The spiralling real estate costs, capacity constraints, high attrition rates, wage inflation and talent shortage are pushing business process outsourcing (BPO) firms to tier-II and tier-III cities. Thanks to this move, the estimated $9.5 billion (exports and domestic revenue) sector is hopeful about maintaining its cost advantage.

Around 95 per cent of the IT outsourcing activity, both domestic and offshore, is still concentrated in the six tier 1 and tier 2 cities. However, the rising costs and local capacity constraints are driving firms to Tier 2 cities such as Chennai, Hyderabad and Pune and Tier 3 cities such as Jaipur, Chandigarh, Mysore and Ahmedabad, according to India IT Services Executive Report 2007.

WNS, for instance, has 1,200 people in Nashik, a Tier II city. It is looking at expanding its presence in tier II cities. “We are looking at expansion in all the three regions that we are in and will finalise something by the end of this year,” added Eric Selvadurai, CEO WNS enterprise services. However, he believes that growth for WNS will come from the metro cities. The Tier II cities will see more of low-end and less-complex work.

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