Prominent Indian tech hubs stand out as the most attractive locations to set up an artificial intelligence (AI) office, owing to their relatively cheap operating costs and deep software engineering talent pools. 

The city of Hyderabad ranked first in fDi’s latest assessment of the world’s 100 most competitive locations to set up AI-related operations, followed by Bangalore and Chennai. In short, the study reveals the best cities to open a modelled 70-person AI-focused centre occupying 900 square metres of office space.

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Several prominent corporations have recently set up a presence in these Indian cities, including US tech giant IBM, which opened a new business process operations facility in Hyderabad in November 2021. It will act as backup to its sites in Chennai and Bangalore.

Svetlana Sicular, an analyst focused on AI at Gartner, a technology research and consulting firm, says that India “is probably the best location for finding talent” for doing an AI project, but not necessarily for leading thought.

This sentiment is reflected in the types of AI operations opened by multinationals. In February 2022, Bosch Global Software Technologies, a subsidiary of Germany-based Robert Bosch, announced plans to open a technology and innovation centre in Hyderabad, adding to its existing hub in Bangalore. The centre is expected to employ 3000 people by 2025 and will focus on areas including AI, the cloud and cyber security.

Allan Beechinor, the CEO of Altada, an Ireland-based AI solutions provider that opened an Indian office in March 2022, says that AI talent in the country is “phenomenal”, but cautions that the labour market is very competitive: “There's a huge risk of poaching and hunting on every level”.

The Ukrainian capital of Kyiv placed fourth in the overall ranking, followed by China’s capital Beijing, the Indian cities of Pune and Mumbai. Ms Sicular says that there was a lot of AI-related activity in Ukraine before the war, which began on February 24, with the country often seen as an alternative to India. The data used in this study was collected before Russia’s unprovoked invasion of Ukraine, which has seen more than four million people flee the country. 

In ninth place came the Lithuanian capital, Vilnius — the only other European city to make it into the top 10 list. Among others, Finland-based Saldo Finance, a fintech which operates an AI-powered lending scoring system, expanded its Vilnius office back in October 2021.

AI has become a key differentiating factor for business of all shades. It has the potential to automate business processes, reduce operational costs, increase efficiency and improve customer service.

In terms of quality, three Chinese cities — Beijing, Shanghai and Shenzhen — placed in the top 10, due to the large size of their tech, electronics and AI-related industries. 

The cities that had received the largest number of foreign AI-related projects in the five years to the end of 2021, was the UK capital London (68), which placed second after Singapore (69), followed by New York (45) and Paris (38).

Seoul in South Korea placed third, with a quality score of 190.8 for AI-operations, followed by Japan’s capital Tokyo (175.8) and London (165.4). Ms Sicular says that a crucial element to attracting AI companies is to create a fertile community of people, often around university ecosystems and collaboration.

By far the largest number of AI-related patents were granted to companies in the San Francisco Bay Area. Despite having these high-quality AI clusters, expensive US technology hubs fared worse than their Chinese counterparts in the fDi Benchmark study. These included San Jose, where annual operating costs for 70-person AI office are estimated to be $18.4m, San Francisco ($14.9m) and New York ($12.7m), as well as the Swiss city of Zürich ($12.6m).

This article first appeared in the June/July 2022 edition of fDi Intelligence. Read the online edition of the magazine here.