How a wannabe hub gets moving
Khozem Merchant from Mumbai
A new information technology services company is registered every three days in Chennai in the state of Tamil Nadu -- a healthy reversal from seven years ago when the city struggled to win investments and IT talent fled to Bangalore. Although Chennai's colleges and infrastructure were admired, "we were not ringing the bell with IT investors", says Vivek Harinarayan, the civil servant who led the city's IT policy.
Chennai's epiphany came with a survey that revealed a yawning gap between "perceptions and reality". The city scored well on some factors, such as energy supply. But Chennai's image as "socially brahminical" was hurting its ability to attract technology investment.
Today, Chennai is one of India's leading IT hubs - an example of how a late-starter can catch up with trail-blazing cities such as Bangalore by fixing "fuzzy" as well as physical obstacles. "My biggest challenge was to change the perception," said Mr Harinarayan. He launched "a reality campaign" in the US, Singapore, Dubai and Malaysia, where many Indians live. Chennai's software exports have shot up from Rs19.17bn (£243m, $425.5m, euro355.8m) in 2001 to Rs120bn in March.
Chennai is not alone in challenging Bangalore, Mumbai and Hyderabad. Aspirant hubs promising development rights, "one-stop" registration and lower costs are on the rise in Pune, an engineering city near Mumbai; the tourist city of Jaipur; the Delhi satellite offshoots of Gurgaon and Noida; and Calcutta.
Rivalry for "anchor" investors is intense. "The prize can be transformational," says R. Venkatraman, a director with KPMG in Mumbai, which advises regions on "hub" policies. He cites Gurgaon, which in a decade has gone from being a backwater of Delhi to a call-centre capital.
Three broad factors influence the contest, Mr Venkatraman says.
First, subtle variations in the supply of educated labour influence hub strategies. For instance, Gurgaon and Jaipur produce lots of graduates in humanities whose communication skills make them ideal recruits for call centres. Genpact, the former unit of General Electric, chose Jaipur for its first call centre in a mid-sized city. By contrast Pune, Chennai and Calcutta produce more and better engineering students and are more likely to attract higher value software development and complex transaction processing.
As important as recruiting large numbers of operations staff is a hub's ability to draw managers. Calcutta's low "lifestyle index" rating makes it a horror for managers. Foreign companies setting up there can see the benefits of a big supply of local labour being eroded as they try, and fail, to persuade managers to relocate to the city. "One American bank has been severely handicapped by this problem," says Mr Venkatraman.
A second factor is the availability of land for IT parks, to offer an alternative to the congestion of Bangalore or Mumbai and provide the ready infrastructure that IT companies demand. Chennai has taken a lead but for Pune and Calcutta, freeing up land for IT has been a slower process, reflecting political opposition.
The attitude of local government -- typified by Calcutta -- is a third factor behind a hub's success. For many years Hyderabad's high-profile, IT-savvy chief minister helped win blue-chip investors even though the city fared less well on criteria such as education. T. Udhayachandran, managing director of the Electronics Corporation of Tamil Nadu, a investment agency, says dynamic leadership "ensures policy continuity, which we need to comfort investors".
Perhaps the strongest force underlying the creation of alternative hubs is the slow pace of upgrading in cities such as Bangalore, where IT chiefs warn that neglect of infrastructure could undermine their competitiveness.
"My sense is that it will take at least three years to fix these cities. That's an eternity in IT. It's quicker and less painful to develop new colonies of technology parks, and let them mushroom into hubs," says Mr Venkatraman.
Exclusive to FE under syndication arrangement