HOT CITIES : Bangalore

Don’t look in Bangalore for boarded-up offices and laid-off chief executive officers of technology companies working as gas station attendants. The city has done relatively well for itself during the downturn, as multinational companies looking for low-cost, skilled manpower increased their outsourcing to Bangalore or expanded their own research and development facilities in the city.

Even as they reduced staff worldwide, a large number of multinational technology companies like Intel Corp. and Oracle Corp. announced plans last year to increase staff at their existing development centres in the city.

“We have added over 500 people in Texas Instruments India over the last three to four years, many of it during the best days of the economy, and many during the slowdown phase of the economy,” said Biswadip Mitra, managing director of Texas Instruments India Pvt Ltd., the Bangalore integrated circuit (IC) design and software development subsidiary of Dallas-based semiconductor maker, Texas Instruments Inc.

Some of the local software services companies saw annual revenue growth tapering to about 10 per cent to 30 per cent from over 80 per cent before the slowdown, as customers in key markets in the U.S. and Europe slashed IT budgets, but it was still growth even as some of their counterparts in the U.S. were filing for bankruptcy.

“My estimate is that less than 5 per cent of the total software developers employed in the city were laid off, and most of the layoffs came from the big companies,” said Poornima Shenoy, regional director for Bangalore of the National Association of Software and Service Companies (NASSCOM) in Delhi. “Many companies have started hiring again.”

Revenue growth at Infosys Technologies Ltd. in Bangalore, one of the country’s larger software services companies, dipped to 32 per cent in the fiscal year to March 31, 2002, compared to 100 per cent growth in the previous year. The company has forecast that revenue will grow by about 36 per cent in the year to March 31, 2003.

The annual doubling of revenue enjoyed by some software services companies may be a thing of the past, with steadier business models taking over, according to Shenoy.

To boost revenues, software services companies last year got into offering new services such as business consulting and business process outsourcing (BPO) services to their multinational clients.

“Companies worldwide are going through a slowdown, and looking for ways to get more efficient and reduce the cost of doing business, and this is definitely helping the Indian BPO and call centre industry,” said Prakash Gurbaxani, chief executive officer (CEO) of Mumbai-based BPO company TransWorks Information Services Pvt Ltd.

“The BPO and call centre business in India is still for the most part confined to metropolitan cities, and Bangalore is clearly a very attractive destination for several reasons.” TransWorks’ second BPO centre came up in Bangalore late last year.

On the downside, the softness in the global technology markets meant that a number of smaller Bangalore technology companies, some of them focused on niche areas, saw reduced revenue growth rates, and in some cases, their revenues and profits dipped. Many of them are now beginning to see the light at the end of the tunnel.

Bangalore-based Sasken Communication Technologies Ltd., which focuses on licensing embedded telecom software, saw revenue drop by around a quarter last year, and had to focus its resources on a few projects which would offer a quick return, according to Rajiv Mody, the company’s chairman and managing director.

Mody expects a return to revenue growth and profits in the year to March 31, 2003, based on growth in wireless communication.

“You could say that the recession has helped us, as we were able to trim the fat that we had accumulated,” said Mody.

Although Bangalore has weathered the recession with very few technology companies closing shop, this was often achieved by companies quickly restructuring their business strategies. Tejas Networks India Ltd. was set up in Bangalore in 2000 with Chelmsford, Massachusetts-based Sycamore Networks Inc. as a key investor. Tejas initially focused on developing optical networking products to fit into Sycamore’s optical networking product line, but when Sycamore ran into problems, Tejas switched to making products for SDH (Synchronous Digital Hierarchy) networks.

Other product companies had to scale down their expansion plans. Vismaya Technologies Pvt Ltd., a Bangalore-based start-up vendor of CRM (customer relationship management) products, postponed plans to set up service offices in South East Asia and the Middle East, as the company’s revenues fell short of expectations because of longer selling cycles.

Although other Indian cities like Hyderabad and Noida near Delhi have significant pools of low cost, skilled engineering manpower, Bangalore is still the favourite with most multinationals. “At this stage we have built enough infrastructure in Bangalore to take care of our near term business plan,” said Mitra. “We do not have plans of opening centres in other cities in India.”

The city’s manpower has also become cheaper, and easier to retain. “Even in 2001, the average salary bill was growing at a whopping 28 per cent per year, and you were still not sure the people would stay with you,” Mody said. “Companies are now attaching a premium to employees who have stuck on to their companies, and are not keen on hiring job-hoppers.”