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Kolkata to be a outsourcing hub

February 8, 2007

Bangalore and Pune, the popular outsourcing destinations are showing signs of getting choked. It is not just the traffic, but there are water shortages, climbing real estate prices and so much congestion and pollution that quality of life suffers. These cities are growing way too fast for the infrastructure to keep up. We in India might be used to overcrowding, vendors on pavements and traffic jams, and may even believe it will not hinder growth, but those who come from other countries find it difficult to believe that India is a good place to live in. Many foreigners leave, unable to take the hard life.

Take the example of Bill Wood, vice-president of engineering at Ping Identity, a manufacturer at an Internet Software firm:

“…Frustrated, Wood began searching for a partner outside India. He scoured 15 companies in 8 different countries, including Russia, Mexico, Argentina, and Vietnam…that path is being trod by a lot of executives, eager for new sources of low-cost, high-tech talent outside India. Many are fed up with the outsourcing hub of Bangalore, where salaries for info tech staff are growing at 12% to 14% a year, turnover is increasing, and an influx of workers is straining city resources.”

In fact a study by Tholons, (a services globalisation advisory and investment firm) warns:

India will lead in the IT/BPO space, but it faces challenges such as overheating of the offshore outsourcing market due to attrition, escalating wages, talent scarcity and rising real estate prices, which are leading entrepreneurs to explore other options including China, the Philippines, Russia and other tier II cities in India.

While Tholons admits that India has advantages over China like good English speakers, better communication skills, more maturity in service delivery, better cultural compatibility and more confidence from buyers in the US and Europe, it does not mince its words when it talks of India’s problems. As this article points out:

Existing outsourcing destinations need to watch out…many more countries and cities are expected to become centres of outsourcing in 2007…

Interestingly, Kolkata is one of these cities. Right now the top Indian outsourcing cities are Bangalore, Hyderabad, Mumbai, Chennai, Pune, and Delhi, but the talent pool in Kolkata has not been exploited fully up till now. As this article explains:

The capital of the state of West Bengal, is gradually attracting investment with its intellectual talent and low costs. Currently the revenue generated by the West Bengal IT industry is miniscule, accounting for 2.2% of India’s total, whereas Karnataka accounts for a third of the total…the communist government in the state, is playing an important role in Kolkota’s transformation. By offering generous incentives to investors like low electricity tariffs and declaring IT as an essential industry, the government is increasing Kolkata’s value. Infrastructure is improving rapidly and a state that was known for its poor power supply until the 1980s is today one of the few power surplus states in the country.”

The other cities that are expected to see growth are Nagpur, Lucknow, Allahabad, Varanasi, as well as cities in Kerala, Punjab, Tamil Nadu, Karnataka, and the North East…well just about every place in India that has English speakers!
This is not to say that Bangalore and Pune are going to decline. Not at all. Its just that the business coming into India is coming in droves and as much as Bangalore and Pune might want it all, as of now they can’t cope. Infrastructure in Karnataka has a long way to go and as for Pune, the city does not even have have an efficient mass transport system.

Related Reading: Britain underestimating India’s growth
The good days of globalisation
Indian Real Estate booming
India produces more engineers than the US?
The increasing list of Indian Forbes billionnaires is a sign of the future
Highest pay hikes in India in 2007
People’s world view has altered

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6 Comments leave one →
  1. Rahul Sengupta permalink
    February 8, 2007 4:58 pm

    Thats Good News! But along with Kolkata some other winners will be Chandigarh,Pune ( inspite of not having a good mass trasport system) Bcoz being close to Mumbai AND Cochin.
    Ultimately if India has to grow economically then all the parts have to fire equally well.Cheers India. :)

  2. demigod031 permalink
    February 8, 2007 8:15 pm

    Philippines is now a major threat for other countries in outsourcing. Though customer care call centers form the largest part of the BPO boom locally, the Philippines’ language proficient information technology, human resource, and finance/accounting professionals are significant contributing factors as well. The proficiency of many Filipinos in English is a major factor in the growth of BPO in the Philippines.

  3. February 9, 2007 2:27 am

    Out sourcing the great leveler?

    Which ever city is tapped up as a new source of talent pool, will meet the same fate.
    Pay will have to rise.
    Rising cost of living.
    Lead to higher house prices, and demands on the old city infrastructure.
    But only up to an optimum point.
    There will always be untapped and cheaper talents somewhere else.

    The world is large, but technology has cut down the physical distance.
    It does not take much time to close down here, to open new shop-fronts there or elsewhere.

    Today outsourcing is heading east, tomorrow it will again have 360°s on the compass to choose to move.
    Leveling and changing societies where ever it goes.

    One may argue, it can only be a good thing.

  4. February 14, 2007 12:48 pm

    We in India might be used to overcrowding, vendors on pavements and traffic jams, and may even believe it will not hinder growth, but those who come from other countries find it difficult to believe that India is a good place to live in. Many foreigners leave, unable to take the hard life.

    and you plan to send these “foreigners” to kolkata.. great plan !!
    LOL…

  5. February 14, 2007 2:40 pm

    Er, I do not own a software company so the question of me sending anyone to Cal doesn’t arise.
    And if the software companies do open up shop in Cal,(there have been several reports in the newspapers about this) I am sure they are have good reasons.

  6. March 7, 2007 3:17 am

    Why not use Poland at an outsource center?

    Many offshore software development failures are due to instability in the workforce in geographies such as India and China. The demand is much greater than the supply, with engineers moving from job to job in time periods measured in months. Competition for engineers and programmers with specialized expertise is fierce, and turnover is high, with some firms in India reporting turnover as high as 40 percent annually. In India they are providing “shadow engineers” — engineers who are not billable but are tracking a project to replace the next engineer who leaves. In many case the “shadow engineers” are fully 20% of the engineering headcount on a project.

    This situation almost guarantees project failure.

    By contrast, Polish engineers value job stability and as a result provide a stable work force. For example, one group in Katowice Poland has achieved zero attrition amongst their 58 engineers in three years. This is common in Poland but yet unheard of in other countries.

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