Beyond Bangalore: Why Semiconductor Companies are Moving to Tier 2 & 3 Cities

In a significant shift from the norm, semiconductor businesses in India are starting to explore tier-2 cities across the country for new opportunities. This signals a strategic industry evolution driven by the quest for diversified talent pools, cost-effective operations, and broader market reach.

In a conversation with AIM, Srini Chinamilli, the CEO and co-founder of Tessolve Semiconductors, affirmed Bangalore's status as the ‘Silicon Valley of India’. He also highlighted the growing potential of tier-2 cities for the company's operations.

"Bangalore is still the hub, but people have to go outside because Bangalore faces different kinds of problems, can't have all eggs in one basket," Chinamilli said, acknowledging the challenges of concentrating all operations in one location.

Chinamilli noted that replicating Bangalore's energy, ecosystem, and diversity is challenging. 

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Emerging Talent in Tier 2 and 3 

When asked about the capabilities and potential of tier-2 and tier-3 cities, Chinamilli explained, "If you look at Bangalore, most engineers here are from elsewhere. So, if there is an opportunity for people to stay closer to where they are and still work, you know, the attrition levels are much lower."

He also praised the work ethics and dedication of employees in tier-2 cities, saying, "These employees from tier-two cities tend to be very dedicated, similar to Bangalore. But the attrition levels are much lower."

While the cost of engineers may be slightly lower in these cities, Chinamilli emphasised that Tessolve strives to maintain consistent compensation across locations.

He emphasised that Bangalore will remain Tessolve's hub, while the company has been strategically expanding to cities like Coimbatore, Bhubaneswar, Cochin, Hubli, and Vizag for the past 17 years. 

The expansion will help tap into local talent pools and foster a more stable workforce.

Tessolve Clients | Source: Tessolve

Developing Ecosystems in Tier 2 Cities / Higher Employee Retention 

Industry experts see this shift to smaller cities as crucial for India's ambition to be a semiconductor industry leader. 

Satya Gupta, the president of the VLSI Society of India, emphasised the "need to establish at least 1,000 chip design companies and train 1 million electronics and chip design professionals annually”. 

He proposes developing clusters in cities such as Bhubaneswar, Indore, Pune, Jaipur, Coimbatore, and Trivandrum, alongside incentivising the inception of at least one chip start-up in each of India's 806 districts.

A notable development came when Synopsys announced plans to open a new office in Bhubaneswar, employing over 300 highly skilled VLSI and semiconductor design engineers. 

Rituparna Mandal, VP for customer success group and head of Synopsys India, said, "Odisha's support in fostering a strong semiconductor workforce and ecosystem, and the involvement of top industry leaders, academics, and researchers in the O-Chip initiative, exemplify a thriving semiconductor community in the state. It aligns with Synopsys' priorities of expansion in India."

Similarly, Signature IP has strategically chosen to nurture talent and establish a presence in tier 2 cities. 

CEO Purna Mohanty attributes the early success and scaling of the company's operations in India to Bhubaneswar’s https://www.linkedin.com/in/mohantyp/ role, noting the lower attrition rates in tier 2 cities have facilitated long-term R&D projects.

Madhav Rao, the SVP of engineering at Tessolve, pointed out the intense competition for talent in Bangalore as a driving factor for their expansion into tier 2 cities like Coimbatore and Hubli in the last two years.

Smaller cities bring a notable economic advantage through lower operational costs, helping businesses allocate more resources towards innovation and development. 

While infrastructure in tier-2 cities was a concern until a few years ago, the situation has changed. Rao noted that the network and overall infrastructure in tier-2 cities are now quite adequate for their needs.

Challenges Remain

Though the lower tier seems promising, there still are numerous challenges. For instance, some clients prefer employees in their own centres or in Bangalore for spontaneous meetings. Another challenge is that smaller cities tend to have employees who hail from that place alone or surrounding areas, limiting the talent pool.

To mitigate these challenges, companies are tying up with local universities and colleges. Mohanty pointed out that Signature IP has recruited professors from local engineering colleges in Bhubaneswar to lead their R&D efforts full-time, helping identify promising interns every year.