Tag: India

Tier-2/3 Cities’ Growing Attractiveness as Promising Locations to Deliver Global Services – Can Runners Up Be Winners as Well? | Sherpas in Blue Shirts

The broad picture

With both buyers and service providers increasingly understanding the benefits of tier-2 and 3 cities in their quest for greater cost savings and access to additional talent, these lower tier locations are witnessing significant growth in new set-ups and expansions.

Companies typically look for at least 10-15 percent additional cost savings over tier-1 cities to justify the business case for moving to tier-2/3 locations. But to achieve their goals, they must create a sustainable business case considering both benefits and trade-offs, e.g., a decrease in operating costs versus an increase in management overhead, and entering an established market late versus entering a relatively nascent market.

Some argue that additional cost savings over tier-1 cities can also be realized by expanding into peripheral areas within tier-1 locations (e.g., Pune/Hinjewadi and Mumbai/Navi Mumbai, versus Coimbatore, Ahmedabad, Jaipur, and Bhubaneswar) or in existing tier-1 locations through scale economies. But the “right” answer here is highly context-specific, and depends on an organization’s specific needs and priorities. For example, a company battling for talent in a tier-1 city will not benefit much by expanding to peripheral locations but can access to additional talent by setting up in tier-2/3 cities.

Distribution of set-ups by Tier-1 and 2 cities

Central Eastern Europe (CEE) and Latin America (LATAM) both had more global services delivery set-ups in tier-2 cities than in tier-1 cities in 2012-2014 H1. Although increased activity in tier-2 locations is a relatively recent trend in Asia Pacific (APAC), it is fast catching up with the highest number of tier-2/3 set-ups among all three regions during 2012-2014 H1. Global in-house center (GIC) and service provider activity in APAC is concentrated in India, but distributed across multiple locations in CEE and LATAM. The above chart presents the top five tier-2 locations in each region.

India’s tier-2/3 city story

India continues to be an attractive offshore destination for global companies, given its unique combination of low cost, scalable talent pool, and breadth and depth of available skills. Tier-2/3 cities add to the value proposition by providing additional cost savings of 8 to 12 percent (for IT services), due to lower facilities and other operational costs.

With higher concentration risk in tier-1 cities, it is becoming increasingly important for enterprises and service providers to access talent from tier-2/3 cities.

For more information, download a complimentary preview of Everest Group’s recently released report, Tier-2/3 Locations in India for Offshore IT Services Delivery – Does Reality Meet the Hype?

Philippines: moving beyond Manila and Cebu as delivery locations

While the Philippines’ key tier-1 cities (especially Manila and Cebu) are becoming saturated, the proliferation of tier-2/3 cities offer a strong proposition. Emerging tier-2/3 cities – e.g., Dasmarinas, Malolos, Iloilo City, and Baguio – contribute 30 to 40 percent of the relevant graduate pool, and for IT-BPS offer a cost differential of 10 to 25 percent as compared to Metro Manila.

For more information, download a complimentary preview of Everest Group’s recently released report, Is Philippines Stepping Up to Lead the Industry into the Next Horizon of Global Services?

Dimensions for operationalizing a tier-2/3 delivery center

Operationalizing a center in tier-2/3 cities and successfully deriving the above-mentioned benefits requires a slightly different approach than in tier-1 locations:

Talent hiring strategy: Companies need effective talent strategies to meet the needs of experienced personnel who often need to be relocated. They also need appropriate employer branding to capture mindshare in local colleges and universities.

Client engagement and contract type: To optimize costs and improve profitability, tier-2/3 cities are likely better suited to deliver work for existing (rather than new) clients/modules.

Operating model:Tier-2/3 cities can serve as self-sufficient centers directly handling clients, and can also be structured as a spoke to tier-1 cities in certain cases.

Creating an ecosystem: Companies need to invest in infrastructure, the social living environment, and the delivery ecosystem in order to successfully operate a tier-2/3 city set-up.

Many tier-2/3 cities options with multiple benefits and opportunities are available across various regions and countries. But enterprises and service providers must take into consideration multiple associated challenges – e.g., scalability, lack of enabling environment, trade-offs with peripheral cities, and lesser breadth of skill sets – before setting up or expanding their operations in these locations. A commercial-driven business case may not be enough to evaluate these cities; what is needed is a risk-reward assessment!

Here’s the Answer Key: India GIC Landscape Crossword Puzzle | Sherpas in Blue Shirts

Hope you enjoyed solving the India GIC landscape crossword we posted last week. Below is the answer key to it. (Download a printer-friendly version of the answer key.)

Everest Group India GIC Crossword Answer Key

Across 
  1. One of the first entrants in the India GIC landscape
Texas Instruments and GE were among the first entrants in the GIC landscape
  1. Number of GIC divestitures in first half of 2014
None. GIC divestiture activity has seen a decline in recent years after peaking in 2011 and 2012
  1. Numero uno country in worldwide GIC market
India has dominant share in the GIC market in terms of revenue (~50%), number of delivery centers and headcount
  1. Tier-1 city with least number of GICs
Mumbai has the least number of GICs among tier-1 cities in India
  1. Buyer geography with maximum number of companies setting up GIC in India
United States-headquarteredfirms have more than 60% share in the Indian GIC landscape
  1. Buyer geography showing decline in GIC activity in India
Share of United Kingdom-based firms setting up GICs in India has declined in the last 2-3 years
  1. _______ a.k.a GIC
GICs were formerly known as captives
  1. Vertical with 2nd largest average headcount in GIC
Telecom is the 2nd largest vertical after BFSI in terms of average headcount
 
Down 
  1. Top vertical by GIC headcount
BFSI is the largest vertical in terms of overall GIC headcount in India
  1. Top vertical by number of GICs
Technology is the leading vertical in terms of number of GIC set-ups in India
  1. Tier-1 city with highest share in number of GICs
Bangalore has the maximum number of GICs in India
  1. Leading tier-2 city for GIC set-ups
Pune  is the leading tier-2 city in terms of number of GICs and has seen lot of GIC activity in the recent past
  1. Why companies started GICs?
Companies started GICs to capture cost arbitrage
  1. Alternative to the GIC model
Outsourcing to service providers in an alternative to the GIC model
  1. Number one function that GICs in India are delivering
Engineering services is the leading function delivered by GICs in India
  1. __________ beyond arbitrage
Value beyond arbitrage
  1. Energy & Utilities GICs firms headquartered here have high share
Within the Energy & Utilities vertical, Europe-based firms have highest share
  1. Sub-function within IT with highest adoption
ADM (Application Development & Maintenance) is the topmost sub-function within IT
  1. Another leading tier-2 city for GIC set-ups
Kochi is also seeing GIC activity among tier-2 cities in India
  1. Cognizant acquired this GIC in 2013
Cognizant acquired ValueSource NV, a subsidiary of KBC Group

Photo credit: Taki Steve

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