The Leader - September/October 2008 - (Page 46) Y ou th IN k th eY’r e h ot, B u t the Y’ re No t: to p -10 o v e rrate D I Nv e s tme Nt De s tI NatI o Ns F IG. 1 our for mulae in order to determine which cities were the most investmentsaturated, we used the weighted formulae shown below. the formulae are weighted to account for the varying degree of importance of different data points in the two sectors we considered. the lower the final score, the more saturated the sector in that particular city. IT/KPO/BPO {.80 (number of jobs created rank) + .20 (total investment rank)} = saturation score Manufacturing {.80 (number of new projects rank) + .20 (total investment rank) = saturation score Wages for laborers as well as managers rise, attrition rates spike, and a shortage of suitable talent develops. In many cases, initially sufficient infrastructure is incapable of supporting the strains that inevitably accompany increased investment and the location’s attractive features seem to have evaporated altogether. It/kpo/Bpo proxies for overall investment in the manufacturing sector. This methodology allowed us to determine a list of the top ten cities that you think are hot, but – we would argue – are not (see Figure 1). These hotspots used to offer the best combinations of government incentives packages and low-wage labor that contributed to the unprecedented economic boom seen in low cost countries (LCCs) over the past quarter century. The problem with these locales is that they are now likely to be too hot; by the time The Wall Street Journal has clued every CEO into the next up-andcoming boardroom favorite, the early market entrants are already there reaping the benefits. As investment floods these locations, companies are forced to compete for the top talent at all levels. The top ten “hot-but-not” locations for IT/KPO/BPO investments, all of which show these characteristic strains are (see Figure 2): Bangalore, Hyderabad, Chennai, Manila, Pune, Mumbai, Bucharest, Budapest, New Delhi, and Shanghai. Ranked second for IT/KPO/BPO investment, Hyderabad has been an outsourcing buzzword for almost a decade. From 2003 to 2007, the IT/ KPO/BPO industry there attracted more than US$450 million in investment and generated 25,000 new jobs; 60 percent of the city’s economic growth in 2007 came from this sector alone. Business Line reports the average rate of wage inflation has been 14 to 18 percent, depending on the company and the area of services, between 2004 and 2007 (the up-and-coming tier three city of Chandigarh experienced attrition rates of just 5 percent), and in the BPO sub-sector the town’s attrition rates reached 50 to 60 percent, according to Harish Battiprolu of Kenexa Technologies. Hyderabad-based Brigade appointed a Chief Fun Officer (a whole new type of CFO) to help keep employee motivation high and stress levels low in an effort to reduce high levels of turnover. In contrast to some other not-so-hot cities, Hyderabad continues to increase its incentives programs; at the end of 2007, there were over 28 Special Economic Zones (SEZs) in Hyderabad’s region. However, many infrastructure expansion plans – including a new international airport, outer ring road to connect new developments and a metro rail network are still in the early idea stage and are unlikely to keep pace with demand. Third-ranked Chennai absorbed a steady stream of FDI from 2003 to 2007; during this period, it ranked fifth in terms of total capital investment and 3rd in terms of jobs created worldwide. In 2006 and 2007, Chennai was the only location to attract more than US$100 million per year. Though the city’s IT/BPO/KPO sector is just starting to take off—it accounted for 40 percent of Chennai’s total growth in 2007, compared to 55 percent in Bangalore and 60 percent in Hyderabad — attrition rates are starting to climb. From an average of 13 percent last year, they have already reached 15 percent in the first quarter of 2008 and are only expected to continue to increase as demand for labor continues to rise. Tata Consultancy Services, Infosys and Wipro, India’s top three IT companies, expect to have 73,000 workers in Chennai by 2010, while Accenture, Cognizant, CSC, EDS, HCL, IBM, Oracle, Sun Microsystems and Satyam already have a presence here. Furthermore, Chennai is home to one of the World Bank’s back offices and Standard Chartered’s local office of 5,700 staff; very soon, the city will host Syntel’s US$50 million software development center as well. 2 0 0 8 th e le aDe r 46 septemBer / octoBer
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