MNCs have aggressively started to look at expanding in Tier-2 locations to setup their secondary centers: Zinnov Study

Top Quote Bangalore continues to be the leading R&D hub of India but Pune is the leader in Core Engineering vertical due to strong manufacturing ecosystem and presence of indigenous companies & MNCs. Cities like Coimbatore and Ahmedabad are coming up in core engineering vertical. Indian Start-ups have started to mushroom in Tier 2 cities. End Quote
  • (1888PressRelease) May 10, 2012 - Zinnov, a leading Globalization and Market Expansion advisory firm, today released a first-of-its-kind study to evaluate the growing popularity and suitability of emerging locations in India titled, "Location Analysis: Emerging cities in India". The released study extensively covers and profiles 12 emerging Tier-2 locations in India for assessment based on an exhaustive list of suitability and cost parameters. The objective of the released study is to help MNCs identify optimal locations in India to setup their R&D centers.

    Stating numbers, the study highlighted that the MNC R&D Talent pool in India for 2011 stood at ~ 204,196. It also added that talent base is indeed growing at the rate of nearly 9 percent every year and is expected to reach ~250,000 by 2015. There are 93 MNC R&D companies that have operations in 2 cities in India.

    Commenting about the study, Mr. Chandramouli C.S, Senior Director-Globalization Advisory, Zinnov, said, "MNCs started expanding to Tier-2 cities due to advantages like higher catchment area, lower attrition, cost arbitrage, etc. Tier-2 cities, which were initially looked upon for IT/BPO services, now are serious contenders for setting up R&D centers due to the distinctive advantages they provide. Additionally, companies also started looking at these Tier-2 locations for creating a hub-&-spoke model especially in automotive sector."

    "However, we also have to make note that these Tier-2 locations are still in nascent stage in terms of establishment as IT hubs and constitute around 2% of MNC R&D talent pool in India at the moment", he added.

    96 percent of MNC R&D centers in India are still concentrated in Tier-1 cities, while Tier-2 locations currently constitute around 4 percent of the pie. Pune, backed by strong service provider and academia ecosystem, has emerged as a preferred choice of MNCs in software vertical. The study also reads that all the four Tier-1 cities (Hyderabad, Chennai, Pune and NCR) are gaining good traction among MNCs in the Semiconductor vertical. Also, Chennai and Pune are the two largest automotive hub of India, accounting for just less than half of automotive MNC R&D centers.

    The Zinnov study brought to light the fact that MNCs are looking to expand to Tier-2 locations to setup their secondary centers due to some unique advantages provided by these cities:

    - Cost of living in Tier-2 cities in India is 10-25% lower compared to Tier-1 cities. They provide cost advantage of 15-40% in Commercial Real Estate Cost.
    - These emerging locations are a major source of fresh talent pool in the country. A significant portion of installed talent pool in Tier-1 cities actually hails from Tier-2 locations.
    - Attrition in Tier-2 cities is much lower than Tier-1 cities due to lack of competition and unwillingness of people to migrate to Tier-1 cities
    - Tier-2 cities have a good and growing service provider ecosystem. Many Tier-2 cities are home to many prominent universities and research labs.

    It also reads that while out of the ~2100 product companies started in India in last 2 decades, 55% are based in Bangalore and NCR regions, off late tier-2 cities have started gaining traction. Though the number of start-ups originating from Tier-2 cities is minimal, many start-ups originating out of Tier-1 locations are expanding to the nearest Tier-2 cities to lower the cost of operations. The study read that in the last 5 years, Tier-2 cities have witnessed more than 40 such start-ups.

    It additionally sighted that with new IITs and NITs coming up in Tier-2 and Tier-3 cities, these locations are poised for a major growth in academia infrastructure. Fast growing manufacturing hubs like Ahmedabad have good potential to attract MNCs in to set up their R&D centers in the long run. Many state IT associations in the country are making proactive efforts to establish their states as major IT hubs.

    Last but not the least, the study states that Tier-2 cities provide a huge cost advantage over tier-1 cities but costs in these cities have shown an exponential surge in last couple of years. Commercial Real Estate prices in Tier-2 cities are 15-20% lower than Tier-1 on an average. However, in the last couple of years, Tier-2 cities have witnessed a major surge in Commercial Estate costs and Cost of Living due to infrastructure development and increased traction. Commercial Real Estate Prices have risen sharply in Nagpur after the offset of Multi-modal International Cargo Hub and Airport (MIHAN), which is the biggest economical development project in India in terms of investments.

    Report is available for download here:

    About Zinnov:
    Founded in 2002, Zinnov - meaning Zeal in Innovation - is a leading Globalization and Market Expansion Advisory firm, with specialization in areas like Global Sourcing, Emerging Markets Expansion, Human Capital Optimization, Small & Medium Businesses, Innovation, Cloud Computing and Enterprise Mobility. Zinnov provides advice to global leaders in business and technology and works collectively with them to tackle prevailing organizational challenges by analyzing changing dynamics, improving performance, and building institutional capability. The services delivered to its clients through advanced reasoning and analytical techniques, provides solutions that help in integrating organizational vision, business definition and processes.

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