Pune is reportedly experiencing a gradual decline in its cost advantage for software companies. Observers note that rising rental prices may impede future investment in the area.
Sunil Patil, president of UBICS, a software company under the UB group in the Pune region, expressed concerns that the escalating rentals could undermine the industry's competitiveness. He stated, "Rentals in Pune for software companies have gone up 300% in the last three years. We are being offered space at Rs 65 per sq ft, which at $1.50 aligns closely with rates in Manhattan."
This sentiment resonates with many small and medium-sized IT product companies, indicating that India’s cost competitiveness is gradually diminishing. The shift in perspective emphasizes the necessity for companies to evolve from cost-based models to value-driven strategies, a transition some of the larger firms have already accomplished.
A CEO from a venture capital-backed software engineering services company provided further context: "Outsourcing depends on costs, where productivity plays a significant role. Currently, real estate and utility overheads in India are now approximately 25% higher. The economic advantages of operating in India remain substantial, otherwise outsourcing wouldn't be as prevalent. Previously, cost disparities were around 40-50%. Even with the 25% increased overheads, offshoring here still made financial sense."
Notably, he suggested a trend toward in-sourcing, with work being redirected back to the US, an occurrence often triggered by imminent political events stateside. Despite these fluctuations, Ganesh Natarajan, chairman of Nasscom, firmly stated that India hasn't lost its cost edge yet. He noted that this advantage is even more pronounced in Tier II cities.