India’s vibrant economy is driven by many forces, but one silent giant has steadily risen to prominence: Global Capability Centers (GCCs). Often overshadowed in mainstream discussions, GCCs are proving to be the dark horses of India’s economic ascent. My journey began at a traditional technology outsourcing vendor and evolved through various roles dealing with multiple vendors and setting up / expanding GCCs. This experience has allowed me to witness the evolution of GCCs firsthand and understand their crucial role in shaping of this industry. With the recent unveiling of India’s Budget 2024, which includes policy fine prints aimed at further supporting GCCs, it’s time to shine a spotlight on these pivotal entities and their significant contributions.

What are GCCs?

Global Capability Centers, also known as captive centers or in-house offshore centers, are offshore units established by global corporations to tap into India’s vast talent pool. These centers have evolved from mere cost-saving back-offices to hubs of innovation and value creation.

The journey of GCCs in India began in the early 1990s when multinational corporations started recognizing India’s potential as a destination for offshore operations. However, this era was dominated by outsourcing vendors and India was called back-office of the world. Early 2000s is when the GCC model gained significant traction with many Fortune 500 companies setting up centers. Over the years, these centers have transformed from basic support functions to strategic assets for their parent companies.

Benefits of GCCs to Parent Companies

GCCs offer numerous advantages to their parent companies, making them strategic assets in today’s global business landscape:

1. Cost Optimization
   • Access to skilled talent at lower costs compared to home countries.
   • Streamlined processes and economies of scale.
   • Lower infrastructure and operational costs in emerging markets.
     
     
2. Access to Talent
   • Large pool of skilled professionals, especially in STEM fields.
   • Diversity in thought and approach, bringing fresh perspectives to problem-solving.
   • Ability to scale teams quickly based on project needs.
     
     
3. Innovation and R&D
   • Dedicated centers for research and development, often leading global innovation initiatives.
   • Access to local innovation ecosystems and startups.
   • 24/7 development cycles, accelerating time-to-market for new products and services.
     
     
4. Intellectual Property Protection
   • Better control over proprietary technologies and processes compared to third-party vendors.
   • Reduced risk of IP leakage or theft.
     
     
5. Quality Control
   • Direct oversight of operations ensures adherence to global quality standards.
   • Ability to implement and maintain consistent processes across global operations.
     
     
6. Culture Control & Alignment
   • GCCs allow parent companies to instill and maintain their corporate culture more effectively than with third-party vendors.
   • Employees in GCCs often feel a stronger connection to the parent company, leading to higher engagement and loyalty.
   • GCCs help in developing a unified global corporate identity while respecting local nuances.
     
     
7. Business Continuity and Risk Mitigation
   • Geographical diversification of operations.
   • Enhanced disaster recovery and business continuity planning.
     
     
8. Market Insights and Localization
   • Better understanding of emerging markets for potential expansion.
   • Ability to tailor products and services for local markets.
     
     
9. Operational Flexibility
   • Capacity to quickly scale operations up or down based on business needs.
   • Ability to test new processes or technologies in a controlled environment.
     
     
10. Enhanced Global Presence
    • Strengthened global brand presence.
    • Improved ability to operate across different time zones, providing 24/7 support.
      
      
11. Strategic Value Chain Integration
    • Vertical integration of critical business functions.
    • End-to-end ownership of processes, leading to better coordination and efficiency.
      
      
12. Talent Development and Leadership Pipeline
    • Grooming of global leaders with cross-cultural experience.
    • Creation of a diverse leadership pipeline for the parent company.
      
      
13. Regulatory Compliance and Transfer Pricing Advantages
    • Better navigation of local regulatory environments.
    • Potential tax benefits through strategic transfer pricing arrangements.
      
      
14. Technology Transformation
    • Dedicated centers for digital transformation initiatives.
    • Faster adoption and integration of emerging technologies like AI, ML, and IoT.
      
      
15. Customer Proximity
    • Closer to customers in emerging markets, enabling better service and support.
    • Ability to provide multilingual support for global customer bases.

Some of the above benefits are offered by outsourcing too and that’s why outsourcing has been a popular model in past years and it was a low-cost, low-risk experimentation for companies. However, with proven model, talent and government policies, GCCs are new emerging as preferred option given its several distinct advantages for parent companies over and above outsourcing. By leveraging these benefits, parent companies can significantly enhance their global competitiveness, operational efficiency, and innovation capabilities.

The Nature of Work: Beyond Basic Services

The work performed in GCCs has evolved significantly. Over and above traditional support, maintenance and back-office operations, they now also perform:

• Research and Development: Many GCCs are now primary R&D hubs for their parent companies, driving global innovation.
• Advanced Analytics: GCCs leverage India’s data science talent for complex data analysis and AI/ML projects.
• Product Development: From conceptualization to launch, entire product lifecycles are managed within GCCs.
• Global Process Ownership: GCCs are taking end-to-end ownership of critical business processes.

Economic Impact

The true value of GCCs to India’s economy goes far beyond current estimates:

1. Direct Economic Impact

• Employment: GCCs employ over 1.3 million professionals directly, with indirect employment estimated at 5.2 million.
• Revenue: The sector contributes approximately $33.8 billion in revenue, according to NASSCOM.
• Higher Compensation: GCCs typically offer salaries 20-30% higher than traditional IT services companies.

2. Future Projections

• By 2030, the GCC sector has the potential to reach $100-120 billion in revenue, employing nearly 2.5-3 million people directly.
• This growth trajectory significantly outpaces the overall IT-BPM industry growth rates.

3. Transfer Pricing Considerations

• GCCs operate under complex transfer pricing regulations, ensuring fair valuation of services provided to parent companies.
• This has led to increased tax revenues for the Indian government and sometimes has been a thorn in the past for parent companies. However, there is increased policy push towards fair, transparent transfer pricing.

The Underdog Status

Despite their significant contributions, GCCs often fly under the radar. This underdog status stems from several factors:

1. Focus on domestic companies: Economic discussions often revolve around homegrown industries and startups.
2. Misconception as “outsourcing”: Many still view GCCs through the outdated lens of simple outsourcing.
3. Limited public visibility: Unlike consumer-facing businesses, GCCs operate behind the scenes.

Value Addition: Beyond the Numbers

The impact of GCCs extends far beyond direct economic contributions:

1. Skill Development and Knowledge Transfer

• GCCs serve as training grounds for India’s workforce, exposing them to global best practices and cutting-edge technologies.
• This upskilling has a ripple effect, elevating the overall quality of India’s talent pool.

2. Innovation Hub

• Many GCCs have transitioned from support functions to driving innovation for their parent companies.
• India-based GCCs filed over 60,000 patents in the last five years, showcasing their R&D capabilities.

3. Export of Services

• GCCs contribute significantly to India’s service exports, bolstering the country’s foreign exchange reserves.
• The presence of GCCs has spurred the growth of ancillary industries and startups, creating a robust ecosystem.

GCCs: Gaining Global Influence and Elevating Indian Leadership

The evolution of GCCs has transformed India’s economic landscape and reshaped the global corporate hierarchy. As these centers have proven their strategic value, they’ve earned a seat at the table in global decision-making processes. This shift has led to a significant influx of executive roles to India, elevating the country’s position in the global corporate ecosystem.

Many GCCs now have their leadership represented in the C-suites of their parent companies, with titles like Global Head of AI, Chief Technology Officer, or Head of Global Operations becoming increasingly common for India-based executives. This trend has created a virtuous cycle: as more high-level decisions are made from India, it attracts even more critical projects and responsibilities to GCCs, further cementing India’s position as a global talent hub.

Moreover, this has had a ripple effect on the broader Indian corporate landscape, raising the bar for leadership skills and global exposure across industries. The rise of Indian executives in multinational corporations, often groomed through GCC operations, has not only boosted India’s soft power in the global business world but has also inspired a new generation of professionals to aim for global leadership roles while remaining rooted in India.

India’s recently announced Budget 2024 has some fine prints that will help accelerate the growth of GCCs so the policies are moving in right direction and will also give impetus. The next wave of companies that will look to setup GCCs in India will be Fortune 1000 to Fortune 5000. As anyone familiar with this industry will conclude, this has direct negative impact on the revenues of Indian IT outsourcing vendors or BPM vendors – Yes. However, as more Fortune companies mature and graduate into upper layer of Pyramid, hopefully IT Vendors will tap more companies from the emerging layer. The future looks promising for GCCs in India. Industry experts project that the sector could reach $100-120 billion in revenue by 2030 and may employ over 2.5-3 million people directly. Here is current breakdown of GCCs by cities. It’s clear that cities except Bengaluru will likely see the most growth. Additional tier-2 cities will pop-up on this list.

Recognizing the Unsung Heroes

There are numerous executives, senior professionals that play India advocate role in GCCs. It’s time we acknowledge their contribution. As we move forward, continuity in government policy, like those outlined in Budget 2024, and the continued evolution of GCCs will play a crucial role in shaping India’s economic narrative. By recognizing and nurturing the potential of GCCs, India can not only boost its economic growth but also cement its position as a global hub for innovation and high-value services. The underdogs are ready to take center stage – it’s time we give them the spotlight they deserve.