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Why Offshoring to Tier 2 Cities in India is Fruitful

Metro cities like Delhi, Mumbai, Chennai and Bangalore are famous for doing any kind of business and why not, after all it is a dream of every entrepreneur to establish his or her business in these cities. But, have you ever thought about the pros and cons of doing business in these cities? Today, I would like to tell you why Offshoring to Tier 2 Cities is more beneficial than to big cities.

 

Our company, Evon Technologies, is situated in a small city named Dehradun- a city which is known for its pleasant climate and beautiful surroundings. A few years back nobody had thought offshoring business can grow here with such a pace, but today, our city is famous for the very same reason. After all, we have so many benefits here than in metro cities. Yes, you heard me right, the benefits that we don't get in metro cities. 

 

Startled by my statement? Let me tell you friends, what is the difference between offshoring to big cities and to Tier 2 Cities. 

 

Evaluating benefits of Offshoring to Tier 2 Cities & Limitations of Offshoring to Big Cities:

 

1. Offshoring to Tier 2 city saves money:

       To start any company, one would require a good amount of Capital. Investing money in the Tier 2 Cities is the best idea because there are various companies who started their business by investing a smaller amount of capital and the profit they earned in these few years has helped them grow many-folds.

 

It may sound an unconventional idea though, yet it always works. Invest Less and Get More Returns, will help you recover from the losses that may have occurred in past. Our company is one of the biggest examples for this. 

 

Initially Evon Technologies had started its business with a small setup, but gradually, with the growth of the company, it now owns premises in the IT park, which is known as the biggest IT hub of Dehradun. The company has not only grown financially strong but also maintained its reputation and trust among the clients. 

 

2. Low infrastructure cost:

       Infrastructure is one common thing which is required by any firm. To setup any business, you need a sound backup of infrastructure. Hence, to start any business, one should need to setup a good infrastructure unit. In Tier 2 Cities, the cost of infrastructure is low. Initially, one can easily setup ones business in one or two rooms and later, when the business has kicked off, the entrepreneurs can think big. 

 

3. Attrition chances are less:

       Nowadays, attrition is a big menace. Let me give you an example that my sales person shared with me. 

 

He was coordinating with a US based client who is in offshoring for more than 20 years of experience in onsite-offshore development model.

 

The client was working with an offshore team in Delhi from last 5 years. To meet the offshore team he has to travel every six months. In his every visit he noticed that 60% of the people are new faces. Also, in the time period of 5 years there was not even a single person available in three consecutive visits. Hence, even being the biggest client of the company, they were not able to retain the team members. The client was facing really big problem because of this and started looking for some good options in Tier 2 Cities and that's how we met them.

 

In Tier 2 Cities like Dehradun the attrition rate is very low, we hire people belonging to Dehradun and looking for long-term association. This kind of approach helps to hold the team for the long term. I have biggest examples sitting in our company, its been 9 years that we have started and we have people here, who are still associated with us since the beginning and they are happy and satisfied here. 

 

4. Tax Free:

       Various Tier 2 Cities are considered as a tax free zone or, if not then some of the area is called as a Tax free zone. 

 

SIDCUL, a Government department provides tax incentives to various companies that establish their plants on its industrial estate. As per SIDCUL policies, 100% tax exemption is given for first five years and approximately 30% for another 5 years. In Tier 2 Cities government provides these kind of facilities to both small and big companies. Besides, interest rates are also lower for the companies who establish business here. 

 

On the other hand, in big cities such kind of facilities are not provided to any company. A company has to pay tax and higher rate of interest to the government. No matter whether the business is running smoothly or not, the company has to pay complete tax and interest. 

 

5. Low cost of living:

       Cost of living in Tier 2 Cities is very low. Despite being small, these cities have everything like malls, hotels; we also have good supply of electricity, better connectivity of roads and well planned industrial areas. These are the key points that an entrepreneur looks before investing. One of the most favorable things here is that employees are local residents and thus, they don't have to pay any extra expenses like renting a house. Apart from this, people who are from other cities pay lesser rents as compared to metro cities. 

 

6. Less Commute and Higher Productivity:

       High productivity and less commuting time are interrelated to each other. In big city companies productivity is considered as a major issue. It is not because people are not working properly in these cities, but because people are surrounded with various problems that even spending 13-15 hours outside their homes they are hardly able to make out 6 hours of the productive work.

 

Commercial areas are situated in the center of the cities, whereas, homes are in the peripheral areas. Hence, it takes approximately 2-3 hours of traveling due to the heavy traffic. Apart from this, one has to look for various things like social activities, household duties and most importantly people are living without any family support and thus, they have to manage everything on their own. It is true India has become an excellent offshoring option due to cost benefit, but since last 20 years the cost of living has gone very high in big cities due to which these cities are losing cost benefit factor, combined with less focus at work. These were some instances due to which the productivity to cost ratio is going down in big cities.

 

But in small cities the work place is not more than 15 to 20 minutes away from homes. Most of the people are living with their family and thus have great support system. They are less stressed out and stay in peace. They can spend their 9-10 productive hours in office very easily without any stress, both physically and mentally. Besides, they can spend quality time with their family. 

 

The above analysis indicates that people working in Tier 2 Cities will give more productive hours than in metro cities. 

 

Above mentioned points no doubt explain the entire concept, Why Offshoring to Tier 2 Cities in India is Fruitful; but there is a saying that fits perfect here “Each Coin has Two Sides”. Likewise, with so many benefits, small cities have one small disadvantage as well, i.e., it is hard to get Plug and Play offices in Tier 2 Cities. 

 

In big cities its easy to get the offices with perfect interiors and infrastructure that suits the environment, whereas, in Tier 2 Cities it is hard to get such kind of offices. One has to establish the entire setup if one wants to run any enterprise. This is the only disadvantage we see in the Tier 2 Cities. 

 

As per my opinion, people who think doing business in Tier 2 Cities is the worst idea ever, I believe above mentioned points are enough to prove them wrong. Through this blog, I am not criticizing Offshoring to big cities, but I just want to convey a message, Offshoring to small cities can also prove a boon if you are a dedicated company like us. 

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Evon is a software development consulting company based in India. We are a 250+ people company. We primarily service clients who want to either completely outsource a new idea or are looking to build an offshore team.

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