Introduction to the Emergence of the Global Capability Center

Businesses today are expanding internationally for two main reasons: to cater to clients across the globe and to access a skilled talent pool, particularly in countries like India, Philippines and Indonesia, where skilled resources are readily available at a cost-effective price.

Initially, companies used an outsourcing model to reduce costs and improve efficiency by delegating non-core functions to third-party service providers. This allowed companies to focus on their core competencies and strategic initiatives, leading to increased competitiveness in the market. However, there are several drawbacks to this outsourcing model. Companies have limited control over the outsourced team, and there are risks associated with the quality of deliverables. Communication barriers and time zone differences often cause project delays and misunderstandings between teams.

Hence, the idea of Global Capability Centers (GCCs) emerged in the 1990s as companies looked to become more global and efficient.

The Evolving Role of Global Capability Centers

A Global Capability Center (GCC) is a centralized hub that houses specialized teams responsible for various business functions. These functions can range from IT and finance to customer service and research & development. GCCs are typically located in countries offering cost advantages, access to a skilled workforce, and a strong infrastructure. The GCC model eliminated the risks and bridged the gaps associated with outsourcing, offering several key benefits.

1.    Cost Optimization

1.a Cost Savings Through Labor Arbitrage

GCCs leverage talent pools in countries where labor costs are lower, offering immediate cost advantages. By relocating certain business functions to regions with a lower cost of living, companies can significantly reduce their operational expenses.

1.b Economies of Scale

By consolidating operations and centralizing resources in a GCC, companies can achieve economies of scale, reducing overall operational costs. This consolidation allows for more efficient resource utilization and lowers the per-unit cost of services.

1.c Access to a Specialized Talent Pool

GCCs tap into global talent pools, allowing companies to hire skilled professionals at competitive rates, potentially saving costs compared to hiring in their home countries. This access to a diverse and highly qualified workforce enhances the quality and efficiency of services provided.

2.    Innovation Powerhouses

GCCs are no longer confined to back-office tasks. Many are actively involved in R&D, product development, and even strategic decision-making, fostering a culture of innovation. By leveraging diverse perspectives and specialized expertise, GCCs drive innovation and contribute to the development of cutting-edge solutions.

3.    Global Reach, Local Touch

GCCs can cater to specific regional needs while adhering to global standards. This ensures a consistent brand experience for customers worldwide. By understanding and addressing local market nuances, GCCs help companies build stronger connections with their regional customers.

4. Operational Excellence

4.a Standardization of Processes

Implementing standardized processes across the GCC ensures consistency and efficiency in task execution. This uniformity is essential for maintaining high-quality service delivery and optimizing operational performance.

4.b Improved Efficiency and Productivity

Streamlined workflows and centralized resources in a GCC lead to improved efficiency and overall productivity. The centralized structure allows for better coordination and communication, reducing redundancies and enhancing operational efficiency.

4.c Enhanced Risk Management

Having greater control over operations in a GCC allows for better risk management and mitigation strategies. By centralizing critical functions, companies can implement robust risk management frameworks and ensure compliance with global standards.

5.    Strategic Alignment

5.a Alignment with Corporate Goals and Objectives

GCCs can be strategically aligned with corporate goals, ensuring their activities directly support the company’s overall objectives. This alignment helps drive long-term success and achieve sustainable growth.

5.b Support for Global Expansion and Market Penetration

GCCs can serve as regional hubs, providing local support for global expansion and market penetration efforts. Their localized expertise helps companies navigate the complexities of new markets and seize growth opportunities.

5.c Facilitation of Innovation and Digital Transformation

Many GCCs are actively involved in R&D, product development, and strategic decision-making, fostering a culture of innovation and supporting digital transformation initiatives. By adopting new technologies and processes, GCCs help companies stay ahead of the curve in the digital age.

6. India as the Most Wanted Global Capability Center

India’s unique convergence of factors has propelled it to the top of the list for companies seeking to establish or expand their Global Capability Centers (GCCs). Here’s a breakdown of why India is attracting so much attention:

6.a Thriving Talent Pool

India boasts a vast and ever-growing pool of skilled professionals, particularly in IT and business services. This skilled workforce offers companies access to a deep well of talent, crucial for driving innovation and efficiency within their GCCs. Importantly, a significant portion of this talent pool possesses strong English language skills, making communication and collaboration with global teams seamless.

6.b Cost-Effective Advantage

India provides a cost-effective environment for businesses. This includes competitive salaries, operational expenses, and a government that actively supports the GCC sector. This translates to significant cost savings for companies establishing their GCCs in India.

6.c Robust Infrastructure

India has invested heavily in building a strong infrastructure, including high-speed internet connectivity, reliable power grids, and modern office spaces. This strong foundation ensures seamless operations and facilitates collaboration within GCCs.

6.d Proven Success

Numerous multinational corporations have established highly successful GCCs in India. These success stories serve as a testament to the country’s capabilities and provide valuable insights for companies considering setting up their own centers.

6.e Beyond Metros – The Rise of Tier 2 Cities

It’s important to note that the GCC boom isn’t limited to just major metropolitan cities like Mumbai, Delhi, and Bangalore. Tier 2 cities across India are rapidly developing into attractive locations for GCCs. These cities offer companies a compelling combination of benefits:

• Lower Operational Costs – Tier 2 cities generally have lower real estate and operational costs compared to metros, leading to further savings for companies.
• Emerging Talent Hubs – Tier 2 cities are witnessing a surge in educational institutions and a growing talent pool with strong technical skills and English language proficiency.
• Government Incentives – The Indian government is actively promoting the development of Tier 2 cities as GCC hubs by offering various incentives, making them even more attractive for companies.

7. Examples of Successful Global Capability Centers in India

Let’s dive into some specific examples of multinational corporations that have thrived with Global Capability Centers (GCCs) in India:

The Big Four – Deloitte, KPMG, EY, and PWC

The Big Four started off and are still best known for accounting and audit services. Over the years, they have added several more professional services such as management consulting, corporate finance, and legal services. Recently, their biggest expansion has been into technology services. Their presence in India has soared, with Deloitte and EY each employing 100,000 individuals in India, representing a significant portion of their global workforce. PwC has about 50,000 employees, and KPMG over 40,000. For Deloitte and PwC, half or more of their India employees are in technology services, and for EY and KPMG, it is a third of their global strength.

Waters Corporation

This life sciences company established a GCC in Bengaluru to leverage India’s talent pool in both IT and bioinformatics. The center not only supports their global operations but also spearheads innovations that benefit the entire organization.

General Electric (GE)

GE has a large GCC in Bengaluru that focuses on research and development across various sectors like aviation, healthcare, and power. This center not only reduces costs but also fosters collaboration with a diverse talent pool, leading to cutting-edge solutions.

JPMorgan Chase

This financial giant houses a significant GCC in India with expertise in finance, risk management, and analytics. The center plays a crucial role in streamlining global operations and developing new financial products.

Nestlé

The food and beverage giant leverages its GCC in India for various functions like IT, supply chain management, and customer service. This center optimizes costs while catering to Nestlé’s global needs and developing innovative marketing strategies for emerging markets.

These are just a few examples. Many other corporations across diverse industries, such as Shell, Airbus, and Siemens, have established successful GCCs in India, highlighting the country’s capability to support a wide range of functions and technological advancements. Recently, companies like Okta, AST SpaceMobile, Blackbox, UPS, and Kraft Heinz have set up their GCCs in India.

These success stories showcase the potential of India’s GCC ecosystem, not just for cost savings, but also for innovation and global reach.

Conclusion

Global Capability Centers (GCCs) have become an essential component of modern business strategy, providing significant benefits such as cost efficiency, operational excellence, and strategic alignment. As businesses continue to navigate the complexities of the global market, the importance of GCCs will only grow. These centers are pivotal in driving innovation, digital transformation, and sustainable growth.

India remains the premier destination for global companies looking to establish or expand their GCCs. With its diverse ecosystem, abundance of skilled talent, robust innovation network, and mature infrastructure, India stands out as a strategic location for these centers. The establishment of over 1,580 GCCs and the market size surpassing USD 46 billion as of FY2023 underscores India’s dominance in this sector.

The consistent setup of new GCCs and the expansion of existing ones in both Tier 1 and Tier 2 cities highlight the dynamic and evolving GCC ecosystem in India. The focus on areas such as data science, digital innovation, and automation underscores the strategic importance of these centers in driving global business operations. As the demand for innovation and efficiency continues to grow, GCCs in India will remain indispensable to their parent companies, significantly contributing to global success.

In the first half of CY2023, 18 new GCCs were established in India, primarily in Tier 1 cities like Bengaluru, Hyderabad, Mumbai, and Pune. Prominent new entrants include Blackberry, Truecaller, Berry, Lloyds Banking Group, Inspire Brands, and Greenlight. Notably, 44% of these new GCCs belong to the Software and Internet vertical, followed by BFSI, Chemicals and Materials, and Retail. Additionally, over 83% of these new centers encompass all three functional areas: ER&D, IT, and BPM.

Existing GCCs also expanded significantly, with 23 new centers established by companies such as Pernod Ricard, Bristol Myers Squibb, DE Shaw and Co, Harman, and Deloitte. This expansion isn’t limited to Tier 1 cities; Tier 2 cities like Vadodara, Nashik, Tirunelveli, and Coimbatore are increasingly becoming attractive locations due to lower operational costs and emerging talent hubs. These expansions further cement India’s status as a leading GCC destination.

The focus areas for both new and existing GCCs in H1CY2023 include data science, data and analytics, digital innovation, web applications, platform engineering, automation, and software development. This emphasis reflects the strategic role these centers play in driving business innovation and efficiency.

The robust growth and maturity of India’s GCC ecosystem are testaments to its global prominence. As these centers continue to evolve and adapt to new challenges and opportunities, they will remain crucial in supporting the headquarters’ strategic goals and contributing to global business success.

Courtesy: NASSCOM Community