Page last updated at 23:05 GMT, Monday, 31 March 2008 00:05 UK

Indian IT firms escape rising costs

By Supriya Menon
BBC News, Chennai, India

Munching on pizzas during lunch hour the employees of Blueshift, a small Chennai-based IT firm, are busy discussing the prospects of moving abroad.

Employees of Blueshift having lunch
Possible moves out of India dominate conversation over lunch

Blueshift's turnover is about $2m (1m) per year, yet the company is facing a tight squeeze.

Rental costs in the city are rising, the value of the US dollar has weakened and uncertainty about the government's tax policies abound.

That is why Blueshift is one of the companies looking to move to neighbouring countries like Malaysia or Singapore where they believe it would be cheaper to operate.

"The corporate tax regime in this country is a tough 33% whereas when I look at neighbouring country Singapore it is only 18% at the highest level," says Blueshift's chairman Sankaran P Raghunathan.

"In fact, most of us have to pay only 7.5%. That's a huge difference."

Mr Raghunathan is also concerned at the way costs are rising in Chennai.

"Some 10% of our revenues are spent on rentals here," he says.

"We pay more than $1 for a square foot of office space here. In Kuala Lumpur the same costs us less than $1 and I get class A infrastructure."

Cheaper elsewhere

Entrepreneur Sanjoy Bose relocated his company Buzznet labs from Chennai in India to Malaysia three years ago to take advantage of such benefits.

Sanjoy Bose, chief executive, Buzznet Labs
Sanjoy Bose says taxes are lower and staff retention easier overseas

Mr Bose believes that the move has helped him raise his company's productivity and lower operational costs.

Moreover, Malaysia with its Indian influences is home away from home for him.

"The operating costs in Malaysia are lower than what I paid in Chennai," he says.

"That's in terms of rentals, deposits and utility charges.

"More critically, the lower attrition rate of my technical staff here is the biggest benefit I am facing in Malaysia."

According to the IT SME Association, which represents small and medium IT firms, there are 3,200 such firms across India and 620 in the state of Tamil Nadu alone, of which the Chennai is the capital.

The Association says that its members' views and wishes are often overlooked when major policy is hammered out, even though they employ more than 500,000 people directly and contribute some $1bn to the government in taxes.

Global challenge

As many of these companies are planning to move to cheaper destinations in South Asia, it is not just the bosses who are rooting for such moves.

Deepa Ramachandra
Deepa Ramachandra is keen to work abroad

Employees are happy to relocate abroad as well.

For Deepa Ramachandra, who works in one such small IT firm, moving abroad is an opportunity gain international exposure.

Along with it comes a shot at earning more money and living a different lifestyle.

"For any kind of professional, international experience is really good," Ms Ramachandra says.

"So moving abroad is a good option for all of us here.

"Working face to face with the client is definitely better than trying to figure out solutions over long drawn telephone conversations."

Thinking big

The government seems to think otherwise.

Sankaran P Raghunathan, chairman, Blueshift
Sankaran P Raghunathan wants to reduce the tax burden

"The best chance for these small IT firms to grow is here in India," according to the Dr Chandramouli, IT secretary of the state of Tamil Nadu.

"If they want to ramp up their operations it is only here they can do that.

"Moving away to another country is a knee-jerk reaction on their part and I would advise them to wait to see what policies we are bringing out."

Over the last five years the administration of Chennai has been actively developing a 20km stretch of land into an international style IT corridor.

Many top Indian IT firms, such as Infosys, have already set up their offices here.

But while the state goes about aggressively promoting itself as a serious IT destination the smaller companies say the focus is completely on the biggies with their deep pockets.

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