Could it be finally time for tier 2 cities to shine as a tech hotbed? Probably, given the focus of state governments and IT companies on tier-2 cities .
In the past few years, IT firms have stepped up investing in tier-2 cities across India.
Take for instance HCL Tech. The company put up a strategy in place a couple of years ago, with focus on expanding its tier-2 cities. According to a Business Insider report, it announced an investment of Rs 6,600 crore to expand in tier-2 cities in India.
Majority of the investment, a report said, went into the Madurai campus that went operational in 2016. It launched the Lucknow campus later that year and has expanded to towns such as Nagpur, Lucknow and Vijayawada.
HCL Tech is not the only company that is following this strategy though. Most IT firms such as TCS, Cognizant and Infosys have stepped up their presence in tier-II cities such as Kochi and Coimbatore.
This comes on the back of several factors. For one, cost of talent and office spaces are low compared to primary locations such as Chennai, Bengaluru or Mumbai.
A report by consulting firm Neo Group states that in addition to taking advantage of cost benefits, macro-economic risk is also lower in smaller cities compared to Bengaluru or Chennai. The tier-2 cities also boast of reputed educational institutions and research labs.
In fact, it also to some extent solves attrition woes as many quit jobs to be closer to home.
This is helped by the government support as well. To attract more investments in tier II towns, some State governments such as Karnataka is coming up with a new IT policy. Speaking to Moneycontrol recently, SV Ramana Reddy, Additional Chief Secretary, IT, Government of Karnataka, said that the IT policy will focus on getting more IT players to invest in tier 2 and tier 3 towns of Karnataka apart from Bengaluru, which is termed Silicon Valley of India.
Reddy said that the new policy, which is expected to be launched by November, will address issues related to talent availability and other infrastructure woes.
This is important if the government wants investment in the tier 2 towns to go up.
Though tier-2 towns offer quality talent, the Neo Group report pointed out that the talent pool is small and scaling up could be a challenge. The report further added that tier 2 locations service large provide specific services and that might be a problem for IT outsourcing firms.
Another issue is the infrastructure availability. Though real estate might not be as expensive as in primary locations, availability of office spaces could be a challenge.