India Location Trends Global Corporate Services, India June 17, 2009

India Location TrendsGlobal Corporate Services, India

June 17, 2009

CB Richard Ellis Labor Analytics Group| Page 2

“Location Decision” Trends

Tier – 1 cities

“Leaders”

Tier – 2 cities“Challengers

”

Tier –3cities“Followers/Aspirants”

Location Decision “Tier-1 vs Tier-2/3”

• A large number companies are looking at setting up operations in Tier-2/3 cities to keep up the cost advantage they have over other countries/companies.

• Tier-2/3 cities offer lower operating costs as well as cheaper labor and real estate costs, which form a significant part of the cost structure for IT/ITES companies


Key Drivers for “Location Decision”

Drivers for BPO/ITES 2004 2007 Change

Cost ReductionCost reduction due to labor arbitrage continues to be the driver for the BPO and IT industry

Access to talentThe Importance of access to qualified talent as a driver for ITES has increased significantly in the last 3 years

Improve Service quality

Business impact beyond cost savings is increasingly becoming important for buyers of ITES services

Improve productivity

Enhance Capacity

Reduce time to market

Change in Importance

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Recession Effect…Back to square one? Rescission effect “Changing strategies in an uncertain world”

• The past 6 months have made a lot of companies rethink their strategy to move to Tier-2/3 cities

• Many companies who had made the move to Tier-2/3 cities are contemplating moving back to Tier-1 cities due to significant decrease in real estate rentals

• Poor absorption of IT space in Chennai– May 23, 2009

• Office rentals to fall 20% in 2009; realty to recover in 2010– May 14 2009

• Mumbai office rents fall, but still among world's highest– 4 Jun 2009


Tier -2/3 Cities…Key Occupier Concerns

Developer & construction quality is a key concern for occupiersLarge occupiers are concerned about delivery of their facilities owing to in experienced developers holding prime lands

Social infrastructure is another key concern. The average age of employee in any large Indian IT player or BPO is 25 – 29 years. The smaller cities often lack the culture, “crowd” and “hang – outs” that the larger cities are famous for – a work / life balance

Infrastructure development is even more importantSmaller cities and newer locations must learn from the experience of their larger cousins, that the roads must be built before the buildings come up.


Future Trends… Challengers mean serious business

• Although the Tier-1 cities have seen a significant decrease in real estate costs, we have to consider the fact that real estate is not the largest factor in the overall cost structure of these companies

• Labor costs are the most significant cost factors for these companies and even if the real estate costs have fallen sharply the Tier-2/3 locations are still presenting a 20- 25% cost benefit as compared to the Tier-1 cities

• As and when an upward trend starts in the market, this difference in cost benefit will only widen

NOTE : Examples of other costs include expenses like power, transport, utilities, etc.

100%

72%67.5%

Move to Tier-2/3 cities


The ease of recruitment and ability to scale-up in NCR have been indicated as primary criterion for location selection

The high current base of companies in the NCR has been indicated as a location selection criterion - respondents have indicated that presence in Gurgaon for international operations is mandatory in order to get exposure to international clients

There is high attrition at all levels driven by compensation-based poaching

STRENGTHS

WEAKNESSES

Population: 14,000,000 Number of graduates: 78,500 Literacy Rate : 81.67% Population Growth (‘08-’13): 4%

St. Stephen’s College, LSR College for Women, Hindu College, Hansraj College, Jesus and Mary College, IP College for Women, Sri Venkateswara College, Delhi College of Arts and Commerce , Miranda House, Ramjas College, Gargi College

HP, Cognizant, IBM, Alcatel-Lucent, Dell, Convergys, Evalueserve, Accenture, Hewitt Associates

COLLEGES & UNIVERSITIES

MAJOR OCCUPIERS

RECENT MARKET ACTIVITY

TIER I MARKET| Voice Based BPOLABOR AVAILABILITY

Delhi NCR

TenantApprox.

Size (sq.ft.)

Xerox 40,000Educomp 24,000Philip Morris 15,000Smart Cube 25,000


Cost of operations is lower compared to Bangalore and Delhi by 20 per cent

The quality of manpower available is very satisfactory due to availability of good communication and technical skills

Pune is a young location with more than 50 per cent of the population below 30 years of age

Infrastructure poses a challenge due to bad road conditions, traffic, lack of local transportation and international connectivity

Recruitment is beginning to become an issue as there is not enough supply to feed the increasing demand

STRENGTHS

WEAKNESSES

Population: 5,064,700 Number of graduates: 35,000 Literacy Rate : 77% Population Growth : 4.1%

Fergusson College, Symbiosis College of Arts and Corn , Nowrosjee Wadia College, B.M. College of Commerce , St Mira’s College, Marathwada Mitra Mandal’s College

Chase Card Services 1,600 Infosys, Tech Mahindra, Wipro, Sasken, Calsoft,

Cognizant, Tata Elxsi, KPIT, Cummins, Aztecsoft (Disha), Persistent Systems, Zensar Technologies, WNS, Convergys, EXL and Mphasis


MAJOR OCCUPIERS


TIER I MARKET| Voice Based BPOLABOR AVAILABILITY

Pune

TenantApprox. Size

(sq.ft.)Global Talent Track 10,000Softbridge Technologies

10,000

Aircel 15,000Credit Corp 11,000SBI 10,000San Wireless 22,000EasiProcess 50,000Fortify 30,000


The city has a favorable age profile with 67 per cent of the population in the working age

Availability of manpower due to the large graduate population within the city as well as other cities in the state / country make recruitment and ramp-up relatively easy

Social infrastructure and standard of living is good and hence is able to draw expats / senior management

There is high attrition at all levels driven by compensation-based poaching

Poor infrastructure in the city with heavy traffic congestion, poor road network and increasing pollution is drawing talent away from the city

STRENGTHS

WEAKNESSES

Population: 6,200,000 Number of graduates: 85,023 Literacy Rate : 81.67% Population Growth : 1.72%

Indian Institute of Management, Indian Institute of Science, Surana College P.G. Centre, the M. S. Ramaiah College of Arts, Science and Commerce, Dayanand Sagar College, Brindavan College, and the Community Institute of Commerce and Management Studies.

Wipro, Infosys, IBM Satyam, Patni, Mphasis, HTMT, IBM, Siemens, Dell Computers


MAJOR OCCUPIERS


TIER I MARKET| IT and IT R&DLABOR AVAILABILITY

Bangalore

TenantApprox. Size

(sq.ft.)KPIT Cummins 80,000Juniper Networks

70,000

IBM 46,000Sonus Networks

45,000

ACS 40,000Mu Sigma 40,000Pac Soft 25,500Capita 22,000


63 per cent of the population is of working age Enabling environment owing to a proactive State

Government Availability of talent pool due to the large number of colleges in the location and state

Good infrastructure support from the Government: The location has good domestic and international

connectivity

Cost of operations are higher due to high labor costs as attrition rates are high and it is difficult to retain manpower

STRENGTHS

WEAKNESSES

Population: 8,800,000 Number of graduates: 100,000 Literacy Rate : 69% Population Growth : 3.92%

The city is home to three central universities, two deemed universities, and six state universities. Some of the prominent ones are : Osmania University, BITS Pilani, Indian Institute of Technology, International Institute of Information Technology, Jawaharlal Nehru Technological

Satyam, Infosys, Wipro, TCS, Polaris, Infotech, Apollo Health Street, Zavata Inc., Deloitte, Karvy Global Solutions, HSBC, UBS, Genpact, Dell, Nipuna, etc.


MAJOR OCCUPIERS


TIER I MARKET| IT and IT R&DLABOR AVAILABILITY

Hyderabad

TenantApprox. Size

(sq.ft.)Grant Thornton 4,000Consolidated Gulf

20,000

Nextsphere 5,330


The location’s proximity to Delhi makes it a potential alternate centre for establishing IT-BPO centres

The political stability, law and order scenario in the state is relatively better in comparison to other locations

Jaipur being a Tier-2 location, offers some cost advantages in terms of labour and real estate costs

Availability of adequate quality manpower for IT-BPO sector is a key challenge:

Majority of the schools are Hindi medium makes it hard to find good English speaking graduates

International connectivity is a problem as most of the flights are via Delhi

STRENGTHS

WEAKNESSES


LNM Institute of Information Technology, Malviya National Institute of Technology, Rajasthan Sanskrit University, University of Rajasthan

Natural Technologies, Data Infosys, Infosys, Genpact, Truworth Infotech, Cyber Futuristics India

The top graduates from engineering colleges move out of the location to places like Chennai, Delhi, Bangalore, Pune and Hyderabad for jobs

There is some inbound migration because of home coming of Jaipur natives


MAJOR OCCUPIERS

MIGRATION

TIER II MARKET| NORTHLABOR AVAILABILITY

Jaipur


Several of the IT and BPO firms were set-up by local promoters, being familiar with location’s business environment and potential

Lower cost and good catchment area for resources

Inability to get and retain employees as the majority tend to move to metros where opportunities and pay packages are higher

Unavailability of experienced resources and high attrition rate of lateral hires at experienced levels

STRENGTHS

WEAKNESSES


Nirma University of Science & Technology Dr. Babasaheb Ambedkar Open University The Gujarat Vidyapith Center for Environmental Planning and Technology The Indian Institute of Management Ahmedabad

E-lnfochips Ltd., Motif India Infotech, Patni Computer Systems, L&T , Mphasis, Vodafone, Idea Cellular, iCall, Azure, Moksha, Hi-Tech

A large proportion of the graduates migrate to the metros of NCR, Bangalore and Mumbai due to better opportunities and higher pay

The major IT players recruit heavily from campuses in the location

Ex-residents would be amenable to moving back to the location even at lower compensation levels if opportunities become available indicating a potential talent pool that can be drawn to the location


MAJOR OCCUPIERS

MIGRATION

TIER II MARKET| WESTLABOR AVAILABILITY

Ahmedabad


Cost of operations are lower in the location due to lower real state costs

Proximity and good connectivity to Bangalore Availability of manpower due to the large number of

graduates from within the state as well as proximity to Bangalore

Ability to retain qualified talent is a concern as most prefer to have careers in Bangalore

High dependence on Bangalore for connectivity to domestic and international locations

Commercial space with good infrastructure is limited in the city

STRENGTHS

WEAKNESSES

Population: 799,228 Number of graduates: 6,500 Literacy Rate : 82.8% Population Growth : 1.52%

Chamarajendra Technical Institute, University of Mysore, National Institute of Engineering, Central Institute of Indian Languages

Infosys Wipro Larsen & Toubro InfoTech

A large percentage of people migrate to other cities, mainly Bangalore and Chennai in search for better opportunities

The major IT players recruit heavily from campuses in the city


MAJOR OCCUPIERS

MIGRATION

TIER II MARKET| SOUTHLABOR AVAILABILITY

Mysore

Contact Information

For more information, please contact:

Mukesh HemrajaniGlobal Corporate Services – India M 91 9999 6868 [email protected]

Deepak DewaniGlobal Corporate Services – IndiaM 91 9811 5716 [email protected]

Himmat SinghGlobal Corporate Services – India M 91 9999 5533 [email protected]

CB RICHARD ELLIS

Global Corporate Services, India

Documents

India Location Trends Global Corporate Services, India June 17, 2009