Posted by: lrrp | March 28, 2008

BPOs feel realty pinch in smaller cities

India Inc, especially the BPO (business process oursourcing) sector, looks at them as the ‘next destination cities’. With sky rocketing property prices, non-availability of good office spaces on rent, and high attrition rates, Tier I cities like Mumbai, Bangalore and Delhi are fast becoming too expensive for many BPO firms. A reason why Tier II-III cities like Pune, Ahmedabad, Nagpur, are coming up as alternative destinations.

However, some BPOs say, the move to Tier II cities may not be a great idea after all, since property prices are not very cheap or not what they expected them to be. Real estate may be booming, but prices sky rocketing as well at times quite close to Delhi and Bangalore rates. What’s more, getting good middle management talent too is a problem in these cities.

While cities like Pune have almost become an extension of Mumbai, others like Ahmedabad, Mohali and Jaipur are catching up fast with improved infrastructure and real estate. In fact, many BPOs are drawing out plans to move to these cities, while some have already taken the first step. For example, WNS has a centre in Nasik, Genpact has a facility in Jaipur, Intelenet has centres in Pune and Mohali, and Mphasis has it in Mangalore.

However, experts warn the picture may not be as pretty as it looks. The ground reality is quite different in some of these cities. While real estate is developing fast, prices too are moving north simultaneously. And that’s a dampener for many companies. “Its not easy to get large office spaces at low cost in cities like Pune or Ahmedabad. These cities are also witnessing a real estate boom, costs are only marginally lower than say Mumbai or Delhi. Buying or renting property comes to almost as much as in the metros,” says Aditya Gupta, president, InfoVision.

“Surely, rentals in Tier 2 cities are lower than metros but due to the huge demand from corporates, prices are on the rise,” feels Radhika Balasubramanian of Intelenet Global Services, which has 18 centres across India including a few in small cities.

Availability of talent pool is the other major attraction for small cities. However, experts say even that could be a problem. Even though many BPOs hold job ‘melas’ in small cities, where spot jobs are offered and lakhs are being spent on ads to attract young professionals, the quality of manpower is not that good. In fact, the investment in training is bound to be significantly higher in these cities. With most people having completed their education in vernacular medium, their knowledge of English is usually poor.

“Also, its not easy to get middle management people in smaller cities. People at the team leader level with a few years of experience are tough to find. And not many are willing to relocate from a metro to a smaller city,” explains Sohit Brahmawar, executive director, vCustomer. However, on the positive side, studies reveal attrition levels and salary expectations in smaller cities is much lower than in Tier I cities.

Realising the business potential of smaller cities, state governments are now playing an active role in attracting BPOs to invest in their. The Karnataka government has helped make destinations like Mangalore and Hubli attractive.

Similarly, Punjab is taking efforts to develop infrastructure and initiate policy changes. And as experts say, given the sky rocketing prices in bigger cities, ultimately, moving to a Tier 2/3 city will be not be an option but a must do for most BPOs.

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