IT Industry Embraces Tier 2 Cities for Growth and Efficiency

Posted by Written by Archana Rao Reading Time: 3 minutes

In India, hiring activity in tier 2 and tier 3 cities is increasing, particularly in the IT sector. A number of reasons, such as professionals wishing to return/remain in their hometowns and businesses hoping to take advantage of reduced expenses and a larger skill pool, are driving this rise.

The work environment across the world has changed drastically since 2020, leading to an increase in work trends such as work-from-home options. During and after the COVID-19 pandemic, several companies began adopting hybrid and flexible work arrangements.

As more and more Indian businesses start to explore beyond standard workspace arrangements, they are starting to rely less and less on single-location office space. The need for co-working spaces and managed offices has increased as a result of this shift. IT companies are now expanding into smaller cities, in part to tap into talent force and capitalize on cheaper land costs, rents, and wages. 

Companies expanding workforce in smaller cities

India boasts a large labor pool that is maintained by state-level wage limits and central government incentives. As a result, global firms like Tata Consultancy Services, Infosys, Wipro, and Cognizant have expanded their operations outside of major cities.

For instance, India’s IT company, HCLTech, employs over 6,000 people between its two Madurai (Tamil Nadu state) offices. Since the outbreak of the global pandemic, the company has reportedly increased the number of employees in Tier-2 cities, including Vijayawada (Andhra Pradesh state), Lucknow (Uttar Pradesh state), as well as Nagpur (Maharashtra state).

A growing number of businesses, whether big MNCs or small start-ups, across the nation are increasingly putting a strong emphasis on employee wellness and work-life balance. Over the past few years, co-working spaces and managed offices have expanded significantly because of this. 

Companies explore affordable commercial space

Prior to the pandemic period, several IT professionals relocated from smaller areas to the nation’s big IT hubs in search of employment; however, the recent scenario has led to companies finding it easier to hire staff in Tier-2 cities.

Currently, domestic workplace environment is also experiencing a shift due to technological advancements, such as availability of 5G internet and the increase in entrepreneurship. There is also a growing trend toward looking into alternate areas for businesses and workspaces as urban centers become more expensive and crowded. Industry observers claim that the shift to smaller towns aids businesses in lowering expenses and reducing attrition at a time when the US$254 billion Indian IT sector stands vulnerable to the unpredictable world economy.

According to several recent survey findings, in comparison to established IT hubs, rental-commercial spaces are about 50 percent less expensive, and employee salaries range between 25 percent and 30 percent lower. 

Looking beyond urban centers for office establishment

Multinational companies such as Cognizant is reportedly finalizing a facility in Chennai (Tamil Nadu state), with the aim of reducing real estate expenses by US$100 million by 2025. At present, it has an office branch in Bhubaneswar (Odisha state). Similarly, Wipro is also reportedly urging its staff members to move to its offices in smaller areas, while Tech Mahindra is attempting to recruit talent in Tier-2 cities with its “Nxt.Towns” campaign.

According to a report by Reuters, Wipro is incentivizing its staff members who refer others to job openings in Visakhapatnam (Andhra Pradesh state) and Kochi (Kerala state), with twice the standard referral bonus. The company has stated that in order to access talent and expand operations, it has invested in Tier-2 and Tier-3 cities and has opened offices in a number of developing towns, including Ahmedabad (Gujarat state), Bhubaneshwar, and Guwahati (Assam state).

Key takeaways

Experts have observed that India’s IT services sector has struggled to get people back in offices in recent years. This shift coincides with state governments providing reduced stamp duty, land subsidies, power at a discounted rate, and other inducements to attract businesses to smaller cities.

IT professionals are moving to smaller cities due to increased living expenses and growing infrastructure issues in metro areas, but corporations are also driven to these areas by cheaper land costs, lower pay, and easier access to talent.

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