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.

Scope

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.)

Contents

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

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.