Tier-2/3 Locations in India for Offshore IT Services Delivery – Does Reality Meet the Hype?

30 Sep 2014
by Sakshi Garg


Background and Context

India continues to be an attractive offshore destination for global companies, given the unique combination of low cost, scalable talent pool, and breadth & depth of available skills. Tier-2/3 cities add to the value proposition by providing additional cost savings of 8 to 12%, when compared to tier-1 cities, owing to lower facilities’ and other operational costs. India is also the largest location for offshore IT services delivery, accounting for ~68% of the global market, of which tier-2/3 cities contribute 7 to 10%.

In the recent years, activity in tier-2/3 cities has witnessed a significant increase, as both buyers and service providers have understood these benefits in their quest for generating further savings and accessing additional talent pool. While tier-2/3 cities offer certain benefits and opportunities, multiple associated challenges must also be taken into consideration.

Players should not be looking at leveraging tier-2/3 cities only for additional cost arbitrage. They need to have a sustainable business case considering other factors including benefits and trade-offs.

 India offshore IT services revenue by city tier


This research leverages Everest Group’s proprietary databases, market intelligence, and inputs from market participants supported by robust location-assessment frameworks. The analysis is based on GICs / service providers providing offshore delivery of IT services from tier-2/3 locations in India. This report is relevant to a broad set of stakeholders – buyers / parent organizations, service providers, GIC organizations, and industry influencers (investors, industry bodies, etc.)


This report provides an in-depth analysis of Indian tier-2/3 cities as destinations for offshore IT services delivery for global companies. It also provides a deep dive into seven key tier-2/3 cities – Bhubaneswar, Chandigarh-tricity, Coimbatore, Jaipur, Kochi, Mysore, and Thiruvananthapuram assessing market share, IT talent pool availability, cost differential with tier-1 cities, and player landscape. Following are the key sections of this report:

  • Market overview section provides overview of the IT services delivery landscape in India and share of key tier-2/3 cities. It also provides player landscape with market activity in terms of set-ups/expansion in tier-2/3 cities in the recent past
  • The talent pool availability section provides assessment of employable entry-level IT talent pool as well as the experienced talent available in the above mentioned key tier-2/3 cities
  • The cost assessment section analyses the cost differential with tier-1 city (Bangalore) in terms of salary & benefits, facilities cost, and other operating costs using IT-ADM as an example. It also presents analysis of drivers of differences in cost

Graduate Pool

The study concludes with discussion on key dimensions to be considered for operationalizing a tier-2/3 delivery center (e.g., talent hiring strategy, client engagement model, and delivery ecosystem & infrastructure) and multiple associated challenges (e.g., scalability, lack of enabling environment, trade-offs with peripheral cities, and lesser breadth of skill-sets) for offshore IT services delivery.


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