INFORMATION TECHNOLOGY LOCATION CHOICES – IMPLICATIONS

IT INDUSTRY - SALIENT FEATURES Highest Relative Share in National GDP Largest Private Sector Employer Share in Total Exports Women in Workforce Share in Outsourcing Market 8.1% 3.1 million 38% > 1 Million 55% 85-90% of services are sourced from Bengaluru, Pune, Delhi-NCR, Mumbai, Hyderabad and Chennai. 95% of STPI exports are led by units based out Karnataka, Maharashtra, Andhra Pradesh, Tamil Nadu, Haryana and Uttar Pradesh Source: NASSCOM

What about Startups? LocationNo of Startups Bangalore617 New Delhi504 Mumbai309 Hyderabad207 Pune136 Kolkata41 Chandigarh30 Kochi26 Rest of India640 Total2510 Source: India Startup Landscape Source: Zinnov product startup landscape in India 51% of product companies are based out Bengaluru and NCR 72% of all startups are based in major cities

Role of Agglomerations Labour Pooling / Resource Availability Availability and reduced cost of intermediate inputs Availability of specialized services Availability of quality physical infrastructure Knowledge and technology spillovers Role of Competition Market Demand

IT Policies –Comparative Assessment KarnatakaKerala Land provided at 1 acre per 1000 jobs (no subsidy for Land cost) Fiscal Incentive of 30% of Fixed capital investment subject to Rs 15 lakhs limit Rs per employment createdFiscal Incentives to all firms located outside SEZ Exemption of Karnataka Industrial Employment Rules / Stamp duty Exemption of stamp duty IT Industry treated on par with Public utilities with regard to general strikes and bandhs Incentives for Green Buildings Reimbursement of PF at Rs 2000 per month per employment created for 2 years Startup companies would get space at Rs 5-15 per sq.ftNo O&M charges levied for start ups. Rs 5 per sq.ft / 25% of actual rent paid Investment subsidy of 20% of capital expenditure for things other than land and buildings. Trainings given at Rs 25,000 per employee for 3 years Performance linked grant of 5% of turnover or Rs 10 lakhs whichever is lower. Further, the growth should be 10% Single Window Clearance Concessional Power Tariff – Industrial Power Tariff instead of Commercial Power Tariff Concessional Power Tariff as HT1 or LT-IV tariff Policy Equivalence?

Locational Choices – Comparative Assessment Emerging DestinationsLeading Destinations Employee Growth – 2.5XEmployee Growth – 1.4x Student Enrolment (20%-80%) increase Student Enrolement – 23% Attrition (4%-5%)Attrition (22%-25%) Average Rental Values is per sq.ft per month Average Rental Values is Rs per sq.ft per month Improvement in Air connectivity among emerging destinations, Rise in Hospitals and Increased presence of Malls Overall Cost advantage of 20%-25% Source: Emerging Delivery Locations in India: The Rising Tide (NASSCOM) Emerging Destinations: Ahmedabad, Bhubaneswar, Chandigarh, Coimbatore, Indore, Jaipur, Kochi, Kolkata, Trivandrum and Visakhapatnam Leading Destinations: Bengaluru, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune Location Equivalence? Talent Equivalence? Physical Infrastructure Equivalence? Social Infrastructure Equivalence?

Role of Agglomerations Labour Pooling / Resource Availability Availability and reduced cost of intermediate inputs Availability of specialized services Availability of quality physical infrastructure Knowledge and technology spillovers Role of Competition Market Demand

FINDINGS FROM OUR STUDY Firms in Bangalore provide high valued services. They specialize and do not need any signal (such as certification on quality). Have Higher Productivity Firms which are in both Bangalore and other branches are very diversified large firms. Their productivity is higher because of the portfolio approach Certification No. of Regions Exported No. of Foreign Branches No. of Horizontals % of High Value Services Presence in Bangalore Indian Branches Export Intensity Revenue Per Employee Strategic Groups of Born Globals: A study of Indian IT Firms Rajesh S Upadhyayula (IIMK), Prof D Karthik (IIMA) and Prof Rakesh Basant (IIMA)

FINDINGS FROM OUR STUDY Low FIRM Density in its current location Firm capability-city specialization mis- match Ethnicity mis-match Multi-cluster Presence Why do Firms Locate across Multiple Clusters? Cluster Density, Capabilities and Ethnic Ties Authors: Prof Rajesh S Upadhyayula (IIMK), Prof D Karthik (IIMA) and Prof Amit Karna (IIMA) People Intensive and Creative Capabilities People Intensive and Creative Capabilities: Engineering Services, Animation, Analytics, Embedded Applications Ethnic networks/social networks helps firms in deriving better value through lower costs Firms present in smaller cities move to bigger cities – Knowledge High valued sticky capabilities make firms move in search of those capabilities

IMPLICATIONS - ENTREPRENEUR Leading Destinations (Bangalore) Leading and Emerging Destinations (Bangalore and Kochi) Emerging Destinations (Visakhapatnam) Emerging Destinations and Leading Destinations (Gurgaon and Chandigarh) Low Value Added Services High Value Added Services Routine Capabilities Creative Capabilities

IMPLICATIONS – POLICY MAKERS What are the knowledge bases that the location is good at? Can we dovetail IT and these knowledge bases for an ecosystem Don’t ever compete with Leader Locations (on their comparative advantage) Create your own comparative advantage Incentivize softer aspects more than harder aspects (Knowledge/social infrastructure /talent/diversity are inter- twined) Skill development Trainings Networking Attract diverse communities to your locations Actively incentivize local firms to hire national talent

THANK YOU For additional information on this presentation, please to