India’s Tier 2-3 Locations Becoming Hot For Offshore BPO | Sherpas in Blue Shirts

Posted On October 22, 2013

Originally posted on Global Services Media


The locations landscape in India for delivery of offshore BPO services has expanded considerably beyond the established tier-1 locations. India offers 20+ tier-2/3 locations for offshore BPO services delivery with some of them having significant market activity (e.g., Kochi, Trivandrum, Kolkata, Jaipur) while others (e.g., Ahmedabad, Indore, Vizag, Chandigarh) are at a nascent stage.

Adoption of tier-2/3 locations in India is consistent with observation in other mature geographies (e.g., U.S., Canada, Central and Eastern Europe). Although the motivation for adoption varies (e.g., expansionof customer base such as public sector in onshore locations, cost advantage in offshore locations).

In India, cost savings and access to talent are the key drivers for adoption of tier-2/3 locations. Lower salaries, real estate, and overheads result in lower cost of operations in tier-2/3 locations than tier-1.

Furthermore, leading tier-2/3 locations are typically centers of higher education within the region/state ensuring long-term talent sustainability. They also attract talent from nearby areas adding to the overall pool. Relatively lower competitive intensity in tier-2/3 locations also results in lower recruitment overheads and productivity ramp-up time. In addition, there are multiple other opportunities (access to niche talent, first mover advantage in newer locations, and higher skill delivery) offered by tier-2/3 locations. These advantages are likely to maintain the momentum in favor of tier-2/3 locations going forward.

At the same time, there are challenges in service delivery in tier-2/3 centers. Employability, scalability, and lack of managerial talent continues to be an area of concern. Consequently, service delivery from tier-2/3 locations is typically limited to transactional / rule based (e.g., AP, AR) work. Although there is evidence of movement towards complex (e.g., healthcare, pharma) and end-to-end (e.g., O2C, P2P)work in select areas, overall scalability remains small. Moreover, even though the operating environment has improved over the years, peripheral locations in tier-1 cities offer attractive alternatives to tier-2/3 locations both from cost and talent pool perspectives.

In conclusion, adoption of tier-2/3 locations for BPO service delivery is an established phenomenon. However, companies need to be mindful of the associated trade-offs (e.g., early mover advantage vs. relatively lesser evolved delivery environment) and carefully evaluate the role of tier-2/3 locations in delivery network.

Everest Group has released a global locations insight providing perspectives on tier-2/3 locations in India for delivery of offshore BPO services. The report discusses locations landscape and adoption trends, drivers for adoption, opportunities and challenges in BPO service delivery, and implications for stakeholders.

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