While there is no definitive
list of Tier III cities, a growing number of the
40 cities in India with a population of over 1
million are attracting interest from both local
and multinational IT firms.
These smaller towns offer advantages in terms
of cheaper real estate, access to relevant skilled
manpower and improving telecom and physical infrastructure.
Tier 3 cities provide definite cost advantages
of 15-30 % over Tier 1 and 2 cities through lower
labour and real estate costs and reduced staff
attrition rates. This gap is expected to widen
further over the next few years, given the greater
pressure on costs in the major centres.
Given the cost advantages that these cities offer—Nagpur
for instance offers a 15-20 % cost advantage over
Kolkata, which in turn offers a 10% advantage
over Pune—a number of MNCs are looking at
taking their on site expansions to these cities.
Southern cities like Mysore and Coimbatore are
expected to offer even better cost advantages
as well as lesser attrition rates. IBM Dell, Mphasis,
TCS, Wipro, Infosys, Cognizant and GE have all
unveiled plans for the smaller cities in the past
one year.
Steering the building boom
in these cities are not just local developers.
Big developers from tier 1 cities such DLF and
Ansals from Delhi have joined hands with state
governments to develop a variety of facilities
for the booming IT/ITES industry.
In Chandigarh, the 105-acre IT park is a joint
venture between DLF and the Punjab state government,
while the Ansals have developed a township on
the outskirts of Jaipur. Other cities like Nagpur,
Mysore, Indore and Ahemdabad are also witnessing
developments by tier 1 developers such as Rahejas
and Prestige.
International developers, who have been eyeing
Indian real estate market in the wake of 100%
FDI being allowed, are also looking at these cities.
Groups that have shown interest in developing
IT real estate projects in India include High
Point Rendel of the UK, Edaw of the US, Japan’s
Kikken Sekkel, Dubai’s Emaar group, Lee
Kim Tah Holdings of Singapore, and Cesma International
also of Singapore. Singapore based developer,
Ascendas has already developed over 3 million
sq ft of IT Parks in south India.
However, a report by Trammel Crow Meghraj cautions
that the cities may not be everyone’s cup
of tea. Despite their cost advantages, tier 3
cities will not appeal to all firms. The greatest
risk factor with such cities is their smaller
labour pools when compared to tier 1 & 2 cities.
It is also likely to be a case of ‘horses
for courses’, with different activities
and firms attracted to different tier 3 cities.
Ahmedabad and Chandigarh are likely to be the
winners among firms seeking lower costs, while
Kolkata and Nagpur will be more attractive where
a larger pool of skilled labour is required.
For firms entering India for the first time, Tier
1 cities are likely to prevail for some time,
as they provide higher comfort levels.
