To cut costs and contain attrition, Indian MNCs are moving into tier-2 cities, says a Zinnov study.

Consulting firm Zinnov in its study said that while 96 per cent of MNC R&D companies are located in cities like Bangalore, increasingly they are moving to tier-2 cities such as Ahmedabad, Jaipur, Chandigarh, Coimbatore, Vadodara, Nagpur, Pune and Thiruvananthapuram. Further, the study highlighted that the MNC R&D talent pool in India for 2011 was 204,196.

R&D talent

This R&D talent pool is growing at the rate of 9 per cent every year and is expected to reach 2.5 lakh by 2015. 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.”

Typically, tier-2 cities were a preferred destination for IT and BPO companies which were grappling with commercial real estate and attrition costs. This trend is being seen now with multinationals such as Dell, Nokia, Amazon and others who are looking at tier-2 cities that would be in addition to their existing centres in major cities.

Cost of living in tier-2 cities is 10-25 per cent lower compared to tier-1 cities and provide cost advantage of 15-40 per cent in commercial real estate costs. “Salary costs and other expenses go up in a tier-1 city over a period of time,” said Mr Manohar Joshi, Director–Systems, IonIdea Inc.

Fresh talent

Also, fresh talent pool in tier-2 cities is estimated to form 35 per cent of the Indian R&D workforce going ahead. In the tier-2 cities, work such as testing, level 3 customer support and bug fixing are being undertaken.

These typically tend to be lower level work in terms of profile but which is critical to a company's operations, opine analysts. The study also pointed out that companies are looking at a hub-and-spoke model wherein these R&D centres are closer to their manufacturing business like automotive.

> venkatesh.ganesh@thehindu.co.in

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