Source: generated by author using figlet. License: public domain.

Question: Why does the Zoho Corporation establish itself in rural areas?
Answer: Because this reduces its operating costs thereby increasing its profits.

The salaries Zoho pays rural employees are much lower than the equivalent in urban areas. This reduction in operating costs translates to greater profits for the Zoho Corporation.

Costs Matter is a series that asks different questions all of which have the same answer: to keep down costs. The series focuses narrowly on the impact of costs. It does not claim costs are the only reason things are as they are. To read more stories in the series, visit https://medium.com/galileo-onwards/costs/home/.

If you haven’t heard of it, the Zoho Corporation is a privately owned “Indian multinational company that specialises in software development, cloud computing, and web-based business tools. It is best known for its Zoho Office suite.” The company’s 2020 revenues, (again, according to Wikipedia), were $590 million. Source: Wikipedia.

Zoho recently completed 25 years and put out a 15 minute YouTube video talking about their ethos and principles (see link below). All my references are from the link.

  • Rajendran Dandapani, Head of Zoho Schools (4:17): “Zoho is providing opportunies to the ignored masses. Yes, right to an extent. But Zoho is also benefiting from this.”
  • Ranjith, Co-Founder, Bevywise, ex-Zoho employee (7:46): “We decided to move [our startup company] to [the rural city of] Thirunelveli.… [O]ne of the core reasons… is keeping ourselves frugal creating affordable software for the global market….” [emphasis added]
  • The same point is expressed in a slightly more indirect way by Zoho’s founder, Sridhar Vembu. “There is a lot of latent talent in the world… talent is everywhere…. Our purpose at Zoho is to create opportunity for people who do not have that opportunity.”

Economics Lessons

All economic texts make two simple points:

  1. Supply & Demand Curve: when supply grows faster than demand, commodity prices drop.
  2. Monopolistic systems control prices. Competition benefits consumers.

Supply Demand: By increasing the talent pool available to itself, Zoho increases programmer supply thereby reducing its costs.

Monopoly: By being the sole employer in its rural regions, Zoho is effectively a monopoly without competition thus controls its rural employee salaries. This too reduces its costs.

April 19, 2021 Update

Here’s Sridhar Vembu expressing the point more bluntly:

if you move to rural areas you can find much cheaper land and cheaper rent and the venture is less burdened with cost.
apart from the demographics and cheaper real estate, attrition rate is much less in villages. [my emphases]

Vembu made the above remarks at the recent Amazon Smbhav Summit 2021. The quotes above are taken from The Economic Times, Apr 19 2021 edition. [link]

Zoho’s video is below: