What’s Fuelling India’s GCC Gold Rush? Demographic Dividend, Cost Advantages Hold the Answer

Aarnav (name changed on request), a graduate of Indian Institute of Engineering Science and Technology, Shibpur, landed a job of a digital engineer at Texas Instruments. He enjoys the opportunity to work at a multinational company (MNC) without needing to relocate abroad.

His office, located in Bagmane Tech Park, Bengaluru, is nestled among other major companies such as Oracle, Nike, Cisco and Grant Thornton. Aarnav is one among the 2.5 million science, technology, engineering or mathematics (STEM) graduates in the country who form an attractive talent pool for MNCs to set up their offices in India, and Texas Instruments is one among the 1,580 global capability centres (GCCs) and one of the earliest to recognise the potential of the Indian market.

GCCs are offshore centres that support a global parent company. The companies leverage specialised talent, cost arbitrage and operational efficiencies in several locations around the world to get key jobs done so that everything runs smoothly in the parent company. These centres provide essential tech services, research and development (R&D), and engineering and information technology support to their parent companies. GCCs have become a major trend in India, with their rapid expansion evident as 10 new GCCs were established in just the fourth quarter of 2023.

GCCs employ over 1.66 million people, according to GCCs in India: Building Resilience for Sustainable Growth, a report by consultants KPMG and NASSCOM, the IT industry body. The total market size of GCCs is $46 billion, and it is growing at a compound annual growth rate of 11.4%, according to a report jointly published by NASSCOM and management consultants Zinnov.

The overall share of GCCs in total IT exports from India increased from 18% in 2015 to 23% in 2023, says an HSBC global research report. At least 20% of the Forbes 2000 global companies have set up their GCCs in India till 2023.

Destination India

In 2021, India produced 34% of the world's STEM graduates, according to the UNESCO Institute for Statistics. This scale of talent, combined with the quality, makes India an unbeatable destination for MNCs. Skilled, English-speaking professionals are abundant and relatively cost-effective, creating the perfect pond for global companies to fish in.

"There are few places globally where you can find techno-functional talent at such scale,” says Gaurav Gupta, GCC industry leader at consultants Deloitte. “While obviously the narrative has changed from cost to value addition, India continues to provide talent at better cost structure compared with most of the other countries,” Gupta says.

India’s low real estate and rental costs also play a significant role. According to a report by Vestian, a real estate consultancy group, office rents in India's top seven cities range from $0.4 to $2 per square foot a month, the lowest among the world's leading markets.

“We already have a robust ecosystem for GCCs to thrive," says Vikram Ahuja, co-founder of ANSR, a GCC advisory and solutions platform. "India is unique with its strong home-grown start-up and GCC ecosystems, services infrastructure and home-grown industry. The talent flow across these sectors brings in a wealth of expertise and experience, further boosting India's edge over other countries,” he says.

Evolving Landscape

For sure India has been a destination for GCCs for a while now. However, earlier India was known to be the back office of these companies. Over time, these centres have advanced up the value chain, evolving from basic business process support to steering global innovation and managing core operations.

According to Ahuja, GCCs in India have become an essential component of global companies, driving global decision-making from India. “Around 5,000–6,000 global roles are being hired from these GCCs,” Ahuja points out.

Myron Sojka, chief technology officer at Epsilon, a global advertising and marketing technology company which set up its operations in Bengaluru in 2015, says, “The India-based teams and the global teams act as one cohesive team. We execute projects together and deliver our products and services in a truly integrated fashion.”

Epsilon India has built-in mechanisms for quick sharing of market dynamics, industry trends and customer perspectives across its teams. With such processes in place, it can meet customer needs in disparate markets and evolve its technology to meet them. “A lot of that technology gets built and delivered globally to our clients out of our India centre,” Sojka says.

There has been a significant transformation in Siemens Technology & Services, a technology company, in terms of workforce and the work itself. Pankaj Vyas, the CEO and managing director, says, “Our development teams have established a community of experts in emerging technologies like artificial intelligence, machine learning, edge computing, user experience interface and cyber security.”

In the past five years, the number of employees in the company has doubled from a little over 5,000 to almost 10,000. He highlights a marked shift from coding-centric roles to a focus on strategic positions like architects, product owners and product managers. “Earlier, the focus was on automation but now it is on digitalisation,” says Vyas.

Besides stepping up the value chain, GCCs have made a mark in important sectors such as industrial, semiconductor, banking, financial services and insurance (BFSI), and software and internet. According to NASSCOM-Zinnov India GCC Trends Half Yearly Analysis, software and internet companies formed 44% of the new GCCs established in India in the first half of 2023. Of these 11% each were from BFSI, chemicals and materials, and retail. The report also suggested that 83% of them had three functional areas—ER&D, IT and business process management.

“BFSI companies would be less in number but would be large in scale, employing upto even 60,000–70,000 people. In the healthcare sector, more GCCs are being set up now,” says Deloitte’s Gupta. In fact, a pharma GCC made news recently for contributing majorly to the development of Novo Nordisk’s successful drug Ozempic used for weight management.

The Danish company’s global business services team of 4,000 people in Bengaluru collaborated closely with global teams for the programme. The unit works on aspects such as clinical trials, biostatistics, data management, pharmacovigilance and global safety.

Future Perfect

The number of GCCs is estimated to increase to 1,900 by 2025 with market size reaching $60 billion. The share of GCCs in India’s GDP is expected to double to 2% by 2030 as The Economic Times reported.

A Goldman Sachs report said that in the past 18 years, India's contribution to global services exports has more than doubled, and GCCs played an important role in this growth. But service export is just one aspect of the impact that these centres have on India’s economic growth.

“GCCs should not be evaluated solely based on products or services exported because they are not set up for that purpose. They do not sell services externally. They focus on supporting the operations of their own company. The real value lies in the indirect impact they have on various operating sectors they collaborate with,” says Arindam Sen, who heads GCC strategy for a consultancy EY India’s media, entertainment and telecommunications segment.

One such sector is real estate services that has seen significant growth. A significant 5 million square feet of leasing activity by GCCs, represented 37% of total office leasing across the top six cities in the first quarter of 2024, according to Colliers, a real estate management firm. “The proliferation of GCCs has not only spurred growth in real estate services but also significantly boosted services exports, contributed to economic expansion, generated employment opportunities and facilitated rapid revenue escalation for these firms,” says Vic Bhagat, global adviser at Kyndryl, an IT infrastructure services provider.

They are also helping in the growth of these sectors, especially the IT services companies as GCCs become their consumers. This symbiotic relationship particularly benefits these companies, which collaborate closely with GCCs. Vyas from Siemens underscores the importance of collaboration in GCC operations, involving partnerships with start-ups for innovation and services companies for on-demand talent. Bhagat also believes that GCCs are revenue generators for start-ups.

“GCCs are looking at harnessing the enormous power of the start-up ecosystem through a host of engagement programmes including accelerators. Start-ups and IT firms associated with GCCs gain the ability to scale their operations and solutions globally, leveraging the networks and resources of MNCs,” he says.

While GCCs have a promising future in India, they also face certain challenges. “GCCs must navigate various regulations, such as transfer pricing and taxation laws, which can be slightly challenging for companies new to India,” says Sen. Lack of a cohesive regulatory framework can result in operational delays and increased compliance costs. Central and state governments need to work towards simplifying the regulatory process.

With an increased government support, GCCs are set to grow in India. As they continue to evolve and expand their footprint, their role in driving innovation, employment and economic growth in India is set to become even more pronounced.