, the governments welcomed us with open arms. They promised us the best resources, and most importantly, delivered on their promises with prompt follow ups. These are the kind of cities that are competing with India for investments.

Most cities in South East Asia have a rich culture and heritage like the one we often boast of. Cities like Thailand and Shanghai offer the same or even better cost advantages than India does. So these two points will no longer set us apart from the crowd. India still needs to work on a few critical aspects like education, industry regulations, and communication.

When I speak of education in Tier II and III cities, I should emphasize that important personality development is taking place during high school. Schooling should be more oriented towards communication skills right from that level. If the basics are in place, the skills and concepts required in professional life can be learned from the employer organizations. We at UST Global have special career development programs, many of which focus on the new generation. We believe in giving our associates the gift of lifetime employability.

The government, for its part, should ensure that we have the right kind of infrastructure to showcase to potential investors. Although we do have some infrastructure, it is not enough to support the amount of business that can potentially come to our shores. What I mean by “infrastructure” in this context goes beyond office buildings and telecom facilities to include aspects such as a decent way of life, civic amenities, entertainment options, and security. Employees must be confident that there is a sufficient supportive infrastructure in town to justify bringing their families to live there.

In fact, some of our clients, after they have seen Kerala while visiting our facilities, are so impressed that they want to bring their own businesses here. Unfortunately, a bit of research into the geographical, political, and economic climate of the state reveals an unattractive side as well. While we might have convinced them in earlier times that the advantages we have to offer easily outweigh the disadvantages, there are so many options available today that they just don’t have to take the risk.

What we do have in our favor is the abundance of skilled talent and the cost factor. If the government steps in at the right time, bringing investment to our cities will be a cakewalk. But we cannot afford to wait another decade for the effects to trickle down. We must strike while the iron is hot. India has many promising locales for an IT destination. Let’s make it work!

The author is CEO, UST Global
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Reader's comments(2)
1:This is a well written article from Sajan Pillai, CEO, UST Global. This aptly explains how the Tier 2,3 cities provide many advantages but also need the fast infrastructure for the investors to bring in the projects. There are lot of very good tier 2,3 cities in both Kerala, Karnataka that will meet the needs of mant top companies such as UST Global. Like in the US, well developed tier 2,3 cities will add a lot of value to the businesses and people alike.
Posted by: Guru gbk - 05th Jan 2011
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2:This is a well written article from Sajan Pillai, CEO, UST Global. This aptly explains how the Tier 2,3 cities provide many advantages but also need fast infrastructure for the investors to bring in the projects. There are a lot of very good tier 2,3 cities in both Kerala, Karnataka that will meet the needs of many top companies such as UST Global. Like in the US, well developed tier 2,3 cities will add a lot of value to the businesses and people alike.
Guru gbk replied to: Guru gbk post - 05th Jan 2011
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