Promoting Kozhikode as an IT Destination - A Strategic Dilemma

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					Promoting Kozhikode as an IT Destination
                  - A Strategic Dilemma


                           Kumar Nishant Raman
                    Post Graduate Student (PGP II)
                                  IIM Ahmedabad
             Phone: 91-79-26326089, 91-9979229250
                  Address: Dorm – 20, Room – 39,
                     Vastrapur, Ahmedabad-380015

                                Shachi Wadhawan
                    Post Graduate Student (PGP II)
                                  IIM Ahmedabad
             Phone: 91-79-26326215, 91-9898704886
                   Address: Dorm – 2, Room – 15,
                     Vastrapur, Ahmedabad-380015

                            Team Name: I-Tonic
                Promoting Kozhikode as an IT Destination - A Strategic Dilemma

1. Introduction

   The Indian IT-enabled services export industry is growing at full throttle. By the year 2012, it is
   estimated to employ close to 3.2 million professionals, with revenue generation of $119 billion1.
   Despite the bright outlook, competition from emerging low-cost off-shoring locations, like
   countries in the Eastern Europe, Asia Pacific and the ever-growing English-speaking populace of
   China, has increased the challenge for India. There is tremendous pressure on the country to make
   itself increasingly viable as a preferred off-shoring destination.

   So far, the IT industry has been expanding around a few nodes across the country and the most
   important lesson that it has learnt is the vitality of development infrastructure and extension across
   both domains as well as technology. There are a few strategic decisions that need to be made to
   sustain this growth. The government is encouraging extension to Tier-II cities. The prime benefits
   would be 1) Decongestion of Tier-I locations 2) Exploiting the available potential at other
   locations 3) Economic development.

2. Requirements of IT companies

   Consultations with various IT professionals and study of educational resources have helped us
   identify a set of requirements which are extremely essential for setting up of IT & ITES
   infrastructure. A brief discussion follows:

   2.1. Natural Factors – Sheer presence (or absence) of certain natural factors can make it feasible,
       or otherwise, to develop a location as an IT hub. Good weather, low variations in weather
       conditions, ample supply of natural sources of water, low level of pollution, low recurrence of
       diseases and natural calamities are some of the basic requirements that can not be overlooked.

       Moreover, easy accessibility to other places, easier commutation, and inherent transaction cost
       advantages, or proximity to demand or supply centres (companies & work force, respectively
       in this case), is a big plus and would make operations of organizations competitive, especially
       in the Indian context where the Indian subsidiaries are treated as cost centres.
2.2. Infrastructure – Due to heavy dependence on work force, the basic infrastructural support
    requirements of IT organizations includes requirements that directly affect the operations of
    the company as well as the ones concerning their employees.

          IT Infrastructure: Any city which boasts of an existing network of IT and already has
           software companies running would surely lead to a trigger effect and attract other
           companies. An existing IT infrastructure and network of companies ensures that there is
           a flow of work and workforce towards the location, thereby making life easy for the
           late entrant, especially smaller concerns that have constrained resources.
          Civic Infrastructure: The companies would look for locations where civic amenities
           like, healthcare facilities, markets, electricity, housing, water supply, et al, are
           available. At the same time, in the case of organizations planning to subsequently
           expand their operations, these requirements would be equally important.
          Transport: Accessibility of the place from outside through rail, air and water is
           necessary as it facilitates business transactions and movement of work force.
          Security: The location should ideally be free from threats of natural calamities and
           political instability. A disaster management system would further boost the confidence
           of the organizations.

2.3. Human Resources – Due to high dependence on manpower, all organizations look for
    availability of quality work-force for company operations and support services at reasonable
    rates. The firms would expect basic and skilled training and education, connectivity, etc. that
    ensure long term availability of workforce. They look for the following characteristics in the

          Level of education and cost of hiring
          Ability to communicate in English and other foreign languages
          Conformance with rules and regulations
          Factors related to the social fabric like acceptance to working away from home, change
           in life style, etc.
          Acceptance of the local residents of settlers from outside the region and their attitude
           towards new companies, sharing of civic resource among more people, modernization,
           etc are important factors
   2.4. Government Support – A stable socio-political environment goes a long way in instilling
       confidence in the organizations. Some ways in which it may show positive influence are:

              Government policies remaining more or less consistent even upon a change in the entity
               at the helm.
              Low (or no) violence and peaceful political scenario
              Companies would expect the local government to extend a supporting hand to
               development of the IT infrastructure.
              Tax incentives and financial support to the companies
              Statutes to help open SEZs and providing them with regulations that are more in line
               with the needs are again something the companies do look for
              Fast dispute resolution systems, fast-track single-window clearances and quick query or
               problem redressal.
              Improving the quality of workforce, as well as ensuring sustained availability of the
               same in the long run. New professional and non-professional educational and training
               institutions would have to be started, and the quality and standard of the existing ones
               would have to be improved

3. Present status of Kozhikode and its potential as an IT Destination

   Tier-II destinations like Jaipur, Cochin, Bhubhaneshwar, Vishakhapatnam, Chandigarh, etc. are
   emerging as investor friendly IT hubs across the country. With the setting up of Technopark and
   Infopark at Cochin and Trivandrum respectively, offloading Bangalore and Chennai and with
   forums like KINFRA and KSIDC, enabling setting up of industry, the state has proved to be
   investor friendly. However, at a national level, there is still a lot to catch up with (Exhibit 1).

   Be it the traditional sector of agriculture, the industrial sector or provision of basic services, it is
   the ease of information dissemination that would be the main driver of the economy. In an
   educated and aware society like Kerela, there is both a domestic need for sophisticated services
   such as e-governance, education, e-health, e-commerce, multimedia and other I.T enabled services
   and also an ability to cater to similar international needs (Exhibit 2). After Cochin and Trivandrum,
   Kozhikode is the third main location in Kerala having the potential to be a favoured IT destination.
3.1. SWOT Analysis of Kozhikode –

               IT Infrastructure                          Primarily an agrarian
               Connectivity                                community
               Land availability and prices               Low level of development
               Investor Friendly                          Influence of politics
                Environment                                Lack of required workforce
               Weather and surroundings                   Unavailability of exit options
               Human Resource                              for professionals
               Education

                      Strengths                                         Weaknesses


                    Opportunities                                         Threats

               Booming Indian economy                     Prevalent situation of
               Expanding IT capabilities                   Strikes
               Increased no of IT                         Competition from Cochin
                companies and projects                      & Trivandrum
               Need for more cities to be                 Exodus of work force
                developed                                  Changing political scenario

   As shown in Exhibit 4, Kozhikode is favoured by most factors like availability of
   telecommunication bandwidth, favourable government policies, climatic conditions, good land,
   worldwide connectivity, civic amenities, and facilities for development of human resources
   necessary for its development as an IT hub. The clean-slate status of the city is both a
   weakness as well as an opportunity that can be capitalized on.

3.2. Evaluation of Kozhikode as a potential IT destination - Given the current status of the city
    and the policies and facilities available in the state of Kerela, we have evaluated Kozhikode’s
    on the factors that IT firms look for while developing an IT hub (Exhibit 5).
4. Recommendations for improvement of basic offering of Kozhikode

   Kozhikode is a typical small South Indian city where the IT infrastructure is nonexistent The
   government needs to attract companies through tax incentives and other facilitating schemes to
   start operations and expand facilities like, IT parks, housing, healthcare institutes, shopping
   complexes, recreation centres, ensuring law and order, etc. The recommendations for improvement
   are shown in detail in Exhibit 6.

   4.1. Civic Services - Currently, the electricity supply is sufficient for the existing demand and the
       general population is able to tap ground water through wells (municipal supply of water is not
       good). However, supply of water and electricity in the context of exponentially increasing
       demand should be adequately planned for. Same applies to the telecommunication network.
   4.2. Separate IT City - Being a small city, Kozhikode has ample scope to expand if need arises.
       But a clear assessment of the possible magnitude of expansion needs to be done. As in other
       places, designing a separate IT city adjacent to the traditional city of Kozhikode may be a
       good idea as that would preserve the peaceful demeanour of the city despite the eventual
       influx of a large number of people.
   4.3. Educational Facilities

             Skilled Manpower: The number and quality of educational institutions needs to be
              improved. More emphasis needs to be given on starting engineering colleges and
              institutes providing IT related training
             Collaboration: Training programs needs to be started in existing engineering colleges,
              in collaboration with IT companies, so that required skills could be developed in the
              new crop of students. At the same time a variety of faculties like, finance, economics
              and management, need to be promoted as well to provide various kinds of professionals
              to these organizations
             Reversal of Outflow: The government also needs to look into a way to attract work
              force from outside the state, and stop the outflow of students from Kerala. Starting high
              quality institutes comparable to IITs & IIITMs, and opening them for students from all
              the states and improving the city infrastructure would be the right options to do so
   4.4. Political Support - Understanding between political parties needs to be developed in order to
       maintain the same IT policies irrespective of which party is in power. This will boost the
       confidence of the major and small players in the current system and they would be willing to
       invest. Some SEZs need to be started in the area near the city providing tax incentives, better
       infrastructure, faster dispute arbitration, laws to make operations easier for these companies.

5. Location of the IT City

   Keeping the geography of Kozhikode in mind, it would be ideal if we could keep the IT city out of
   Kozhikode city and at the same time not so far away from the airport, as well as the railway station
   and other amenities. Also, the location should not be such that all the traffic routed towards the IT-
   city may have to cross the whole city of Kozhikode. Another point that one should keep in mind is
   that the location of the IT-city should not hinder the expansion of the city of Kozhikode itself.

   The southern region near Beypore Kadalundi & Ferokh is densely populated. Also, the area to the
   north of the city has a terrain, making it inappropriate. Keeping all this in mind, the area between
   Airport, West Hill and Kappad seems ideal (Exhibit 7). Being more specific, a probable location
   should be near Pushpa Theatre, which is not very densely populated and at the same time fits our
   criteria (Exhibit 8).

6. Industry Scenario and Selecting the prospective companies
   6.1. Targeting
       6.1.1. For targeting purposes we classify the IT companies based on:

                  Needs – Interviews with experienced IT professionals reveals that the basic
                   requirements of most of the IT companies remain the same. Only in the later stages
                   of their involvement do issues pertinent to their area of operation come up. So
                   classification based on needs does not serve our purpose
                  Size/Scale/Revenue – Based on size the classification of companies stands as shown
                   in Exhibit 9

       6.1.2. Parameters for selection – The following set of parameters have been selected for
            evaluating the various industry segments to find the ones fit for being approached:
           1) Would attract other companies: Those companies that would be able to attract other
                 companies to Kozhikode by their sheer presence in the area
           2) Would attract workforce: Companies most aspired for by the workforce
           3) Development of local IT infrastructure: Companies that may contribute the most
                 towards the development of local infrastructure
           4) Development of work force: The organizations which could be instrumental in
                 improving the quality of civic infrastructure and human resource
           5) Coherence with Kozhikode’s offering: The companies which have their needs in line
                 with the offering that Kozhikode would put forward after implementing the
                 improvements suggested in this paper
           6) Ease of approach: The companies which would be easy to attract to Kozhikode

      6.1.3. Selection of Industry segments – The matrix shown below presents the final evaluation
           of the industry segments in Kozhikode’s perspective

Serial   Industry Segment                 Applicable                       Decision
 No                                   Selection Criteria
  1    Tier I                         1), 2), 3), 4), 5) First industry segment that should be
  2       Tier II                     2), 3), 5), 6)     Should be targeted in the next stage
  3       Offshore operations of      2), 5)             Difficult to approach, can be left for later.
          Global IT majors
  4       Pure play BPO               2), 5), 6)           Can be targeted with Tier II players
  5       Captive BPO units           5), 6)               Not worth approaching.

6.2. Proposed Approach
      6.2.1. Strategy – A few salient features of the strategy that Mr. Arun should follow are:
                 Break the development of IT city into three stages
                 Focus equally on software and electronic design related firms
                 Start with infrastructure development at a small scale and based on the projected
                  inflow of companies work towards developing an IT city adjacent to Kozhikode
                 First Stage
                  o Target some big (Tier I) companies and provide them very generous benefits
                  o Tie-up with them to develop workforce via training & classroom programmes
            Second Stage
             o Target other Tier I and II companies
             o     Also target pure play BPO providers
             o Expand the infrastructure further
             o Develop small public or private owned training institutions to develop
                 supporting services (IT and non-IT) work force
            Third Stage
             o Target all the segments discussed above
             o Maintain good infrastructure
             o Try to bring in big R&D majors

6.2.2. Content – The Campaign and target Audience
        The campaign can run in line with the “God’s own country” campaign by Kerala
        IT wing of the Kerala Government can club together the three cities of Cochin,
         Thiruvanatapuram and Kozhikode to come up with a join campaign for IT development
        The channels for communication for this campaign need to be very different from the
         tourism campaign

6.2.3. Target Audience - The target audience would be the CEOs of existing organizations
       and the Entrepreneurs who would like to start an IT organization

6.2.4. Method/ Channel
         The table below presents a set of media that can be used for communicating the
         message to the target audience.

   Advertising         Promotion     Events/Experiences    Public Relations   Direct Approach
  Print ads           Contests       Conferences          Press Kits         Sales
  Brochures           Games         Plan Competitions     Speeches/Seminars Direct Meetings
  Directories         Fairs & trade Causes                Political lobbying Incentives
  Ad Reprints         Low interest Area tours             Publication         Catalogues
  Billboards          Tie-ups                             Identity media      Fax/e-mail
  Audiovisuals                                            Commercial & In
                                                          flight magazines
Press releases and media interviews by politicians and concerned high ranked officials
are very important means of sending forward the message. Apart from this, political
lobbying needs to be done to get special packages for the city of Kozhikode from the
central and state governments.

The most important of them all is direct communication with the top officials of various
IT organizations to attract them to come to Kozhikode. Negotiating deals and packages
for that would be an important element of these meetings and presentations. During
these meeting the quality of presentation and the brochures would have a significant
bearing on the final decision that the company makes. An all costs paid tour of
Kozhikode by a representative of the company being negotiated with would be a good
way of attracting them.

                                                Set Up

 Natural Factors            Infrastructure           HumanResources           Government

Weather                   IT Infrastructure         Trained people           Political Scenario
Water Supply              Network of                Support services         Tax Incentives
Geography                 companies                 staff                    Quality of
Land Availability         Civic amenities           Quality                  Education
Diseases                  Protection from           Sustained availability   Continuing dev.
Natural Calamities        natural calamities        Cost of hiring           programs
Location                  Support for               Characteristics          Financial Support
Special Attractions       future expansion              Education            Special Needs
                          Connectivity                  English Fluency

                             Exhibit 1: Requirements of an IT set-up

                      Parameter                                       Rank
                      Overall composite score                         3
                      Health and Education                            1
                      Law & Order                                     1
                      Labor                                           8
                      Investment attractiveness                       5
                      Investment                                      13

         Exhibit 2: Kerela as a lucrative investment destination (not IT sector specific)
    Source: CII sponsored independent study of 18 Indian States, ‘How the States are Doing’
                 100%            Leading IT
              Growth in IT       Destination
                industry          by 2012

                                                        Focus on
                                                      ITES, Media
Employment                                             Products &
 Generation                                            E-services
                        Features of
                        Kerela’s IT
                          Policy                      Cochin as an
Inflow of                                             International
 Foreign                                               Media and
 Capital                                                ICT Hub
                 for growing          Technopark,
                decentralized         Trivandrum
                IT businesses          as a leading
                                      software and

  Exhibit 3: Objectives of the current IT Policy in Kerela

    State-of-the-art international airport for handling international flights with lead-in
      lighting system for the first time in India
    Flight connectivity with all major cities in the country and the middle-east
    Well connected by rail and road

Communication Infrastructure
   Kozhikode is around 300 km away from Cochin, the landing point of two major
     international submarine cables linking to US, Europe and the Far East.
   Assured quality of service and significant savings vis-à-vis most other locations in the
   All prominent cellular operators provide services in the city

Land availability and low prices
    Built up modules of area 85,000 sq.ft -in multiples of 500sq.ft available for allotment
    Low prices for commercial property, compared to other locations across the country.
       Commercial land price is at approximately Rs 650 to 1000 per Sq ft and commercial
       rent is approximately Rs 10 to 15 per sq ft for dry shell
    Availability of Lateritic midlands of 1343.50 sq.kms for development

Investor Friendly Environment:
       The Kerala State Industrial Development Corporation provides total support and
       single-window-clearance facility

Weather and surroundings
   Pleasant weather throughout the year with heat and humidity during summers and
   Surrounded by scenic beauty, with rivers, hills on the east and sea in the west

Human Resource
   Literacy rate: 92.24% of the population is educated, with 88.62% literacy rate among
   High Human Development Index of the state residents
   Large employable human resources as non-agri and non-household workers constitute
     86.34% of the population

    Availability of trained manpower from a handful of Arts and Science Colleges,
       professional colleges and polytechnics and industrial training institutes in and around
       the city
    Management, engineering and medical graduates available from IIM, an NIT, and a
       Medical College
   Mainly an agrarian community- could lead to resistance to change and settlement of
   Less development in Kozhikode– need for government’s push
   Heavy influence of politics on development in the state
   Non-availability of a large pool of skilled forces – lack of access to educational
   Unavailability of exit options for professionals combined with limited growth in their
     own field

   Booming Indian economy
   Expanding IT capabilities
   Increased no of IT companies and projects
   Need for more cities to be developed to de-congest the major IT hubs of Bangalore
      and Chennai
   Availability of a clean slate- can develop Kozhikode as a centre for specialized
      services, products and technologies

    Possibility of labour strikes and also formation of IT unions, which could lead to
      disruption of services to both domestic and global clients
    Competition from home – Cochin and Trivandrum are way ahead of Kozhikode in
      terms of
          o Living standards
          o Development in the city
          o IT infrastructure already in place
          o Availability of manpower and training institutes

                         Exhibit 4: SWOT analysis of Kozhikode
          Factors                    Effect – Reason                   At Kozhikode
Natural Factors
Weather                          Ease in settling for people    Good
Natural Sources of Water         Basic Requirement              Very Good
Low degree of exposure to        Personal well being            Good
Disease & Natural Calamities
Location                         Low transaction costs, Better Good
Existing IT Infrastructure       Inflow of workforce &          Bad
                                 availability of work
Network of companies             Better facilities, overall     Bad
                                 development, exit options
                                 for employees
Civic amenities - health,        Basic requirements             Average
market, water, electricity
Systems for protection from      Protection and minimization    Average
natural calamities               of threats
Possibility of expansion         Sustainability                 Good
Connectivity                     Ease of operations & cost      Good
Human Resources
Availability of trained people   Basic requirement              Bad
People for support services      Basic requirement              Good
Quality of workforce             Better productivity and        Bad
                                 competitive advantage
Sustained availability           Sustainability                 Bad
Cost of hiring                   Competitive edge               Good
Characteristics - Education      Basic Requirements             Very Good
    & Fluency in English
Variety of available skills - Basic requirement                 Bad
designers, programmers, et al
Government Support
Political Scenario               Security, reduction of risks   Average
Tax Incentives                   Cost advantage                 Good
SEZs – Special regulations       Ease of operation              Bad
Quick settlement of disputes     Ease of operation              Bad
Focus on relevant education      Sustained workforce supply     Good
Development programs             Improved infrastructure        Average
Financial Support                Risk reduction                 Average

                Exhibit 5: Evaluation of Kozhikode’s offering to the IT firms
          Factors                                  Recommendations
Existing IT Infrastructure   Build technology parks; initiate Govt. backed projects in areas
                             where they are needed to attract IT companies.
Network of companies         Attract some big firms at the start, follow it up with smaller
                             ones in the next stage
Civic amenities - health,    Improvement in the number and quality of markets, hospitals,
market, water, electricity   etc. Better functioning of the municipal corporation.
Systems for protection from Earthquake and Tsunami prediction and disaster management
natural calamities           plan. Design o houses accordingly
Support for future expansion Real estate infrastructure needs to be revamped. Training
                             institutes to develop IT professionals for supporting activities
                             like designing, maintenance, etc.
Connectivity                 Traditional port needs to be reopened, development as a port
                             city will improve infrastructure. Connecting the city to more
                             international destinations through airlines.
Human Resources
People for support services   Promoting small training institutes to develop these
                              professionals. A govt. agency to supervise this.
Quality of workforce          Training programs in co-ordination with companies
Sustained availability        Quality and number of colleges to be improved.
Variety of available skills - Promoting small training institutes to develop these
designers, programmers, et al professionals. Training programs in co-ordination with
                              companies. Increase the variety of educational streams.
Government Support
Political Scenario             Policies should remain same, despite change of government
Tax Incentives                 A hygiene factor now. Give Tax incentives for infrastructure
                               and human resource development activities by companies.
SEZs – Special regulations     Laws separate from the mainland laws
Quick settlement of disputes   Quick arbitration of disputes through special bench of jurors.
Focus on relevant education    Promoting engineering, finance and management education.
                               Support training institutions. Starting scholarship programs.
                               Tie-ups with firms for skill development of young students.
Financial Support              Govt. guaranteed finance of projects.

       Exhibit 6: Recommendations for improvement of Kozhikode’s basic offering
                                                                 Area for
                                                                 IT - City

     Exhibit 7: Cornering geographical area for the IT-city
                                                                  The IT – City
                                                                      can be
                                                                  anywhere in
                                                                   this region

             Exhibit 8: Probable Location for IT-city
Exhibit 9: Classification of companies based on revenue
3. Telephonic Interviews of some residents of Kozhikode

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