IBM, Oracle, HP, Lenovo heed the small-town call

With big cities bursting at the seams, multinational technology companies are winging their way to smaller towns.

Good infrastructure, low cost of living, combined with their proximity to big cities, is making Tier II towns such as Cuttack, Mysore, Vijayawada, Nashik, Coimbatore and Indore the newest investment destinations for the IBMs and Oracles of the world.
Big Blue last week opened a new beachhead in Indore, one of its 15 across the country as part of ongoing investments in India.
By 2013, IBM wants to establish a footprint in over 40 cities and offer a whole range of hardware, software, services to clients, mainly those belonging to the category of small and medium businesses.

Similarly, Dell has targeted 22 cities to scale up its exposure towards small and medium businesses. The company is planning to sell hardware, software and offer its IT services through its centres. In fact, others like HP, Lenovo, and Oracle are not far behind either.

At present, the work done at such outposts are basic - such as medical transcriptions, accounting and general back-office stuff - from the small towns, said K Lakshmikanth, CEO and co-founder, HeadHunters India, a Bangalore based executive search firm.
“Work related to research & development is concentrated in the metros where the companies can get highly qualified and experienced professionals,” said Lakshmikanth.

Generally, he said, the big guns start small centres by employing 100-120 people and later ramp it to 500-700 employees.
A key factor driving interest is the focus on small and medium enterprises. Experts said as these small businesses bloom first - mostly — in smaller towns, they scout for technology support, making them perfect clients for the multinationals.

Various estimates say such small and medium enterprises account for $257 billion or 59% of the IT opportunities in India in 2011.

“We see huge potential in smaller cities as more and more small and medium enterprise clients are looking at IT as key enabler that helps provide a solid platform for businesses to grow,” said Nipun Mehrotra, vice president, general business, Geo Expansion IBM India/South Asia.

Kapil Sood, vice president, systems, Oracle India, said the large number of SMEs in India are contributing to the global supply chain in diverse areas, be it manufacturing or IT services.
“As they work with global customers there is a compelling requirement for them to invest in technology that will support their business growth and also performance,” said Sood. Then there are other factors like metros reaching saturation point. “Big cities no longer have the advantages they enjoyed once. They have become congested, hence there are lesser growth opportunities available now,” said P Thiruvengadam, leader human capital advisory services, Deloitte, adding that improved communication channels and low manpower cost are some other reasons for companies to focus on these tier II towns.

“There is huge competition in places like Mumbai and Bangalore, which in turn is driving up salary cost and attrition. Hence, for companies the situation is better if they can expand themselves in smaller cities,” said Milan Sheth, partner, technology practice, Ernst & Young.

He said even the manpower cost works out to be 30-50% cheaper when compared with the metros. Moreover the real estate costs and rentals are also much lower in smaller towns, said HeadHunters’ Lakshmikanth.

Experts say like Mysore, Vijayawada, Coimbatore, places in the north like Chandigarh, Nashik, Jaipur, Nagpur etc are also gaining in significant popularity among the tech players.

The reasons are the same, as the north till now was relatively untapped, and so there are vast opportunities to be explored.
“Though the concentration of tech companies in the south is greater than the north, things are changing fast,” said Thiruvengadam.