THE EMERGENCE OF TIER 2 CITIES IN THE US

Detailed Transcript:
In the past few years, we have seen the emergence of new Tier 2 and Tier 3 cities in US as suitable locations of choice for technology companies.

In our client engagements and research surveys, we observed a critical need for the companies to optimize their operations, specially related to talent and cost. The existing talent crunch in the traditional technology hubs has made this problem more acute. Companies are scrambling to identify locations across the globe for growth and optimizing their operations.

Companies that cannot move their operations outside the United States are evaluating Tier 2 and Tier 3 cities in US to address these issues. We analyzed the talent availability, cost of operations, peer group footprint, education eco-system, market opportunities, local government support etc. to understand the suitable locations.

One of the key elements of our evaluation is the “Cost of operations”. In a typical technology environment, specially the non-manufacturing and other high capital intensive activities, Salaries of the employees is the most significant portion of the total cost. Employee salaries constitute between 60-75% of the total cost of the operations.

We further evaluated the significant differences in salaries across these cities to understand the influencers. Though supply demand, talent maturity, taxes etc. are important, Cost of Living plays a critical role in determining the salaries of the employees in the city.

We at Zinnov, have spent a lot of time to evaluate the emerging cities across US. We evaluated over 200 cities in US to short list 51 cities that had the relevant talent eco-system to address technology industry’s needs. We further shortlisted 18 cities based on the maturity of these locations.

For this analysis, we segmented them cities into 3 major clusters and compared them to the traditional talent hubs such as San Francisco Bay Area, Boston region etc. The clusters were based on the cost of living indices, provided from the publicly available government data sources.

We analyzed that there is a 40% difference in the median most of living between the low cost cluster cities and that of the traditional high cost technology hubs. Cities such as Huntsville, Wichita, Pittsburg have significantly low cost of living.

We further analyzed the key components that influence cost of living for the technology talent demography. We found that “Cost of Housing” is a critical component for this segment of the population. The data from the public sources including government and real-estate sources point to a 80% difference in the median home prices between these high and low cost clusters.
To provide a quick view into the suitability of these cities across key parameters, we evaluated these cities across Labor cost, cost of living and suitability. Suitability here encapsulates the maturity of the technology eco-system, availability of installed talent, fresh talent from the local universities, propensity to attract talent from outside the region etc.

Based on these parameters we found that there are cities across the spectrum providing a variety of choices companies to expand their operations, start new corporations or relocate.

For more information on this report or other global talent, cost and peer group benchmarking details, visit www.zinnov.com.

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