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September 13, 2004

Is Bangalore shooting itself in the foot?

Bangalore's increasingly intolerable infrastructure problems and the sky-rocketing salary expectations of its residents seem to be achieving what economic recession and the "outsourcing backlash" in the US, failed to achieve: spell the decline of IT industry in the city.

Yup. Hyderabad's emergence as a serious competitor has not really dented Bangalore's ability to attract MNCs and Silicon Valley start-ups. Bangalore's original advantages - weather, cosmopolitan culture, "critical mass" and "network effect", etc., etc. - continue to work in its favor.

However, the knowledge that these companies have of Bangalore is often second hand. Wipro and Infosys - the city's original "crown jewels" - are better "lead indicators". Whether they say it explicitly or not, it is clear these companies are expanding faster in other cities than in their "home town".

Venture capitalists based in Bangalore too have been murmuring about Bangalore's growing problems - especially the rising cost of talent - for at least the last two years. They have also been actively pointing their investee companies to try out other cities.

While they are acting on their concerns about Bangalore, the home grown IT companies and local VCs are loath to talk about it publicly - probably due to political correctness. Thankfully, such considerations don't seem to matter to Silicon Valley VCs of Indian origin. Promod Haque, managing partner at Norwest Venture Partners and considered among the top VCs in the world, is quite blunt about his views on Bangalore's problems in an interview to Financial Express.

Here are some extracts:
Mr Haque, who has invested in over 50 companies, told reporters that he was “trying to encourage entrepreneurs to go to Hyderabad,” instead of Bangalore. He was speaking on the sidelines of ‘India Inc 2004’, a seminar on marketing and selling to the US.

With the hybrid model fast finding favour, most US companies are looking toward Bangalore for a possible development centre, mainly because of the available talent.

But, Bangalore had become less attractive due to its traffic, people and real estate problems, Mr Haque said.

The city’s traffic problems which have to been seen to be believed are worsening. Bangalore has managed to attract the best brains in the country and huge competition for talent has driven salary levels to the highest in the country. Real estate prices too have zoomed, ironically pushed up in the first place by the IT companies themselves.

The next best alternative destinations in India were Hyderabad, Pune and Delhi (Noida and Gurgaon), he said. Mr Haque advises some of his investee companies to set up operations simultaneously in Bangalore and Pune.

According to him, other possible destinations could be Mysore, Chennai and Kolkata.

Haque does not seem to have heard about the Karanataka government's recent move to ban new non-Kannada films from being screened in the city. Wonder whether he would laugh or cry when he does.

Click Here to read the FE interview with Haque.

PS: The spell-check feature on my blogging tool (Blogger) suggests "Bunglers" as the correct spelling for Bangalore.