India’s Global Capability Centers (GCCs): Nurturing Innovation and Driving Growth

Background and Evolution

India’s journey as a global outsourcing hub commenced in the 1980s when major multinational corporations, particularly in the information technology sector, recognised the nation’s substantial and competitively priced talent pool. Texas Instruments set the stage by establishing a research and development centre in Bengaluru in 1985, followed by other giants like Veritas Software, AT&T/Lucent, Sun Microsystems, and Oracle. Initially conceived as operative process hubs to leverage India’s cost advantages, these centres, now termed Global Capability Centers (GCCs), have undergone a remarkable evolution.

GCC Ecosystem in India: From Cost Arbitration to Innovation

From their early roles as cost effective process hubs, GCCs have transformed into strategic assets, spearheading the transformation agenda of their parent organisations. Present across diverse sectors, including banking, healthcare, electronics, and energy, GCCs in India are increasingly entrusted with delivering innovations and fresh ideas. Positioned as epicentres of efficiency and modern practices, they are poised to play a pivotal role in shaping the future of business operations.

Key Facts & Figures

As of FY2020, India’s Global Capability Center (GCC) sector boasts over 1,300 global organisations, employing more than 1.3 million people and generating an annual revenue of US$33.8 billion. The country’s unique mix of an attractive workforce at competitive pricing points has made it the preferred destination for establishing GCCs.

GCC’s Geographic Coverage and Growth Potential

While primarily concentrated in six major cities, GCCs are expanding their footprint to include tier-2 cities. Despite significant growth, the average GCC penetration in India, at 3.5–4%, remains below the global sector’s average. However, the potential for further expansion is evident, with only 25% of Fortune 2000 companies and 15% of Forbes 2000 companies having GCCs in India.

Recent Trends and Changes in the Industry

1. Operating Models:

A shift from Build-Operate-Transfer (BOT) to Greenfield Set-Up: While the BOT model has been traditional, there is a declining trend as multinational companies prefer setting up centres from scratch, addressing differences in qualifications and quality.

2. Focus on Digitisation and Automation:

Moving from Back Office to Front Office: GCCs are evolving from back-office functions to embracing product design, artificial intelligence, and digital marketing.

Post-COVID Digitisation Surge: The pandemic has accelerated the focus on digitisation and automation globally, prompting companies to turn to GCCs for technological solutions.

3. Increasing Investment in Technology Resources:

Cloud Migration and Technology Adoption: GCCs are shifting ERP and legacy applications to the cloud and investing in advanced technologies like AI and machine learning to meet growing demands.

Challenges in the Industry

Uncertainty on Transfer Pricing:

Varying benchmarks in transfer pricing audits causing confusion.

Calls for simplifying the transfer pricing structure to increase value addition and reduce litigations.

Limited Visibility to Innovation Ecosystem:

Lack of impactful collaboration models, with only 5-10% GCCs collaborating with startups.

Limited awareness and incentives to encourage GCCs to collaborate with startups and academia.

‘Low Cost, Low Value’ Perception of India:

Despite strides in delivering value-added work, India is often perceived as a ‘high volume, low cost’ location.

Opportunity to brand India as a ‘Volume + Value’ market for higher value work.

Future Avenues for Growth

With a strong emphasis on branding India’s GCC growth story and highlighting its capability potential, there’s an estimated incremental market of $10-20 billion for new GCCs setting up centres in India. Specific areas for targeting growth include:

1. Innovation/R&D Centers:

Focused on developing/enhancing products and services.

Employing highly skilled professionals in fields like science, biotechnology, and platform engineering.

2. Sector-Specific Business Operations Center:

Delivering core business operations in domains like finance, sales, and marketing.

Employing a moderate number of knowledgeable professionals in business domains.

3. Capability Development Centers:

Providing niche capabilities such as analytics Centers of Excellence (CoE) and digital CoE.

Employing a small number of formally qualified/trained professionals in niche capabilities.

In conclusion, India’s GCCs have come a long way from being cost arbitrage hubs to innovation powerhouses. As they continue to evolve, embracing digitisation, automation, and collaboration, they are poised to play a pivotal role in shaping the future of global business operations. The journey that began with leveraging India’s cost advantages is now paving the way for a ‘Volume + Value’ market, positioning India at the forefront of innovative and high value global business solutions.