Is India on your shortlist of candidate for IT Nearshoring or IT Offshoring? A IT offshore strategy allows you to tap into a huge talentpool of IT professionals. Additionally, tapping into the datapool of a 1.3 bn population country gives your data strategy a competitive edge. However, India is a vast country: Which location on the subcontinent of India is most suitable? Which state? Which city?

If you were looking to set up a manufacturing plant, this site selection would be much more challenging. At the end of July 2012, for example, the power supply for around 600 million people in India collapsed for two days due to overloading of the power grid. This was one of the largest power outages in the world. Power supply is actually a key concern in India, as well as transport infrastructure. In addition, there are the challenges of acquiring land, as well as restrictive labor laws. Not to forget: Red Tape Beauraucracy which makes obtaining the necessary permits a time-consuming exercise.

The good news is: IT industry is only marginally affected by these aforementioned challenges. It’s a “people business”: The labour market in the IT sector is highly mobile, restrictive labour laws play no role here. Powerful back-up systems (diesel generator plus USP devices) require investments, but it’s not a major cost item. Office space providers like Regus provide such UPS (Uninterrupted Power Supply) equipment by default. IT business doesn’t require much of a transport infrastructure, just good accessibility of an airport. And, of course, a stable telecom infrastructure should be available (web conferencing, shared access to GitHub and similar shared infrastructure).

The key criterion for choosing a location for an IT development center is access to the IT talent pool. You can take guidance in decision-making by the following questions:

  • What qualifications must the skilled workers have?
  • What is the expected development of wages in the IT hub?
  • What does the competition for skilled workers look like?
  • How good is the living quality at the location? It’s crucial to retain highly qualified specialists with their families
  • What level of fluctuation can be expected? What measures are necessary to ensure employee loyalty?

Depending on the used technology stack of your company, you should compare this with the main focus of training at local universities or training institutes.

As a rule of thumb, the talent pool in first tier cities such as Bangalore (“IT Capital of India”), Hyderabad or Pune is very large compared to second or third tier cities such as Chennai, Kochin or Thiruvanthapuram. But it is also true that costs are also significantly higher in 1st tier cities, and employee turnover is also significantly higher there.

Different regions or states also have different working cultures. Andra Pradesh or Tamil Nadu, for example, come with a very industrious work ethic. This is also reflected, for example, in the fact that Telugus (Indians from the state of Andra Pradesh) make up a large proportion of the students in the elite universities “Indian Institutes of Technology” (IIT). Access to these institutions is controlled by extremely selective selection tests, which require almost superhuman diligence. I can also confirm from my own experience that Telugus bring a remarkable work ethic to the table. Another indicator: The most successful Indian ethnic groups in the USA are Gujarati (Indians from the state of Gujarat) and Telugus.

And last but not least: pay attention to state subsidy programs. Hyderabad, for example, has established generous programs in recent years to attract IT industry.

Sebastian Zang

The author is a manager in the software industry with international expertise: Authorized officer at one of the large consulting firms - Responsible for setting up an IT development center at the Bangalore offshore location - Director M&A at a software company in Berlin.