TCS and Infosys venture into smaller towns in India

It may sound strange that a largely urban phenomenon like IT services is finding a lot of attraction in smaller towns. In fact, just last month, TCS and Infosys announced the opening of new centres in Tier-II cities. These are not even the typical top-10 cities and include names like Coimbatore, Guwahati and Nagpur. This is perhaps the first time that TCS and Infosys are going to smaller and mofussil towns. With a greater focus on work from home, the geography factors are starting to matter less compared to the potential of a place.

One thing that IT companies learnt from the pandemic period was that it was possible to set and achieve the stringent standards set by clients even when employees are working from home. In fact, many of these IT company employees went back to their home towns and worked from there and despite the geographical distances, they managed to achieve the much needed targets for the clients. That has given the IT companies the confidence that it is possible to actually follow a dispersed employee model across key places in India.

But, there is a more subtle reason to this move and that is explained in the spike in employee attrition. For the June 2022 quarter, the attrition at TCS touched a high of 19.7%. In the March 2022 quarter, Infosys reported employee attrition of more than 27%. These are unheard of numbers and hint at a upper hand for the employees and better bargaining power. The demand for IT professionals is in excess of supply amidst digital transformation initiatives. That is where this mofussil expansion by IT companies fits into the story.

The problem today is that the total work that was to come to Indian IT industry in 10 years is likely to come in the next 3-4 years. Why is that? Many of the big corporations launched large digital transformation projects amidst the pandemic. Even Russia’s invasion of Ukraine has expanded the work gamut of IT companies. With about 10 years work coming in 4 years, the demand for quality manpower is far in excess of supply and people know it. That is what is driving this surge in attrition and pushing up costs substantially. That trend will stay.

It is amidst this attrition and the need for lower costs that the small town preferences come in. Most of the big IT companies are focussing largely on the intake of freshers in large numbers to bring down the attrition levels. According to a BCG-NASSCOM survey, 70% of IT sector employees prefer hybrid work and 65% of IT sector employees would prefer to move out of metros. Tier-II centres would be in a position to hit two birds with one stone and address the issue of availability and also of costs.

It is not just the employees but even companies find economics in smaller towns. For example, the cost of living for the employees and the cost of operating for the IT company would be a fraction in Hubli as compared to Bengaluru. A similar argument can be applied to most such locations. For instance, infrastructure tends to be 40-50% cheaper as are the land costs, rentals etc. Also, the most liveable cities in most of the rankings shows a clear preference for smaller towns and cities like Ahmadabad, Indore, Nagpur etc.

It is also a much better idea for companies to scale up through smaller towns and cities. Currently, there is a pool of 2.3 million potential employees available to the technology sector in the top 15 emerging cities. Many of the smaller towns have quality educational institutions churning out quality manpower, something that is absolutely essential for the IT industry to survive and thrive. Clearly, the odds are stacked in favour of smaller towns. The shift may not be total but it can handle the cost and attrition issue effectively.