Tech cos moving to smaller cities to tap talent pool, says report

India’s technology landscape is witnessing a shift in favour of tier 2 and 3 cities as companies look to leverage the burgeoning talent pool and cost benefits available in these locations, as per a report by Deloitte and Nasscom on Wednesday.

The report identified 26 cities spread across India that have “the potential to become the epicenter of innovation and growth,” including Ahmedabad, Bhopal, Indore, Kochi, Nagpur, Chandigarh, Kanpur and Lucknow, along with Hubbali, Mangaluru and Mysuru in Karnataka.

Currently, over 140 companies have set up global capability centres (GCCs) in these emerging hubs, the biggest of which are Wipro, Infosys, Genpact and HCL Tech, among others. Together, these hubs have created 9,00,000 direct and 3,00,000 indirect jobs, the report stated.

Till 2020, technology hubs were concentrated in India’s top 7 cities, but with the emergence of decentralized work, a shift in preference has been noted, especially as 11-15 per cent of the country’s tech talent and 60 per cent of graduates in engineering, arts, and science reside in tier 2 and 3 cities, the report said.

Moreover, close to 30 per cent of the workforce employed in matured hubs has migrated from other parts of the country, but rising costs, traffic congestion and overworked infrastructure in these cities is promoting a trend of reverse migration.

“Several factors such as the growing acceptance of remote working and reverse migration due to the pandemic have boosted the desirability and size of the talent pool available within India’s emerging hubs,” the report said.

In the seven biggest cities, talent pool costs rose 30-40 per cent and real estate costs spiked 60-80 per cent in the past 5 years. In comparison, talent pool costs are 25-30 per cent lower in smaller towns, and companies can enjoy a 50 per cent cost arbitrage in real estate rental costs, the report stated.

The emerging cities offer a regulatory environment and living standards comparable with tier 1 cities, along with benefits such as lower pollution, lower costs of living and affordable healthcare and education, it stated.

Along with global companies, the Indian startup ecosystem is also set to benefit from the government’s focus on tier 2 and 3 cities. For instance, 39 per cent of the country’s startups are headquartered in these locations as many incubators and accelerators provide support and resources to help businesses start operations.

In Karnataka, the government had launched the Beyond Bengaluru initiative in 2020, which aims to decrease pressure from India’s silicon valley through growth funds and incentives. The state government wants to increase the number of startups outside Bengaluru from 2,955 now to 10,000 by 2032.