The booming capability centres in India

As many cost arbitrage strategies go, there is only so much room for growth. Eventually, India’s labor costs will go up and other global locations will become competitive alternatives. India’s position as GCC heaven will be threatened. Is that a likely future? Again, probably yes if GCCs remained only about cost minimization. But that is changing.

In recent years, GCCs have greatly expanded their strategic role, offering services that contain much more added value. In particular, Indian GCCs have leveraged the “talent” part of their proposition to become global centers of excellence in data analytics. For example, Tesco Business Services (TBS), Tesco’s GCC in India, has scaled its employee size from 500 to over 4000 since its creation in 2004 in India. It manages 70% of the finance processes and 100% of store promotions for Tesco’s 6800+ stores around the world. With design thinking and system transformation across multiple geographies being designed and implemented from India, TBS generates an estimated value of 3.5x its operating cost.

GCCs are generally preferred over outsourcing due to their strong cultural and vision alignment with the parent organization. They attract top talent by offering career growth opportunities, leading to higher engagement and productivity. Also GCCs allow for better control over the company’s processes and standards, ensuring consistency and quality. They align with customer-centric strategies, prioritize customer needs better than a third party would, and offer better IP and data security. Leveraging the parent company’s ecosystem, GCCs enhance capabilities and performance, delivering higher quality work.

On the other hand, not all GCCs exhibit the same level of maturity and scope. While typically a global company would set up a GCC to perform some low level tasks (think answering basic customer questions or double-checking internal processes) at a lower cost, that is usually just the beginning of an evolution process. In further stages, GCCs adquire more autonomy, increase their scope by taking over entire processes and, on later stages, start functioning as a hub for global transformation. This way, a GCC that started by processing client invoices ends up designing and executing a digital transformation initiative across the entire company. This later stage also naturally fosters the development of leaders “out of India”, that go onto other responsibilities in the parent company.

Looking ahead, we can expect that decentralization from tier-1 cities will increase, driven by government policies and the untapped talent potential of those second- and third-tier locations. Very likely, we will see more global leadership emerging from India as more GCCs become transformation hubs. And of course we can expect these centers to transition from Shared Services, focused on cost reduction and efficiency, to Global Business Services, encompassing strategic functions like R&D, analytics, and digital transformation, directly contributing to business growth and innovation. As India’s start-up and innovation ecosystems mature, we will see more collaborations, leading to better and greater affordable access to technology and services. This evolution will likely position India as a more developed market for GCCs. But for that to really happen, India needs to grab the AI opportunity, generating enough talent -at all levels- to make the GCC the best place to locate the digital transformation of global companies. That is still an ongoing challenge.