IT and BPO companies are increasingly setting up offices in smaller cities in preference to big centres like Bangalore, Hyderabad, Pune and Chennai.

One reason for this trend is said to be the lower costs in the smaller towns. Yet another crucial factor is touted to be the inability of the infrastructure in the metros to cope with the growth in the IT sector. Township projects may well be the solution. A number of large ‘integrated’ township projects are coming up across the country and are typically located on the outskirts of cities like Bangalore, Pune, Chennai and Hyderabad.

These projects involve housing units, work places as well as commercial and leisure space and facilities like ‘green spaces’, artificial lakes and golf courses. Unlike a typical township project that has a few buildings and facilities like a school and a clubhouse, these projects may be several hundred acres in area and promise to provide an international environment here in India. The developer is responsible for the infrastructure within these townships. Houses under these projects range from high-end lake-view bungalows to more affordable flats in high rises.

Magarpatta City, a 400-acre township being developed outside Pune is one such example. Once completed, the City will have about 20,000 dwelling units, around 4m sq ft of office space and about 120 acres of greenery. The development of the city will be over four phases- the first of which is complete. Close to 1m sq ft of office space has already been built and BPO companies like Aviva, Avaya and EXL are already operating there.

The Mahindra City is a 1,400 acre SEZ being developed outside Chennai. Basic development, which includes facilities like water, sewage and telecommunications, has been completed on about 815 acres. In addition to IT and ITES companies, Mahindra City is also targeting apparel, auto-ancillary and other light industries.

The USP of such projects is that they can access facilities available in metro cities, while avoiding attendant hassles like long commuting hours. Similar projects, mostly revolving around the IT/BPO industry, are being undertaken in Andhra Pradesh and Karnataka.

The top 10 infotech companies in the world have their second largest development centres in India. These centres have reached a critical mass in terms of the number of people and experience and are now delivering high end innovative products or ‘solutions’ in the industry jargon.

The realisation that there is an innovative shift taking place has dawned on the venture funds in Silicon Valley as well. As such it is almost essential for any start-up to have a development centre in India, before it receives funding in Silicon Valley.

India’s model for innovation is not being driven by venture funds per-se. Innovation in India is being driven by the research and development budget of tech majors investing in their development centres here.

For instance, Microsoft has its second largest software development centre in India, the largest being in Redmond, US. With around 900 people employed at its development centre spread across Hyderabad and Bangalore, a large proportion of the software giant’s cutting-edge work is being done here.

Microsoft’s competitor Oracle has more than 6,400 people in India, which is responsible for some advanced work, in the areas of collaboration software. Certain modules and even the e-business suite in the Oracle 11 next version have been built in India. Its Bangalore centre works on Oracle’s database, development tools, application servers and e-business applications. This includes components of the Oracle 9i Database Server and the 9iAS Application Server. The Hyderabad unit, which started in January 1999, is focused on ERP products. The progressive work being done may be estimated by the number of patents filed by the Company’s India centre, which has shown a four fold increase in the last two years, now numbering forty.

Global application major SAP of Germany also has its second largest development center in India at Bangalore and recently announced plans for further expansion in India.

A much clearer shift is seen at Texas Instruments, one of the pioneers of the offshore development trend. Its Indian centre is a hub for the development of its digital signal processors (DSP), the largest business for TI. The second largest of its development centres, it has filed for more than 200 patents.

The trend in fact is not restricted to major companies. Several smaller firms are almost totally dependent on their Indian centre. For instance, Veritas - a $2 bln storage software company - is substantially dependent on its Pune R&D centre, from where 32% of its patents were filed.