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The Best Cities 1998

Rest is important as work. That is the message of the 1998 BT-Gallup MBA biennial survey of India's Best Cities For Business. Although corporate India is still bowled over by Bangalore, and Mumbai's lures endure, Hyderbad, Pune and Chandigarh appear to be the new urban upstarts.

By Vinay Kamat and Rohit Saran

A business boomtown? Or a classy community? Where would you choose to base your corporation--and your life in India? Never before has the choice between life at work and life after work been as critical for corporate India as it is today. Changing work-cultures, the corresponding lifestyle-changes, and the dynamics of the new knowledge-based businesses have made the task of corporate location more complex, just as the emergence of fresh urban hot-spots has made the CEOs' choice much wider in the country today.

No wonder the third biennial BUSINESS TODAY--Gallup MBA Survey of The Best Cities For Business, 1998, reveals an upheaval at the top, followed by a churning in the middle. True, business remains besotted with Bangalore--the Garden City is the most-preferred business destination for the 6th year in a row--and the magic of Mumbai--the financial capital is yet again the second-best corporate city--still casts a spell over national and transnational companies. But predictably, Hyderabad, which has moved up from No. 12 in 1996 to No. 3 in 1998; Chandigarh, from No. 6 to No. 4; and Pune, steady at No. 5, are all staking their claims to be the new corporate agglomerations too.

Clearly, the rise of knowledge-based industries is reconfiguring locational strategies. While traditional activities, such as manufacturing, still thrive in Western India, many emerging cities are flourishing because of infotech and services companies. New workplace-cultures are, therefore, profoundly impacting the choice of business locations. And the virtual disappearance of 9-to-5 offices, the concern about pollution, and the importance attached to the quality of life--essentially, a city's suitability for children and spouses--is weaning the corporate world away from the megapolises.

Which is why business makes such a marked distinction between investment and residence. While CEOs rate Maharashtra and Gujarat as the best states to invest in, they choose Hyderabad, Bangalore, and Chennai over Mumbai and Ahmedabad as the best places to work and live in. What, then, drives cluster dynamics?

To track both objective and subjective preferences, this research project was expanded this year to examine the changing hierarchy of factors affecting city-choice, the differences in the perceptions of various categories of respondents, and the relative weightage of each category in determining the best cities for business. Then, the findings were analysed against the backdrop of BT's 6-year chronicle of corporate perceptions about The Best Cities For Business. The outcome was an illuminating account of the rise of new business destinations, the fall of traditional centres of wealth-creation, and a sweeping change in managerial expectations.

Unable to arrest a fall in the quality of life they offer, the big bases of business are losing their appeal.

Barring Bangalore, which has steadfastly held on to its No. 1 position--and is the only city to be ranked in the Top Three by all 6 categories of respondents (CEOs, senior managers, middle managers, spouses, professionals, and B-school students)--all the other traditional bastions have taken a beating. Mumbai--ranked No. 3 by CEOs in 1996--does not find a place any more at the top in their rating; worse, spouses have ranked the city No. 25 (No. 2 in 1996), which is better only than Patna. Across categories, Mumbai is ranked last (No. 26) on 3 parameters and No. 25 on 1. But for the unstinting support of B-school students, managers, and self-empolyed professionals--all ranked the city No. 2--Mumbai would not have retained its rank.

Delhi's is a disappointing display too. Having slipped 4 places between 1996 (No. 3) and 1998 (No. 7), the capital is the second-biggest loser after blast-hit Coimbatore, which lost 6 places and dropped to No. 16 this year. While CEOs punished Delhi by pushing it to No. 23, not even a single category spared the Capital. The four factors contributing to the decline of Delhi: the deteriorating law-and-order situation (No. 8 in 1996 vs No. 24 in 1998), traffic congestion (No. 6 vs No. 24), high real estate costs (No. 20 vs No. 25), and the high pollution-levels (No. 24 vs No. 25). That Delhi has lost out despite the thriving business-centres of NOIDA and Gurgaon on its eastern and southern periphery, respectively, is illustrative: the deteriorating quality of life is ejecting corporates out of the big cities.

However, the executive exodus will not happen overnight. After all, Mumbai is still synonymous with business. Even this year, it ranked No. 1 on 14 parameters, and as many as 182 BT-500 companies still had their headquarters in the city. Similarly, being the capital, Delhi will continue to be a base for business. But, as investment tilts in favour of brainpower businesses, the big cities will suffer from managerial migration. Remember: it took less than 25 years for Calcutta and Kanpur to lose their status as business cities.

Even in the US, the evolution of industry has left behind a trail of dying business clusters. For instance, none of the erstwhile hot spots for business--New York, Chicago, Boston, and Pittsburgh--figure among the Top Ten business cities in the US. Instead, cities like Austin, Las Vegas, Phoenix, and San Jose are the top wealth-creators today. Be it in the US or India, no city can, virtually, boom without a virtual boom.

Tomorrow's boomtowns will combine good work-environments with great after-work lives.

In today's knowledge paradigm, the best cities are those where ideas can be efficiently translated into products, services, and jobs. And the traditional business locations are, increasingly, unable to fulfil this requirement. Nothing exemplifies this better than the spectacular rise of Hyderabad in 1998, which is trying to replicate the growth-trajectory that Bangalore followed in the late 1980s. While CEOs rank Hyderabad No. 1--after not being swayed too much by it in 1994 and 1996 (No. 7 in both years)--a vote of confidence in the city's infrastructure by managers, professionals, and spouses fetched India's newest Silicon City its No. 3 spot--up from No. 12 in 1996--which is higher than both Delhi and Chennai.

Hyderabad's meteoric rise shows that the efforts of a state government do make a difference. The factors that matter most to CEOs--state government support, the law-and-order situation, and the quality of infrastructure--are directly influenced by the efficacy of the local administration. On all these counts, Hyderabad was rated between No. 1 and No. 3 in 1998. To a lesser extent, the same holds true for Chandigarh, Bhopal, and Bhubaneshwar--the other potential boomtowns.

Corporate India's perception of emerging cities has improved faster than their performance. Although Chandigarh, Bhopal, Lucknow, and Bhubaneshwar have been rated higher on factors like the pollution-levels, the cost and quality of housing, and traffic-conditions, the rankings have less to do with a positive vote in their favour. The outcome has been influenced more by the respondents' disillusionment with the big cities, which the emerging cities, like Hyderabad, are capitalising on. Its experience holds out another message for other aspirants: simultaneously invest in both the business and the social infrastructure. For every new business-centre, industrial cluster, or technology park, there should be a proportionate investment in schools, hospitals, roads, and recreation-centres.

With no attempts to re-invent itself, the Kanpur-Calcutta rust belt continues to disintegrate.

The upheaval at the top and the churning in the middle is followed by a disquieting status quo down the pecking-order. Across parameters and categories of respondents, Patna (No. 26), Kanpur (No. 25), Calcutta (No. 24), and Surat (No. 23) continue to languish--just as they did in the 1994 and 1996 surveys. The only exception: the cost of living, where Calcutta pips both the big and the emerging cities to the post. Unfortunately, in the BT Worst Cities listing--those ranked between 20 and 26--labourcosts have not been rated as a factor of consequence by any respondent-category, denying gains to the labour-intense cities.

Clearly, the outdated and underdeveloped business infrastructure in these cities is discouraging fresh investments in them. Compounding their woes is political instability and short-sighted leadership. In 1994, for instance, Lucknow was ranked No. 11 among 20 cities while Ahmedabad was ranked No. 14. By 1998, Lucknow slid to No. 21 in a 26-city sample while Ahmedabad rose to No. 8. Not all is lost for the laggards; spouses have favoured some of these cities over the urban centres ranked highly by other categories of respondents. For instance, Lucknow is rated No. 7 and Nagpur No. 8 by housewives whereas CEOs placed them in the 24th and 14th positions, respectively. Merely capturing the imagination of the housewife is, however, not enough; corporate boardrooms have to be bowled over as well.

Empowered cities, like organisations, not only set spurs to growth, they are the biggest centres of corporate investment as well. While 6 years of financial and political federalism has ensured some autonomy to the states, the devolution of powers has not gone beyond the state capitals. So, while the states have begun to compete in earnest for investment, the cities haven't. Contrast this with the US, where the cities compete for business, with the co-operation of their state governments. The development of a strong city administration is not only important to neutralise the fallout of political instability at the state-level, it is imperative since that alone can deliver what a state government cannot on certain critical parameters--such as recreation, cleanliness, housing, pollution, and traffic-control.

Obviously, the survival of a city cluster depends on the policy-makers' ability to create a symbiotic culture where value-relationships thrive; where political advantage is not the basis of success; and where competitiveness is truly global. That is the business environment that every globocorp would like to work in. Unfortunately, cluster-phobia has haunted strategy. While business has, unhesitantly, pursued vertical integration to gain control of the value chain, regional, state, and metropolitan administrations have failed to create the support systems for such clusters to thrive. For instance, while Stanford University can single-handedly stake a claim to the creation of Silicon Valley, no educational institution in this country can ever boast of a similar catalytic role.

Value chains in India--from educational institutions, infrastructure-providers, and suppliers to companies and customers--have been fragmented precisely because the cities have not encouraged all of them to flourish in one place. And in places where they did until recently--the Surat diamond cluster or the Jamshedpur iron belt--they did so because low manpower-costs neutralised the external inefficiencies in a company's value-generating activities. Shorn of an innovation-driven, knowledge-based business environment, the clusters are now gasping for breath--and competitiveness.

That's why the rise of the new cities, like Bangalore, is instructive. It proves that geography--which has shrunk in importance in the developed markets--still influences the formation of clusters in the emerging economies. For instance, the infotech business headed for the southern city because of its congenial climate: it was lush green, had reservoirs of experience (many software engineers hail from the South), and supplied expertise as well (the Indian Institute of Sciences, Bangalore, and the Indian Institute of Technology, Chennai, were the ideal breeding-grounds for technocrats). For 10 years, Bangalore dictated India's cluster model of competitiveness. But now, cluster-crowding--the infrastructure has failed to keep pace, affecting homes as much as workplaces--threatens to destroy the business paradigm as it has in other global cities.

Which is why Andhra Pradesh's Chief Minister, Nara Chandrababu Naidu, is keen as much on attracting investment as in ensuring that the people who drive the knowledge-based industry have a stimulating environment to reside in. His Vision 2020 for Andhra Pradesh seeks to provide an environment "where every man, woman, and child has access to not just the basic minimum needs, but to all the opportunities for leading a happy and fulfilling life."

The human aspect of clustering is of particular importance in an economy where low-cost manpower has created industrial townships, which, in turn, have bred poverty and squalor. Without a clear-cut blueprint, business has grown in a haphazard fashion. Clusters often thrive not because vendors have superior manufacturing and distribution processes, but because the supply chain feeds on the unregulated, low-cost, unorganised sector. As competition intensifies, customers become more sophisticated, and the quality of life becomes paramount, such fragile clusters will implode.

If anything, the fate of a cluster lies in the hands of the policy-maker, who decides what business a city or state administration should encourage. It entails a thorough understanding of a country's factor advantages and a city's ability to bring a string of inter-connected value activities together. The Hyderabad that Naidu envisions is a cluster that will be enriched by local talent, be part of the global supply chain, and continuously move up the value scale. But a business paradigm needs political continuity to thrive as much as it needs personal involvement. Hyderabad has the potential to rival Bangalore. That is easy, but its ability to become a global cluster is doubtful. Politics will ensure that. For, a cluster mind-set takes decades to develop, and visionaries like Naidu are as rare as global Indian clusters.

Nothing portrays the plight of India's cities better than Fortune's 1998 Global Best Cities, where not a single Indian city figures among the Top Ten Asian cities. Without being in control of their economic and social destiny, the cities can do little to transform themselves. Business requires institutes of hi-tech learning, R&D laboratories, linkages that foster innovation, and clear-cut policies. Clustering entails a deep understanding of the new value-chain dynamics: venture capitalists and suppliers are encouraged as much as end-buyers; business and life mix well; and the metropolitan administration has as much of a role as the top management team in ensuring that the new eco-system, like a leading-edge firm, is always open to change. Only then can today's clusters hope to become tomorrow's corporate city-states.

How the Cities Stack Up (Text)

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