Medium sector IT/ITeS in Hyderabad and Bangalore may shift to Philippines

Many medium enterprises in IT/ITeS sector from Hyderabad and Bangalore are shifting or expanding their bases in the Philippines owing to concerns pertaining to infrastructure, cost of doing business and availability of skilled labour, an ASSOCHAM survey said.

In a statement, ASSOCHAM referred to current developments taking place in the southern part that it said clearly indicate that India's prominence as an Information Technology/Information Technology Enabled Services (IT/ITeS) hub is fast fading away.

"The driving forces are multitude, ranging from ease of doing business, availability of abundant English speaking workforce at lower wages, better infrastructure to government incentives", said D S Rawat, Associated Chambers of Commerce and Industry of India.

"It is imperative for Governments at the Centre and States to quickly initiate remedial measures on war-footing to stem the loss as the capital flight will not only severely affect the growth and employment but threaten India's leadership in the knowledge industry,” he said.

According to the just concluded ASSOCHAM Eco Pulse (AEP) Study titled “Sustaining India’s IT/ITeS Leadership”, the prevailing macroeconomic and sectoral conditions have been resulting in a shifting of ITeS/BPO industry away from India to the Philippines, especially from Hyderabad and Bangalore.

Such a trend is yet not being noticed in the National Capital Region and Pune.

The chamber study said as a proportion of national GDP, the IT/ITeS sector revenues in India have grown from 1.2 per cent in 1997-1998 to an estimated 6.4 per cent in 2010-2011.

Its share of total Indian exports (merchandise plus services) has increased from less than four per cent in 1997-1998 to 26 per cent in 2010-2011.

India is presently a premier destination for the global off-shoring market of IT/ITeS, accounting for almost 55 per cent in 2010 as compared to 49 per cent in 2005.
The country has emerged a dominant player in global IT services outsourcing with increase in its share to 70 per cent in 2010 from 52 per cent in 2005. On the other hand, India’s share in BPO sourcing market has declined from 45 per cent in 2005 to 34 per cent in 2010, albeit it continues to be the leader in this space, ASSOCHAM said.

Rawat said the country’s prominence as an IT/ITeS hub is declining owing to factors such as diminishing employable talent pool, high cost of doing business due to inefficiencies of power, transport, security and concentration in metros due to inadequate infrastructure in other towns.

Currently, over 90 per cent of total revenues of the sector are generated from Tier I locations, which are nearing peak capacities in terms of infrastructure support. Therefore, there exists a pressing need to fast-track the development of alternate delivery locations in Tier II and III cities.

Indian IT/ITeS sector has invested and developed world class facilities, extensive talent development initiatives, disaster recovery and business continuity,high transport cost, enhanced security, captive power generation, UPS and other equipment which have overall created a cost disadvantage of 10–15 per cent as compared to other emerging markets.

Hence, India is hard pressed to manage its competitiveness following rising costs and increasing competition.