Talent Availability in India’s Tier-2 Cities

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Talent availability across Tier-2 cities in India are allowing multinational companies, including both services and manufacturing firms, to set up in more cost-effective destinations. We look at the latest industry data from 2022 spotlighting prominent Tier-2 cities and their hiring potential for BFSI, manufacturing, and IT service sectors.


India’s employment landscape is undergoing a transformative shift, with Tier-2 cities taking centre stage as new talent epicenters. The shift is being driven by various factors, including the growing trend of remote work, increased opportunities for skill development within Tier-2 urban centres, and the expansion of diverse industries into these regions. Illustrating this trend towards Tier-2 cities is the recent decision of tech giant Apple to establish its manufacturing operations in Hubli–Dharwad municipality, Karnataka.

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Multiple reports from the recruitment industry corroborate this trend. According to a Randstad India report, 54 percent of surveyed employers have indicated their intention to hire candidates from Tier-2 and Tier-3 cities. This statistic highlights the increasing availability of a diverse talent pool in these cities, a development that is mutually advantageous for both recruiters and professionals.

In another study conducted by Xpheno, a specialized staffing solutions company, which monitors internal company job postings on platforms like LinkedIn and job portals, it was reported that in January 2023, active job postings in Tier-2 cities saw a notable increase of 12 percent, while simultaneously decreasing by 16 percent in Tier-1 cities. This data further reinforces the growing significance of Tier-2 cities as talent hubs in India.

Key hiring sectors in Tier-2 cities in India

1. Banking and financial services (BFSI) sector

In the BFSI sector, there is a noteworthy shift in recruitment dynamics, particularly the substantial increase in hiring from Tier-2 cities, primarily for junior positions: 82.02 percent of the recruitment activities were directed towards junior roles, with 9.90 percent at the middle management level and 8.08 percent at the senior executive level. This shift is indicative of a growing trend where numerous companies are strategically channelling their investments into Tier-2 and Tier-3 regions. 

This increase stems from the recruitment of fresh graduates. Analysts anticipate that more than a quarter of entry-level positions within this category will be filled by hiring recent graduates. This surge in fresh graduate hiring can be attributed to several factors, including the presence of esteemed management institutes in many Tier-2 areas, the relocation of BFSI operations to these cities, and the willingness of recent graduates to relocate to these emerging centres in pursuit of promising career prospects.

In speaking about the talent sourcing shifts in India, Sachin Alug, CEO of NLB Services has noted that Tier-2 cities exhibit an employable talent pool of around 50 percent, whereas their Tier-1 counterparts have a lower proportion at only 30 percent. This may very well be due to population density in Tier-1 cities. While companies want to diversify their talent pool, tapping into talent resources across Tier-2 and Tier-3 cities becomes easier if their recruitment strategies are aligned with remote or hybrid work models.

Notable Tier-2 cities, such as Coimbatore, Nagpur, Chandigarh, and Kochi, have demonstrated their potential and are on the trajectory of becoming prominent talent hubs within the BFSI sector in the foreseeable future.

2.Manufacturing sector

There is a notable trend towards increased hiring in the manufacturing sector, particularly at the junior levels. Specifically, 78.81 percent of hiring activities were concentrated at the junior level, while 17.8 percent took place at the middle management level, and 3.39 percent occurred at the senior executive level.

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This trend can be attributed to the expanding footprint of manufacturing hubs within Tier-2 cities, coupled with the robust presence of engineering and management institutes in these regions. It represents a mutually beneficial situation where the demand for skilled talent in manufacturing can be adequately met, and the need for migration to Tier-1 cities in search of employment can be significantly reduced.

Coimbatore exhibits a strong leadership position in both junior (24.68 percent) and middle-level (31.12 percent) hiring, while also securing a commendable third place in senior-level (20.00 percent) recruitment. Despite facing challenges related to economic slowdowns, Coimbatore remains a robust Tier-2 manufacturing hub, owing to its excellent infrastructure, reputable engineering institutions, and the abundant availability of skilled talent. With the electric vehicle sector poised for growth in this city, we can anticipate a surge in employment opportunities.

Thane, on the other hand, claims the top spot in senior-level hiring (34.89 percent) and ranks third in both junior (8.88 percent) and middle (9.00 percent) level recruitment. Thane’s ascension in the rankings as a Tier-2 manufacturing hub can be attributed to its outstanding infrastructure facilities and conducive business environment.

3. IT sector

The inclusion of Tier-2 cities into the talent acquisition strategies of IT companies is becoming more prominent. Notably, junior-level hiring dominates the recruitment landscape, constituting a substantial 88.63 percent of total hiring activities within Tier-2 urban centers.

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This can be attributed to the successful adoption of remote work models and the robust educational infrastructure present in these regions. This positive shift not only caters to the career aspirations of the emerging workforce by offering significant job opportunities without necessitating migration but also carries the potential to stimulate the economic growth of Tier-2 cities.

For example, as local talent pools emerge, their regions attract fresh investments from companies seeking to lower operations costs. Various state policies to incentivize local hiring by offering tax breaks and other subsidies also plays into these shifts.

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Interestingly, Tier-2 cities emphasize the need for specialized technology skills across all levels, encompassing areas such as automation testing, agile methodologies, SAP, business intelligence, and more. This may be due to key educational and R&D hubs located here, companies tapping into specific local subsidies, or the setting up of advanced tech-enabled businesses seeking to lower hiring costs.

Per industry stakeholders, we can anticipate the continued upward trajectory of Tier-2 cities in coming years, with locations like Kochi, Chandigarh, Indore, Mohali, and Vadodara gaining prominence in India’s talent landscape.

4. Pharmaceutical, health care and life sciences (PHL) sector

Mohali stands out as a prominent hub for recruiting fresh graduates and junior-level professionals in the PHL sector. Trichy and Kanpur closely follow, showing a similar inclination towards hiring at these entry levels. Notably, the sought-after skills in these cities encompass speciality doctors, research analysts, and API (Active Pharmaceutical Ingredient) experts. This trend underscores the pharmaceutical industry’s steadfast commitment to nurturing and training individuals at the entry-level in critical skills.

The concept of “Develop in India” holds immense significance within the PHL industry, with a high demand projected for these skills in both Tier-1 and Tier-2 cities. The hiring pace within the Indian PHL sector is poised for significant acceleration, driven by substantial investments.

5. Other sectors

Industries outside the technology sector are also actively focusing on hiring automation specialists with expertise in 5G networks, as well as individuals with engineering and semiconductor backgrounds to support the flourishing telecommunications and consumer electronics industries. Tier-2 and Tier-3 cities are benefiting from this hiring drive as well, given increased internet penetration in India and expanding consumption power.

Benefits of shifting to Tier-2 cities

Tier-2 cities have made substantial strides in nurturing a pool of skilled and job-ready workforce. According to the India Skills Report 2023, Tier-2 cities like Lucknow and Mangalore rank among the top three cities with the most employable talent in India. These cities are fast becoming hubs for specialized and niche skill sets. For instance, Coimbatore has emerged as a prominent location for engineering services.

Furthermore, Tier-2 cities exhibit lower attrition rates—typically 10 percent lower than those in Tier-1 cities. The adoption of online hiring and interview processes has also played a pivotal role in enabling these companies to assess and onboard candidates from all corners of the country, further expanding their talent reach.

The lower costs associated with talent and infrastructure in Tier-2 cities, compared to their Tier-1 counterparts, play a pivotal role in reducing the total cost of operations. Recent analysis reveals that Tier-2 cities typically offer a 10 percent to 35 percent lower cost of living than their nearest Tier-1 counterparts. A CBRE 2022 report also highlights the affordability of living in Tier-2 cities, which is complemented by an increasing presence of healthcare facilities and educational institutions, contributing to an improved quality of life compared to Tier-1 cities.

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Governments have taken proactive measures to facilitate business growth in Tier-2 cities. Special Economic Zones (SEZs) aimed at promoting the IT/ITeS industry have been established in these cities. Additionally, state governments offer incentives to businesses expanding or establishing new centres in non-Tier-1 locations. For instance, the Tamil Nadu ICT policy 2018 provides an extra capital subsidy of 10 percent and 25 percent for new or expanded IT/ITeS industries in category B&C districts, respectively, on top of the eligible limit.

Recent mobility index reports indicate that two of the top five cities with excellent mobility infrastructure are Tier-2 cities—Bhubaneshwar and Jaipur. Some Tier-2 cities even surpass a few Tier-1 cities in terms of road infrastructure quality. Moreover, there is a noticeable increase in scheduled domestic passenger traffic in Tier-2 cities, aided by the Indian government’s UDAN scheme, which focuses on improving regional air connectivity. Tier-2 cities have also witnessed a surge in the availability of coworking spaces, with cities like Chandigarh, Jaipur, Kochi, Ahmedabad, Lucknow, and Indore having multiple flexible office operators. The shift is also aided by the expedited roll-out of 5G facilities across Tier-2 cities as well.

Five of the top 10 cities in the 2020 Ease of Living (EOL) index are Tier-2 cities, including Ahmedabad, Surat, Coimbatore, Vadodara, and Indore. These cities have populations over a million but boast lower pollution levels compared to most Tier-1 cities, making them more attractive. Consequently, Tier-2 cities have even surpassed pre-pandemic air passenger traffic numbers, reflecting increased mobility and liveability.

Key takeaways for foreign investors

  • Compared to Tier-1 cities, Tier-2 cities in India have lower talent and infrastructure costs leading to more talent acquisition from Tier-2 cities in the future.
  • Several state governments incentivize multinational companies and large-sized enterprises to locate their operations and headquarters in Tier-2 cities through policies and schemes, promising tax and operational subsidies besides advanced infrastructure.
  • Tier 2 cities have lower attrition rates compared to metropolitan hubs making them attractive talent bases.

The data in this article has been sourced from the ‘Talent Trends 2022 Randstad Report’ (see here).

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India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in India.

We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.

 


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