Emergence of Tier-2 Cities 
As service providers become increasingly wary of investing in only one city because of challenges of saturation and scale, finding alternative locations has become an increasingly important operational consideration. This is so not only in the context of business preservation but also with regard to expansion, scale and long-term cost management. This makes the identification and accurate profiling of emerging tier-2 cities increasingly relevant.

Not only will a scientific identification of these alternative cities pinpoint location options, but they will also enable operators to better plan for future growth in these areas. In this next wave of outsourcing when IT and BPO services players will look to better utilize the capacities of emerging tier-2 cities, an effort will be made to focus on cities located further away from primary sourcing destinations. These tier-2 cities will be carefully evaluated, and in many instances will be developed by industry and institutional players to become provincial (regional) IT and/or BPO labor hubs. In creating these hubs, the labor resources can be attracted from similar sized or smaller cities in the vicinity of the region.

Beth Lui, the Philippine Country Manager for Accenture, rationalized their expansion to Cebu City, a significantly smaller city yet equally capable labor force as compared to Manila. “Cebu alone is a small province. We will have to draw from the neighboring provinces as well. There is a need to create a hub of talent,” says Lui

About Our Study 
In our research report, we rank top 50 and profile the top 15 emerging global cities for outsourcing. These are the ones that may not be top of mind for most companies; but neverthless are well suited for specific IT and BPO functions (Refer to the list of global cities by functions). As there are some global outsourcing cities that stand as the clear winners, we also rank the top five obvious choices that need no introduction.

Cost matters

A key reason to outsource is to save costs, and most discussions on cost revolve around the wages at outsourcing locations. This can be extremely misleading because it precludes several other operating costs — support staff salaries, cost impact of attrition, training, management costs and corporate overheads, real estate, communications and technology costs, etc.  These costs vary across cities, and can influence a company’s decision to outsource there. For instance, though salaries in Mumbai or Shanghai are comparable to many other outsourcing cities, rental costs for office space in these cities are probably higher than most others.

Methodology 
The Tholons methodology of evaluating the viability of existing and potential outsourcing destinations consists of a host of measurable and pre-determined metrics and variables that impact a location’s services landscape. In this city selection criteria, an exhaustive set of data points add up to a broad set of categories, which ultimately provide an aggregate city score.

The broad categories, each corresponding to a graded weight, are: Scale and quality of workforce, business catalyst, financial, infrastructure, risk environment and quality of life.

One unique point of the city selection criteria is its inclination toward identifying skill-sets and workforce-related metrics. BPO providers and industry stakeholders find greater value in granular data, specific to their industry vertical customers and their respective horizontal processes. A provider, for example, after an acceptable top-of-the-envelope cost has been determined, may be inclined to look at city-specific data points that directly impact their provided services. Thus, a BPO company engaged in FAO would like to identify the number of accounting- and finance-related graduates in a particular city. This type of investigation is a progression from previous years where service providers may have simply looked at the number of graduates and wage rates as determining factors to locating operations.

Avinash Vashistha is the Chairman and CEO of Tholons, a services globalization and investment advisory firm