India’s role in the global economy has grown exponentially, with the country emerging as a prime destination for offshore development centers (ODCs). For multinational corporations (MNCs), India offers a dynamic blend of cost-effective operations, access to a skilled workforce, and innovation-friendly government policies. The choice of the right city for setting up an offshore center is critical, especially within the context of the IT industry, where talent availability, infrastructure, and market conditions play pivotal roles.

This article draws from recent trends and successful case studies of global companies like IKEA, Starbucks, and Netflix, emphasizing the importance of localization, market adaptation, and strategic positioning in India. We will explore the key factors businesses must consider when selecting the most suitable city for their offshore operations in India’s booming IT sector.

Why India? A Premier Destination for Offshore IT Centers

India’s status as a global IT hub is supported by a young workforce, rapid technological advancements, and a robust business environment. The country is home to over 1,580 Global Competency Centers (GCCs), a testament to its appeal as a strategic hub for global businesses. India’s IT outsourcing market, which is projected to reach $20.09 billion by 2028, offers significant opportunities for businesses aiming to scale their operations.

For companies aiming to set up ODCs, India presents the perfect blend of affordability and innovation, particularly in the IT industry. The country’s youthful workforce, 65% of whom are under 35, is skilled and ready to support global operations.

Key Factors to Consider When Choosing a City for Your Offshore IT Center

Talent Pool and Skill Availability

The availability of talent is crucial when setting up an offshore center. India’s IT sector boasts a vast talent pool with specialized skills in software development, artificial intelligence (AI), cloud computing, and cybersecurity. Cities like Bengaluru, Hyderabad, and Pune are renowned for their abundance of skilled professionals, making them top choices for IT offshore centers.

Bengaluru, often called the “Silicon Valley of India,” is home to over 80 Fortune 500 companies and produces 250,000 IT graduates annually. Meanwhile, Hyderabad and Chennai are emerging as centers of excellence for data analytics, AI, and cloud computing. For businesses looking to engage in innovation-driven IT projects, these cities offer access to cutting-edge technologies and highly skilled engineers.

However, companies can also explore Tier 2 cities such as Kochi and Ahmedabad, which offer growing talent pools at a lower operational cost. These cities are increasingly recognized for their IT expertise, and as companies look to reduce costs, they can provide a balanced mix of affordability and access to talent.

Cost Efficiency and Operating Costs

Cost efficiency is a key factor driving businesses to set up offshore centers in India. Compared to Tier 1 cities like Bengaluru and Mumbai, which have higher living costs, Tier 2 and Tier 3 cities like Kochi and Jaipur offer significantly lower labor and real estate costs. In some cases, operational costs in Tier 2 cities can be 40–60% lower than in Tier 1 locations.

For instance, the average salary of a software engineer in Bengaluru is approximately $15,000 per year, while in Chandigarh, it can be as low as $8,000. Companies must balance these cost savings with the need for high-quality talent and infrastructure.

Infrastructure and Digital Readiness

A strong infrastructure is essential for smooth offshore operations. Bengaluru, Hyderabad, and Pune are well-equipped with state-of-the-art IT parks, advanced telecommunications networks, and reliable power supply. These cities provide a solid foundation for IT operations, making them favorable for companies looking for a stable and efficient environment.

Emerging cities like Kochi and Visakhapatnam also have improving infrastructure, thanks to significant government investments in IT parks and telecommunications networks. Kochi’s position as a telecommunications hub, with its undersea cable landing stations, makes it a strategic location for companies focusing on digital operations.

Government Policies and Incentives

India’s government has introduced various initiatives to attract foreign direct investment (FDI) and boost its IT sector. Programs like Make in India and Digital India have led to increased FDI inflows, with the country receiving $17.96 billion in FDI during FY 2023-2024. Cities like Hyderabad and Chennai offer special economic zones (SEZs) and tax incentives for businesses establishing offshore centers.

Tier 2 cities, in particular, benefit from government incentives aimed at promoting business growth in less saturated markets. For instance, Kochi and Jaipur offer tax breaks, land subsidies, and streamlined registration processes, making them attractive options for businesses seeking cost-effective locations for their offshore operations.

Cultural and Social Compatibility

Cultural alignment is vital for the success of any offshore operation. India, with its English-speaking workforce, offers excellent communication channels for global businesses. Cities like Bengaluru and Hyderabad have cosmopolitan cultures that align well with international business practices, making collaboration between offshore and onshore teams seamless.

Furthermore, India’s diverse cultural landscape requires businesses to adapt their management styles to local norms. In cities like Pune and Kolkata, where relationship-building and hierarchy are important, businesses must adopt culturally sensitive strategies to ensure successful operations.

Scalability and Long-Term Growth Potential

India’s major IT cities are well-positioned for long-term growth. Bengaluru and Hyderabad continue to lead in scalability due to their extensive tech ecosystems and access to venture capital. These cities are home to numerous startups and innovation hubs, providing opportunities for companies to scale rapidly and stay competitive.

Emerging cities like Ahmedabad and Kochi also offer growth potential, with a growing tech workforce and improving infrastructure. As businesses look to scale, these cities provide a lower-cost alternative while still offering access to skilled talent.

Case Studies: IKEA, Starbucks, and Netflix’s Success in India

Successful global brands have demonstrated the importance of localization and market adaptation in India. IKEA’s 2018 launch in Hyderabad, which attracted 40,000 visitors on the first day, shows how customizing product offerings and services to meet local preferences can drive success. Similarly, Starbucks leveraged a joint venture with Tata Global Beverages to introduce locally adapted products, such as masala chai, and is on track to expand to 1,000 outlets by 2028.

Netflix, which entered India in 2016, has invested heavily in local content and adjusted its pricing to capture the Indian market. These companies’ strategies of localization, cultural sensitivity, and strategic growth have proven successful in India, and similar approaches can be applied to setting up offshore IT centers.

Conclusion

Choosing the right city for your offshore IT center in India requires a careful evaluation of talent availability, cost efficiency, infrastructure, and cultural alignment. Cities like Bengaluru, Hyderabad, and Pune offer excellent opportunities for companies looking to tap into India’s skilled IT workforce and advanced infrastructure. At the same time, Tier 2 cities like Kochi and Ahmedabad present cost-effective alternatives with promising growth potential. By understanding the local market dynamics, leveraging government incentives, and adopting culturally sensitive operational strategies, businesses can position themselves for success in India’s booming IT sector.