Industry 4.0 and the accelerated tech adoption following the COVID-19 pandemic have made it very difficult for enterprises to survive without being digital-savvy. The stay-at-home orders during the start of the pandemic forced enterprises to migrate their software and databases to cloud servers, to enable work from home. Stay-at-home orders have ceased, but working from home has caught on. Many enterprises now enable a hybrid work environment, where employees work from home or remote hot desks and come to the office only on certain days. The office has become more of a place to collaborate rather than a place to work.
Enabling seamless remote and hybrid work requires a significant overhaul of enterprise systems. Enterprises have to set up new storage, upgrade security, and improve collaboration. Many legacy systems do not work with the latest cloud-based stacks and would need complete replacement. The remaining legacy technology would need deep integration with newer software to ensure seamless data flow.
At the customer end, all of them (B2B or B2C) prefer to engage through digital channels and expect a seamless omnichannel experience. Enterprises that do not upgrade to such automated and deeply integrated digital systems risk letting both their customers and employees down. Their disjointed, disconnected legacy systems cause delays and breed inefficiencies. Lack of fully-automated processes risks errors and costly mistakes.
Success in today’s highly competitive world depends on ruthless resiliency, agility, and flexibility, to seize opportunities and convert the customer before a competitor takes them away. But the recessionary effects of the pandemic still linger with reduced demand adding pressure on margins.
In this context, enterprises worldwide are discovering the value of Global Capability Centers (GCCs) to address these challenges. GCCs help businesses run robust back-end infrastructure to ensure process efficiency and deliver quicker services.
GCCs are dedicated remote hubs that overcome the shortcomings of plain-vanilla outsourcing. With outsourcing, the remote worker has no real connection with the enterprise’s vision or needs. Regulations regarding data storage and usage, such as EU GDPR, may make outsourcing unviable in many instances. GCCs overcome such issues and enable enterprises to get the best of both worlds.
GCCs are not a new concept. For over a decade, many multinational corporations have been running GCCs as cost arbitrage centers. These offshore centers, situated chiefly in developing countries, do the parent company’s work at significantly lower costs.
The GCC journey in India began with global conglomerates setting up captive centers for cost optimization. In the initial days, GCC service providers in India mostly handled back-office and business support functions. Soon the scope of GCCs grew to run IT support such as app development and maintenance, managing remote IT infrastructure, and orchestrating help desks.
Today, enterprises are rediscovering GCCs as strategic value enablers. Parent companies have started positioning GCCs as centers of excellence, focusing on product innovation, R&D, and engineering design. GCCs usually conduct several end-to-end processes for their enterprises. Some of the standard processes traditionally handled by GCCs include payroll and tax processing, recruitment processing, and legal services. With companies repositioning GCCs as centers of excellence, there has been a steady increase in the services operated from GCCs. For instance, GCCs focusing on financial services undertake end-to-end product development, including technology adoption, user experience development, and compliance. Healthcare companies use GCCs extensively for clinical trials.
GCCs are the ideal backbone for digital-native businesses and unicorns that leverage data and technology to solve customer needs. The new digital economy has thrown up many health-tech, fin-tech, ed-tech, and eCommerce companies that depend on seamless and robust customer-facing platforms. GCCs also set up dedicated support centers that take care of customer requests and complaints in double-quick time.
India tops the list among the most preferred countries for setting up GCC bases. At last count, India hosts GCCs for more than 1,430 enterprises. Combined, these GCCs employ about 1.38 million people directly and generated $33.8 billion in revenue in FY20. In 2021, even as the pandemic raged on, about 60 new GCCs came up in India. NASSCOM, the national level IT association, and the Indian government estimate 500 new GCCs to come up in India by 2025.
There are many reasons enterprises prefer to set up their GCCs in India.
1. The maturity of India’s ecosystem
Any business needs a stable ecosystem to flourish. Without the rule of law, respect for intellectual property rights, and good physical infrastructures such as power, water, and transportation, enterprises cannot function properly. Enterprises may take most of these provisions for granted, but basic infrastructure is still a challenge in developing countries. But India, especially urban hotspots such as Bengaluru, Hyderabad, Kochi, and Pune, has robust infrastructure backed up by a sound rule of law. The legal system in India follows the English common law, making it comparable with the judicial framework of the UK and the USA for most parts. Just about everyone in urban areas speak English.
Also, India’s Smart City ecosystems are emerging as a core pillar of the economy. These smart cities are tech-ready, with plug-and-play facilities. They offer high-speed broadband cables and free Wi-Fi. On the offing is dedicated round-the-clock uninterrupted power, especially from renewables such as solar, smart office spaces with options for hot-desking, international dining options, clubs and entertainment zones, and every other facility to support high-end technology work.
GCC service providers in India also enable the parent enterprise to operate round-the-clock. Indian GCCs give their western parent companies the advantage of working in two time zones.
For these reasons, India was among the earliest places where companies established GCCs and India’s GCC ecosystem is fairly mature now.
2. Cost attractiveness
The first generation of GCCs in India served as cost-arbitrage centers, where the primary focus was on getting routine back-office processes done at a lower cost. Customer support call centers, payroll processing, logistics routine, and other clerical tasks dominated the bulk of the GCC tasks.
India’s cost attractiveness also made India the preferred test center for rolling out development and strategy initiatives. India’s low-cost economy allowed global conglomerates the luxury of experimentation. Failure costs less, and rewards for success are high. The same risk-reward cost advantages work out for GCCs also.
India’s cost attractiveness helps GCCs in India evolve to become strategic business units that help enterprises unlock value. Many GCCs now undertake data analytics and strategic planning for their parent. GCC service providers in India support innovation, technology enablement, and enhanced service portfolio for their parent companies. GCCs also support their parent by making available niche talent.
One of the key focus areas of GCCs in India in recent times is to drive the digital transformation of their parent enterprise.
3. Talent base
Tech companies have been facing a huge talent crunch for many years now. Education and skill development have not kept pace with tech advances. The pandemic unleashed the “great resignation,” making the skill shortage even more acute. Employees now resign in droves, even without an alternative job in hand. GCCs allow businesses to mitigate the skill shortage.
India has a huge population fluent in English and basic technical skills. Indian universities and technician institutes regularly offer courses in Artificial Intelligence, Machine Learning, IoT, data analytics, experience design, robotic process automation, cybersecurity, blockchain, and other emerging technologies. In 2021, India produced more than one million engineering graduates, and a good chunk of these graduates have taken up the IT and tech streams. GCC service providers in India have ready access to leverage this talent pool.
In addition, India also has a thriving ecosystem of startups. GCCs in India leverage this talent pool. Their natural connection with the local institutes and India’s vibrant startup ecosystems ensures direct and easy access to these talents. It is a costly and time-consuming exercise for foreign companies to identify and shortlist institutes and select the best talent from them directly. Even when they do so, collaboration and direct supervision become a challenge. As of June 2021, 700+ such unicorns thrive in India.
4. The aftershocks of COVID 19
The pandemic broke through cultural barriers that hitherto prevented remote operations. The crisis accelerated tech adoption, especially cloud adoption, by about a decade.
Businesses had no option but to respond overnight to cope with the health crisis. They had to reimagine customer experiences in response to the customer’s increasing preference for digital transactions, engagement, and purchases. They also had to fast-track digital transformation to plug into the digital-first economy. They needed to set up new digital platforms to enable remote work and new e-commerce sales channels.
Several enterprises, whose primary sales channels were still brick and mortar, had to make the big leap overnight. Most enterprises struggled to set up digital systems that enabled them to keep their shop afloat. Having weathered the initial storm, they seek to consolidate and streamline such online systems.
A 2021 Ecosystem survey reveals the COVID-19 pandemic has forced 14% of the enterprises to start digital transformation and 13% of the companies to accelerate their digital transformation efforts. 40% of the enterprises had to refocus their digital transformation initiatives.
During the pandemic, GCCs helped their parent companies shift their legacy applications to the cloud. GCCs could focus on the digital transformation tasks without disrupting operations at the parent company. Being already familiar with analytics, machine learning, and process automation, GCC service providers in India could undertake these tasks with ease.
GCCs in India were among the earliest adopters of the hybrid work model. Some parts of GCCs in India have established and streamlined hybrid work arrangements well before the pandemic. These GCCs now play a critical role in using their experience to reimagine hybrid workplaces.
With GCCs being dedicated hubs, remote employees work with complete commitment. GCCs do not face data safety or commitment issues that plague outsourcing.
5. Evergreen resilience
Success in today’s fluid business environment depends on resiliency, agility, and flexibility. Businesses have to move fast to seize opportunities and close deals.
Co-opting GCCs makes the parent enterprise agile and resilient by design. GCCs enable a distributed and remote workforce that became inevitable during the pandemic. Post-pandemic, such a workforce model delivers resiliency and competitive advantage.
GCCs in India have set new benchmarks for resiliency. GCC service providers in India weathered the pandemic crisis with flying colors. With minimal investment and disruption, its huge workforce transitioned overnight to the work-from-anywhere model. The resilience and the efficiency of these GCCs stood out during the pandemic and have become a model worth emulating for any future crises.
In the post-COVID world, GCCs help enterprises transform their business models and cope with the new realities. The conventional functions of GCCs will continue to be providing efficiencies and cost savings. In addition, GCCs will also become digital transformation hubs for their parent companies.
Several multinational companies have long-running GCCs in India. Brands include Apple, Bank of America, Barclays, Cisco, Ford, Google, KPMG, Microsoft, Nissan, Qualcomm, Standard Chartered, and Wells Fargo. Even global conglomerates from the Asia Pacific region, such as Foxconn, LG, Panasonic, Rakuten, and Samsung, have GCCs in India. GCCs of Asian multinational companies constitute about 10% of the GCCs in India.
The list of companies setting up new GCCs in India is also plenty.
Bosch Global Software Technologies, the technology arm of German manufacturer Bosch, is setting up a 1,500-capacity center in Pune. This GCC will connect products and solutions for the company’s automotive and digital core domains.
Pratt & Whitney, the aviation engine maker, is establishing a new GCC that will host 160 aerospace analysts and data scientists. The center will streamline the company’s procurement, supply chain, and digital analytics functions.
The latest multinational to join the GCC India bandwagon is Lowe’s, the US retailer. Lowe, in fact, already had a GCC center in India running and set up its second center in Bengaluru. The company’s online sales have more than doubled during the pandemic, and it expects the growth story to continue. Lowe’s now has more than 3600 associates in India, with a 60% increase in the associate count during the pandemic.
Many more multinationals will join the India bandwagon soon. Industry estimates expect GCCs in India to grow significantly in scale and scope over the next five years. A NASSCOM-Deloitte report estimates only 25% of Fortune 500 and 15% of Fortune 2000 companies have GCCs in India. These figures indicate a significant headroom for growth. Entrusting global business services with GCC service providers in India will make the company digitally savvy and cost-efficient. Indian GCCs now play a pivotal role in digitization and automation, risk management, and associated functions critical for any business to survive in the new digital economy.