How GCCs in India are giving IT services companies a run for their money

In contrast, domestic IT hiring, which was on a tear during the pandemic years, has significantly slowed, and in fact, last quarter, even went into the red when it comes to the number of people added.

In the monthly economic review for April, the Reserve Bank of India attributed the sharp growth in service exports between FY20 and FY23 to the growth of GCCs. According to the note, India has the largest number of GCCs in the world and enjoys a competitive advantage, not only in terms of cost but also in web-based capability and management skills. “With a growing focus on switching to hybrid business models, digital delivery of healthcare, educational and recreational services will likely be the future drivers of India’s services exports,” it says.

While GCCs have been around for several years, it’s their moment in the sun right now due to a confluence of factors.

Talent and hiring

The RBI’s monthly economic review says that rising inflation incentivised global conglomerates to search for low-cost options. “The availability of low-cost, efficient and capable labour in India led to the setting up of GCCs in India to provide back-office corporate support to the conglomerates,” it reads.

India’s talent in engineering prowess is only buttressed by the number of graduates we see from engineering colleges each year. While there have been questions about employability, those that run GCCs as well as experts peg this as a factor that makes India stand out.

Sindhu Gangadharan, Senior Vice President and Managing Director of SAP Labs India, told Moneycontrol that India is one of the top three countries in the world that generate the maximum number of STEM graduates each year. For SAP Labs, she says, this gives them access to 25 lakh professional software engineers, and as a part of this, 7 lakh cloud professionals.

“The question is no longer about ‘why India?’ It is more of ‘how quickly in India?’ That's the conversation. The market has changed, the consumption power has changed, and the ecosystem has changed in the last decade. That I think is the equation that is really resulting in 40 percent of our (SAP Labs’) global R&D coming out of India," Gangadharan says.

In fact, SAP Labs has started constructing a second office in Bengaluru, which will create 15,000 jobs.

Ramkumar Ramamoorthy, Partner at growth advisory firm Catalincs and the former MD of Cognizant India, says the availability of digital talent is the highest in the world.

“With the explosion of high-quality STEM talent in India largely driven by several hundred new private universities, newer IITs and IIITs, as well as skilling institutions and Edtech platforms, availability of digital talent is the highest in the world. It’s a no-brainer then why the world’s best companies are making a beeline for India through their GCCs,” he says.

He goes on to say that if one were to rank the top 200 IT companies in India in terms of employee count, a majority of them could be GCCs. “Given that the largest GCC has over 50,000 employees, and dozens of others have over 10,000 employees each, the best practices are getting cross-pollinated and institutionalised at a frenetic pace,” he adds.

Additionally, he believes that given their pace of growth, GCCs could even be adding more net headcount than traditional IT companies, starting this year.

K S Viswanathan, Vice President (Industry Initiatives), NASSCOM does not agree that it will grow at the same clip as IT services, primarily because GCCs hire more laterals and fewer fresh employees.

However, this trend may be changing.

In February, ANSR managing director Vikram Ahuja told Moneycontrol he expects a 40 percent increase in hiring by GCCs, and that GCCs are choosing to go to campuses earlier in their life cycle.

In fact, he says that GCCs that earlier built a strong workforce from laterals are now starting to look at freshers as a way to address some of the unpredictability in the market, by bringing in people and training them on the job, he says.

It’s also about the skill-sets that India offers GCCs.

According to NASSCOM, GCCs in India are acting as core technology hubs for their headquarters, specialising in niche skills around Cloud, AI/ML/NLP, Cybersecurity, Low Code/No Code, Advanced Analytics, Blockchain, IoT, etc. NASSCOM says India GCCs are also playing a pivotal role in exploring emerging technologies such as Web 3.0, Digital Twins, Metaverse, etc, for their parent organisations. India has an AI/ML talent pool to help GCCs establish centres of excellence too.

NASSCOM’s Viswanathan also attributes it to the talent that wants to work in companies such as this. While startups may have been a no-go even a decade ago, today’s youngsters are different — rather than going for a large company, they are looking at the kind of work they can do and not becoming a cog in the wheel.

From cost to capability 

Initially, GCCs may have been driven to set up in India for cheaper talent but that may not be the case anymore.

Gangadharan from SAP Labs says while there have been factors such as lower entry barriers and the increased ease of doing business, she says what works in India’s favour is the innovation coming out of the country, while cost arbitrage is a plus.

“In terms of product innovation, people are realising if you're not playing in India, you're missing out. Of course, cost adds to our advantage. There's no doubt about it. But cost is not the leading conversation anymore. The leading conversation is, ‘how do I tap into the innovation that's happening in India? How can I benefit from them?’ The cost arbitrage is a nice plus,” she says.

Ramkumar Narayan, VP of Technology and Managing Director of VMWare India, told Moneycontrol that while there’s no question about India’s engineering expertise or that we can build global solutions from India, there is also an evolution of other functions beyond engineering, such as product management, design and analytics. Given India already has a comprehensive ecosystem, it is now a question of leveraging this, he says.

“Newer GCCs don’t want to go through the evolution of saying I come here for cost, then discover this talent, etc. How do you short-circuit all of this, and just build global-centric teams in India that take on global leadership? Newer GCCs are saying India is one of the global centres, and they have as much level-playing field inside the company and they should take on global responsibilities. That's where the excitement of the new opportunities is coming up,” he says.

Viswanath says that earlier non-core functions of companies were typically outsourced, while the core was insourced. “Post-COVID, the core is getting even smaller and the non-core is increasing to the larger pie. Core functions that are not getting outsourced are moving to GCC of their own entity,” he says.

“GCCs with access to data and the microcosm of the organisation are able to have better control and cost reduction,” he adds.

However, rather than cost, the need for digital transformation is leading to the sudden proliferation of captive units.

“With structural changes driven by digital, technology is no longer merely an enabler of business but is the business. As such, digital transformation is core to every company’s differentiation and growth, thereby driving the need to ‘own’ those capabilities rather than ‘lease’ them,” adds Ramakumar Ramamoorthy.

He maintains that GCCs “will play a big role in India’s journey to a $5 trillion economy as well as being a soft power, globally.”

In fact, Viswanathan adds that while service providers would focus on the top Fortune 3000 companies at the most, now everyone needs digital transformation. These companies, too, are forced to go the GCC way.

However, he cautions that we must not take our foot off the pedal when it comes to cost.

“We are cost competitive, and we continue to need to be cost competitive. We cannot take our eyes off just because everyone says cost is secondary,” he stresses.

Leadership

Narayan from VMWare says that whether IT services or GCCs, they are expanding and increasing their capabilities to cater to global demand.

He maintains that while global demand and expectations are shifting, it’s not a question of calibre anymore — and they do not necessarily have to be from a tier-1 institution.

“I would rather focus on how we are managing our talent pipeline, and helping these people from a capability improvement and engagement improvement standpoint, and so on, not get fixated on cost and number of people that we hire and not hire. Raw talent can come in at every level in every type of organisation. The ones that will succeed are the ones that have a great program that allows this talent to flourish,” he says.

For this too, he says the leadership of GCCs is not in question anymore.

“We have really good people who have grown either through organisations or taken on multiple roles. It’s not a delivery job anymore as it used to be 20 years ago. Now, it's about innovation. That's very good for the ecosystem. Because now we have opportunities at every level of the organisation for people to come in and showcase what they do,” he says.

NASSCOM’s Viswanathan concurs and says that the leaderships have a strong attitude that exudes trust— that companies can place their trust in them.

The report by NASSCOM also shows that there has been an increase in global roles in India. Global roles are those which have an international scope, are not restricted to a country, and involve working with teams and stakeholders from various parts of the world.

“Global roles have been the cornerstone of India GCC growth; projected to surge at a remarkable CAGR of 19 percent,” says the report. In fact, it expects India to house nearly 20,000 global roles in the next 7 years.

The India story

As per the report by EY, India has enough tailwinds with political stability, a healthy domestic consumption-based economy, and a robust regulatory system for the financial sector while the global economy faces headwinds from the tightening monetary policy cycle, slowing growth and rising inflation.

Gangadharan from SAPLabs also stresses this. Talent access, market potential, regulatory changes and neutrality from a geopolitical perspective have all helped this growth spurt, she says.

NASSCOM’s Viswanathan says that the India digital story is catching on because India is digitising, putting everything in place to do it. “They say there must be something happening for digital transformation as a country. That is the story that people are leveraging for digital transformation big time,” he says.

A thriving startup ecosystem has also aided this, along with GCCs also having matured because of how long they have been in the country.

As per EY, they can also collaborate and feed off each other. “While start-ups benefit from market access, enterprise connect, mentoring, funding, and data, GCCs receive technology with due diligence, speedier go-to-market, accelerated innovation, and tech-driven talent,” it says.

This maturity is leading to tier-2 destinations being considered for the setting up of GCCs, though the focus even now remains on top metros like Bengaluru, Hyderabad, Chennai, Mumbai, Pune and Delhi. 

A mature ecosystem

Ease of doing business has made it significantly easier for GCCs to set up as well, or as Viswanathan calls it – the best in class. While there are efficiencies that can be improved, he says they can be done incrementally.

What India needs to focus on is addressing predictability in business, he adds.

“If there is predictability -- predictability of transfer pricing, acceleration of closure of Advanced Pricing Agreements for a larger company -- if they were to be implemented, augmented, accelerated correctly, we are absolutely in a great place. But, the good news is demand is huge,” he says.