Cheap engg, tech talent helping India transition up the services value chain

With close to 1,600 GCCs of multinational companies in various sectors, India has become to the world what China is for tech hardware. Leading companies from across sectors – modern trade, apparel, finance, consumer electronics, automobile, and shipping – have opened big headquarters in India from where they manage a number of core functions including designing, inventory and supply chain management and transportation.

The movement has come on the back of some key trends: the country’s large pool of engineers, availability of relatively cheap labour, low real estate and rental costs compared to other Asian destinations, and comparatively simpler labour laws which allow for longer working hours.

Led by information technology (IT) giants like TCS, Infosys and Wipro, in the late 90s and early 2000s, India made a name for itself as a service-led export destination. But then, the move simply happened because of the cost arbitrage – for foreign firms, it was simply cheaper to outsource tedious grunt work to an army of IT professionals in India.

While the movement from the early business process outsourcing (BPO) days to the IT services sector boom leading up to setting up of more cutting-edge GCCs has largely been evolutionary with minimal government support, the Centre is currently discussing with the industry a new IT policy under which it aims to double the number of GCCs in the country in the next five years, The Indian Express had earlier reported.
“Almost every tech-enabled enterprise has built a GCC in India – from a supermarket like Tesco digitising its operations from here to tech giants like Amazon and Samsung,” said Rajeev Chandrasekhar, Minister of State for Electronics and IT.
“It has been a real transformation for India. Earlier it was a back office during Y2K led by the IT and ITeS and business process outsourcing model where the tech ecosystem was built on cost arbitrage. Now, it is because of the skilled workforce we have domestically and a shortage of such talent in the western world,” Chandrasekhar added. The activities of the GCCs are increasingly varied.

For instance, since 2006, Goldman Sachs has invested over $7 billion in India and set up global capability centres (GCCs) in Bengaluru and Hyderabad. The Bengaluru GCC powers a wide range of key banking functions like corporate cash management, liquidity management, developing rich analytics, and virtual accounts payments. In fact, the GCC is understood to have been key in the launch of a co-branded credit card in partnership with Apple in 2019, and credit solutions tied with Amazon in 2020.
All major financial services companies including the likes of Visa, Morgan Stanley, American Express, and Wells Fargo, among others have large capability centres in India.

Canada-based activewear company Lululemon’s India GCC workers go through sales data and tell their global branches to stock up certain colours which are selling the most in their geography. American retailer Target, which does not have a store in India, from its tech centre in Bengaluru services various needs ranging from data analytics, merchandising, marketing to planograms and layouts for stores.

AMD, the semiconductor giant, recently opened its biggest research and development centre in India, and for years, the country has served a massive talent pool of design engineers working for all major chip firms like Intel, Texas Instruments, Samsung and STMicroelectronics who have worked on the conceptualisation of chips that end up in things that people use everyday.

According to a 2023 report by tech industry body Nasscom and Zinnov, there were more than 1,500 GCCs in India registering a growth of over 60 per cent since 2015. A large part of these are technology centres established by companies from North America spanning sectors like modern trade, apparel, and consumer electronics. The report suggests that more than 1.6 million people were employed by these GCCs, with more than 70,000 individuals coming from smaller cities.

As per estimates by global consulting firm EY, the GCC market size in India will reach $110 billion by the year 2030. “It is predicted that by 2030, India will have 2400 GCCs and that number can potentially increase to 2550 as India emerges as the world’s technology and services hub. The total number of new GCC set-ups every year can jump up to 115 (from the current 70),” EY said in a 2023 report titled ‘Future of GCCs in India – a vision 2030’.

Currently, cities like Bengaluru, Hyderabad, Chennai, Mumbai, Pune, and Delhi NCR remain popular sites for GCC establishments in India, but according to EY, tier-II cities are also grabbing the interest – cities such as Visakhapatnam, Jaipur, Vadodara, Kochi, Chandigarh are becoming popular for new set-ups owing to its improving infrastructure, favourable state policies, and lower real estate and talent costs.

Given the competitive talent market, availability, attraction and retention of niche talent, building a pipeline of readily deployable talent with the new emerging skills, finding and nurturing talent equipped for global leadership positions, and cost arbitrage have emerged as key challenging factors facing GCCs in India, according to a report by Nasscom and KPMG released earlier this month.

“Navigating these challenges, GCCs are leveraging innovative workforce strategy models, such as hire-build-scale, borrow- augment and co-create, to achieve near, medium, as well as long-term goals,” the report said.