On September 9, 2021, the lives of thousands of employees were turned upside down when US automaker Ford Motor Company announced its exit from the Indian market after incurring losses of more than USD2 billion over the preceding ten years. 4,000 jobs were lost as a result of the closure. While Ford exited the world’s third-largest vehicle market, the nation remained critical to the company’s worldwide strategy. Over 11,000 employees are still employed in India by the corporation called GCCs, in software engineering, analytics, data sciences, artificial intelligence (AI), product engineering, and a variety of other technical sectors.
Ford is not alone in this. Nearly 1,600 corporations have established technology operations in India during the last two decades. The technological units, once known as captives but now often referred to as global capability centres or GCCs, employ around 1.7 million people in India and generated a total income of USD43 billion in FY23. Indeed, as the IT industry slows, analysts predict that the GCCs will recruit more than their more well-known service counterparts this year. GCCs often hire slower, depending on business justifications, and rarely over-hire. IT services, on the other hand, have been more enthusiastic about recruiting in recent years.
Why are experts optimistic about GCCs in India?
As per the data from the National Association of Software and Services Companies, the number of GCCs in India might increase by 300 by FY25, contributing USD60 billion in income.Â
EY, a large consulting firm, is even more optimistic. It is estimated that the GCCs would number up to 2,550 and generate USD110 billion in income by 2030.
According to Kamal Karanth, co-founder of specialised staffing firm Xpheno, this year will see more steady additions to GCCs in well-calculated, intentional numbers, surpassing the IT services giants, which appear to have a talent excess for now. As the industry gains traction, here’s how GCCs in the country have developed over time. He asserts that Indian GCCs have grown fast over the previous three to four years to stack additional services and capabilities higher up the value chain.
A modest beginning.
When multinational corporations initially began establishing offshore operations in India, it was purely for cost reasons. Offshoring was a not so good word in the late 1990s and early 2000s. It was viewed as a tool for causing issues in the firms’ nations. As a result, the Indian arms had more mysterious names and distinct identities from the parent companies. Captives were obviously cost centres for the firms which established them. They might also be considered non-core and sold off under pressure to reduce expenses and raise funds.
Let’s understand with the example of Citigroup. Not one, not two, but three Indian units and one investment have been sold by the corporation. Rajesh Hukku, the previous head of Citigroup Overseas Software, set out Citicorp Information Technology Industries Ltd from the corporation in 1992. Citi had concluded it was not in the software industry, but it nonetheless invested USD400,000 in the initiative known as i-Flex. Oracle paid USD592 million for Citi’s 42% share in 2005.
Polaris Software purchased the company’s technology division Orbitech Solutions, in 2002. Following the global financial crisis, Citi sold two additional divisions, Cytos and e-Serve, to Wipro and Tata Consultancy Services, respectively. According to an industry parody, Citi probably made more money selling off its technology businesses in India than it did by operating in the region.
IT firms that compete for business with their customers’ offshore operations sometimes refer to the GCC market in terms of cycles. When their owners need money or seek to decrease costs, captives are established, run, and then sold. Citi established a new technology arm in India a few years ago and is actively growing it.
The progression.
However, according to IT experts, the previous cycles may no longer be applicable. Previously, when GCCs were bought by IT firms, they were small-scale and focused on technological services that were facilitators of business rather than the company itself. As digital becomes the underlying technological platform for differentiation and success, every firm wants to ‘own’ rather than ‘licence’ these capabilities. And, because India is the only place in the world with scale digital talents, every big corporation is making a beeline for establishing their GCC here, says Ramkumar Ramamoorthy, partner at Catalincs, a growth consultancy firm.
Ramamoorthy was previously the India head of Cognizant, which began as a subsidiary of Dun & Bradstreet. The establishment of a new facility in India has been announced with great enthusiasm. To attract personnel, GCCs collaborate with recruiting agencies and display advertisements at bus stops. Their current task is becoming increasingly important to their operations. As a result, the units are less likely to be sold.
Consider engineering research and development GCCs. These companies employ over 40,000 people in four of the country’s six core sectors: software, automotive, pharmaceutical, and industrial ER&D. Finance and accounting activities, which are regarded significantly higher up the value chain, have also witnessed significant capacity expansion. The entrance and growth of GCCs deprive Indian IT of income that it could have earned otherwise.
Another example that can be taken is Cognizant. In 2009, the business paid USD75 million for UBS’ captive, which came with a long-term contract. However, by 2015, UBS had concluded that technology was becoming increasingly important and that it intended to conduct more of the job on its own. As a result, it began constructing additional facilities across India. As a result, Cognizant has lost tens of millions of dollars in income from UBS. However, IT firms try to dismiss this by claiming that they can execute the task more effectively, have more experience, and can grow quicker. However, firms increasingly prefer to retain the job in-house, allowing more and more new GCCs to emerge and develop.
The GCCs are the largest employers.
Regarding recruiting, the present slowdown in Indian IT benefits the GCCs. According to Vikram Ahuja, CEO of Talent500 by ANSR, over 90% of GCC recruiting occurs between the ages of 3 and 15 years. Even when employment is lost elsewhere, the GCCs continue to hire. ANSR is a pioneer in assisting multinational corporations in establishing and scaling GCCs in the country. According to Ahuja, freshers are less in demand since GCCs prefer lateral talent because they require a greater level of domain expertise and experience.
ANSR is working on establishing up to two new GCCs every month. However, corporations are also exploring for locations outside of India to establish operations.
If GCCs are so much into employing in India, then why does this data go unnoticed?
Given that GCCs are unlisted in India and are less interested in publicity, the fact that they generate so much employment often goes unnoticed. Take JPMorgan, which employs over 50,000 people in India, far more than most mid-cap IT services firms. If the top 200 IT businesses in India were ranked by staff count, one would not be shocked if most of them are GCCs. Given that the largest GCC has over 50,000 workers and dozens of others have over 10,000, best practices are being cross-pollinated and entrenched at a breakneck rate. According to Catalincs Ramamoorthy, this assists many younger GCCs in rapidly scaling to over 5,000 personnel or more.
Conclusion.
When international corporations began establishing technology units in India, the term “offshoring” was looked down upon. After nearly three decades, India is critical to their worldwide technological goals. The nation has around 1,600 technological outposts, with the number predicted to exceed 1,900 by 2025. The GCCs are expected to hire more workers this year than the IT services industry. Because of its large pool of digital talent, India is an essential element of the global technology ecosystem, and its position has developed over time.
Indian talent is even making their way up the managerial ranks at their parent companies. While this is helpful for India’s IT talent, it makes it more difficult for Indian IT services businesses to compete with GCCs. As the sector picks up steam, let’s see what lies ahead.
Proofread & Published By Naveenika Chauhan
