Rising infrastructure costs a new challenge

Chennai: Office space rentals are higher in Chennai than in New Jersey. If that sounds too dramatic, try forming a new company and set up offices in India and the US, as G.B. Prabhat did.

“The cost of rentals and office infrastructure (including secretarial services) is higher by around 15 per cent in Chennai than it is for far superior infrastructure in places such as New Jersey,” says Prabhat, Founder & CEO Anantara Solutions. His company is headquartered in Chennai and now has an office in New Jersey.

And, how would the bigger metros in India compare with the best in the world? Says Anuj Puri, Chairman and Country Head, Jones Lang Lasalle Meghraj, “Delhi’s Connaught Place and Mumbai’s Nariman Point command occupation costs to the tune of Rs 4,500 per sq ft and Rs 5,500 per sq ft per annum and above respectively.”

That means it is costlier to establish an office in these two locations than in the central business districts of Paris, New York, Hong Kong and Singapore.

However, he clarifies that depending on the type of business, it could be cheaper and more profitable to actually operate the office in India, for reasons unrelated to real estate.

In other words, wage costs and availability of skilled manpower come into play, too, when deciding on the location for a business. Says Shiva Ramani, Co-Founder & CEO, Cybernet-SlashSupport, “(Infrastructure) costs in the six big Indian cities (four metros plus Bangalore and Hyderabad) have been inching closer to some lower mid-tier cities in the US.”

“However, we look at the sum of manpower, administrative and infrastructure costs to evaluate the business case.”

But, says Prabhat, companies need to realise that rising infrastructure cost is as much a challenge to Indian IT companies as rising wage cost.

Though N. Ramachandran, CFO, iGATE Global Solutions, feels that rental and real estate costs are far lower in India than in the US, he does agree with Prabhat that rising infrastructure costs would be a cause for concern.

“Both wage and infrastructure costs are significant components of IT business and are equally important in terms of economic feasibility. While rising manpower costs are manageable through innovative models (using technology), rising infrastructure costs are more worrisome.”

Sify