Captive Boom! Global companies will add over 3 lakh technology jobs in India in next 3 years

With digitization, companies also believe that technology is core to their business and that they need to own it rather than outsource it.

India is the go-to destination for global corporations seeking to set up technology hubs, as they see vast potential here because of abundance of skilled tech talent, favourable operating environment and English proficiency.

In addition, the COVID-19 pandemic has accelerated digitisation and assuaged concerns around distributed work models, giving these companies more confidence to set up their technology captives here.

Global cos make a beeline for India

While there was a marginal dip in new GCCs (global captive centres) opening in 2020 as companies were coming to terms with the pandemic, there has been a significant increase in new GCCs being set up this year, with over 40 new ones since the beginning of the year, in various stages of being set up.

Companies who have set up technology hubs in India in recent months include Giant Eagle, H & M, Ikea, GSK Pharma, 7-Eleven, Fiat Chrysler, Lululemon and Cardinal Health.

Not just cost arbitrage

"While cost arbitrage was the main factor for enterprises to set up GCCs in India in the early 2000s, over the years these have evolved into strategic assets and provide significant competitive advantage to companies. Omnichannel, mobile, cloud, digital, info security, etc. are no longer optional capabilities – they are important capabilities for companies to stay relevant," Lalit Ahuja, founder and CEO, ANSR Consulting told Moneycontrol.

Ahuja advises global corporations and has helped establish over 60 GCCs across India and Poland. He added that captives now deliver value beyond cost arbitrage and influence business outcomes.

With digitization, companies also believe that technology is core to their business and that they need to own it rather than outsource it.

Global Innovation Centres

"Captives are rapidly scaling up their operations in India, and interestingly, some of them who sold off their captive centers a few years back are setting it up all over again. These entities are driving the transformation and innovation agenda. So much so that Global Captive Centers (GCCs) have rechristened themselves Global Innovation Centers (GICs)," Ramkumar Ramamoorthy, Pro Vice-Chancellor at Krea University and former chairman of Cognizant India said.

He said the growth is also because of the vast talent availability in India across a broad spectrum of digital technologies, products and platforms.

India: powerhouse of digital talent

In 2019, India had around 700,000 professionals skilled in digital technologies. This number is said to be growing by 30 percent or more each year including companies upskilling and reskilling their existing employees.

"No other country can claim to be a powerhouse of digital talent across a large canvas", he said.

Ramkumar added that while for a decade captives went through their up-and-down cycles, today there are examples of captives scaling up to 30,000-40,000 employees, with new entrants building their digital products and solutions from India.

“This has led to captives accelerating their contribution to over 25 percent of Indian IT’s export revenue," he said.

Big banks hiring big in India

Analysts Moneycontrol spoke to said global banks such as JP Morgan, Citi, HSBC, RBS and S&P, which have had captive presence in India for many years, are scaling these to hire tens of thousands of employees.

3 lakh tech jobs in 3 years

"We expect at least 150-200 new companies to set up GCCs in India in the next 3 years. There will be an additional 300,000-350,000 jobs created in the next 3 years because of expansion of current GCCs and new GCCs being set up," Ahuja said.

Apart from the bulge-bracket banks and retail chains in the US, a lot of companies in the mid-market segment, startups and product companies from markets such as Eastern Europe, South East Asia, Middle East are also making a beeline to India.

"Covid-19 has highlighted the importance of distributed, collaborative teams for minimizing business impact and disruptions, thereby validating the GCC model" Ahuja added.

Dilipkumar Khandelwal, Global Chief Information Officer for Corporate Functions and the Global Head of Technology Centres, Deutsche Bank, told Moneycontrol recently that the bank would invest more in technology infrastructure, with India set to play a key role in its digital transformation. It has identified 4 regions for tech centres, with India being the biggest among them. Its India tech centre already has 4,000 employees, with the bank looking to ramp up.

Will captives spoil the IT party?

While the captive boom is good news for techies in terms of jobs and salaries, it poses a risk for IT services companies such as TCS, Infosys, HCL Tech and Wipro, as more clients now look to insource rather than outsource.

"It is true that large enterprises are aggressively growing their in-house capabilities and this is taking some work away from the third-party service providers. However, the huge demand for digital and other IT talent is overwhelming this trend and creating a strong growth market for the service providers," Peter-Bendor Samuel, CEO, Everest Group said.

So while companies may have a long-term preference to in-source, the current demand for IT projects means that they can not stand up internal talent fast enough, particularly in the hard-to-find digital talent area.

The War for Talent

Bendor-Samuel said this talent imbalance between demand and supply creates a strong growth opportunity for the service providers despite the long-term desire to insource.

He added that it will also intensify the war for talent and increase the upward pressure on wages, as captives competing for talent in India are typically willing to pay salaries above what is offered by IT companies.