At AstraZeneca’s global Innovation and Technology Centre in Chennai, when you strap on a virtual reality (VR) headset and turn on their XR (AR/VR) tech set-up, you are transplanted into an interactive digital replica of the Covid-19 vaccine maker’s drug production facility in Sweden. At the click of a button, you can be on your way to learning how to bottle vials of medicines, all without ever setting foot on the assembly line or touching the actual drugs. Developed entirely by their captive unit in India, the software module saves the pharma giant significant dollars. “The drugs produced by operators during training have to be discarded. That’s a lot of waste. But when you train virtually, you reduce that waste and time. Think of it like pilot training on simulators,” says Siva Padmanabhan, MD & and Head of Global Innovation and Technology Centre, AstraZeneca.
If Japan has an equivalent of GooglePay called Rakuten Pay, it is because the Japanese conglomerate Rakuten Group’s Bengaluru Global Capability Centre (GCC) built the platform. The GCC even manages the entire product—its UX, the back-end, and the strategy. “Whether adding a ‘split pay’ feature to the app or handling 50 million users coming to our e-commerce website or app, it’s all done from here,” says Sunil Gopinath, CEO of Rakuten India.
Another example is the US-based home improvement retailer Lowe’s. It has been able to increase the number of transactions—up from 25 per cent earlier to 40-50 per cent of all transactions now—going through its self-checkout counters, thanks to the company’s GCC in Bengaluru, which developed the system in-house at a fraction of the cost of a vendor product, and with far more stability. “It’s being rolled out across the chain’s 1,700 stores in the US. It helps Lowe’s top line and bottom line,” says Ankur Mittal, Senior Vice President-Technology & MD of Lowe’s India.
It’s raining GCCs across sectors in India and they are transitioning from 24x7 back-end operational support to the front and centre of global operations, driving cutting-edge innovations for their parent firms. GCCs are essentially the in-house tech outposts of multinational corporations (MNCs), some of which have commercial operations in India, while others don’t. India is home to more than 1,580 captive centres, employing 1.6 million people, or one-fourth of the direct jobs currently provided by the IT services industry; and more are being announced frequently.
In fact, the $40-billion-plus Indian GCC industry is doing in-house technology and innovation work that would have normally been outsourced to third-party IT services majors such as TCS, Infosys and Wipro. “We will have to make trade-offs on speed, user experience, ownership, culture, etc., if we decide to go out,” says Rakuten’s Gopinath. The eight-year-old Bengaluru unit is Rakuten’s largest centre outside Japan. “More and more companies across sectors are realising the value of doing all these in-house, rather than giving it to third-party IT services majors,” says Lowe’s Mittal, who has earlier worked in the IT sector. India—the GCC capital with half the world’s captive units—has witnessed a recent wave of MNCs establishing their captive base here after the Covid-19 pandemic. They have collectively added an estimated net 365,000 jobs in 2023, as per talent solution firm NLB Services, even though India’s IT services sector has scaled back hiring due to the US recession and rapidly changing tech landscape.
He trend has been in the making for two decades with early entrants such as banking and retail giants JPMorgan, Wells Fargo, Target and Tesco realising that India is not just a good offshore centre, but also a good place for offshore-insourcing. Today, GCCs are flourishing on the same advantages that ignited the IT boom a quarter century ago—a vast reservoir of English-speaking tech talent available at affordable rates. “You won’t find an artificial intelligence (AI) engineer in the US for less than $200,000-250,000 a year. India has a depth and pipeline of talent, even if it’s not ready-made,” says AstraZeneca’s Padmanabhan. A talent pool can be created within two years through the IITs and IIMs, he adds.
Power technology firm Hitachi Energy’s engineering centre in Chennai is proof. Started with 100-odd people in 2007 to focus on segments of projects outside India for its global parent, the recently expanded and rechristened Global Technology and Innovation Center has evolved into a team of 2,500 energy transformation technologists which executes end-to-end power transmission projects across 40 countries, including India. A multi-terminal HVDC (high-voltage direct current) transmission line connecting Saudi Arabia and Egypt is one of the projects the team is working on to ensure supply security for both nations.
“The tasks undertaken by the Chennai centre were previously managed through European engineering hubs, but scaling up proved challenging. With 1.5 million engineers graduating annually in India, we are able to train, upskill, cross-skill and deliver at scale and speed. That’s why we are able to do 1,000 projects from here,” says N. Venu, Managing Director & CEO of Hitachi Energy in India and South Asia.
But cost arbitrage is no longer the primary motivation. Instead, a blend of talent, a thriving start-up ecosystem and a digitally adept industry and customer base is attracting companies to India. “India’s digital ecosystem has exploded, witnessing innovation across fintech, commerce, healthcare, food, mobile, and many more areas,” says Gopinath, adding that the country is a goldmine for a wide variety of talent for Rakuten’s 70-odd businesses.
Add to this the global economic challenges, which have awakened firms to the value of cost-effective captives over outsourcing, as well as the successful validation of remote work during the Covid-19 era, and GCCs are growing a lot faster now. According to EY’s projections, a total of 2,400 GCCs will be operational in India by 2030, with an average of over 100 new facilities added per year until then. By then, it estimates, the industry will have grown to a headcount of 4.5 million—a near-tripling of the current figures.
With the GCCs’ role within their global parent firms rising up the value chain, the India offices are playing an indispensable part in their growth. “About 55 per cent of our IT operations are based here,” says AstraZeneca’s Padmanabhan, estimating that a good chunk of the pharma major’s global value is generated from India.
Fashion retailer Saks Fifth Avenue’s GCC in India handles its website, Saks.com, which includes essential functions such as merchandising, digital operations, and inventory allocation. Madhu Natesan, VP of Business Operations and Site Leader, Saks India, says, “Without the functions of this GCC, customers’ purchase journeys will be impacted as merchandise may not reach the stores or fulfilment centres. It will significantly impact both the top and bottom lines of the business.” Similarly, although Lowe’s lacks physical stores in India, Mittal points out that 50 per cent of its tech workforce operates from here. “We also hold significant responsibilities in merchandising.” He says they play a crucial role in the parent’s revenue generation, but it is difficult to quantify the exact amount.
In fact, many GCCs boast of a significant presence of senior- and global-level leadership here, which is evidence of the strategic importance that Indian centres play within the organisations. Sudish Panicker, MD, BNY Mellon India, says ownership within GCCs has expanded, extending across functional, product, and application domains. “This brings more leadership positions. These are folks who have teams across the world reporting to them while they are stationed out of a GCC and drive a global strategy,” says Panicker, who is also the Global Head of Accounting Services. Lowe’s India houses 120 leadership positions at the director-level and above. Mittal emphasises that a mere 10-15 per cent of these roles are exclusively India-centric. “A person owning a capability owns it globally. For instance, if I own Lowes.com search function, I own it globally.”
The GCCs also strive to mirror their headquarters through their grade-A office spaces across Tier I cities in India. Rakuten’s Bengaluru office, for instance, exudes a distinct Japanese ambience. Real estate consultancy firm Knight Frank India’s Senior Executive Director for Occupier Strategy & Solutions, Industrial & Logistics, Capital Markets & Retail Agency, Viral Desai, points out that the fastest growing office space categories today are the India-facing companies and GCCs. “The GCCs are north American and European firms from traditional sectors such as banking, pharma, oil and gas, etc. They have two major costs—people and office space. GCCs typically require 40,000-50,000 sq. ft area, which can accommodate 400-500 people. But it can go up to 600-700 people because of hybrid work,” he says, adding that they really invest in fit-outs. Says BNY Mellon’s Panicker: “One of the things we are clear about is that employees across locations will get world-class infrastructure.” The bank’s new office in Chennai, spanning 10 floors and more than 400,000 sq. ft, is its largest facility outside North America and can house 6,000 people.
Despite this growth, attracting and retaining talent remains a challenge for GCCs. Data from HR consulting firm Aon shows that their attrition and salary increments remain in the double digits. One of the hurdles acknowledged by GCCs is the initial struggle in recruiting and retaining individuals, given that the majority of tech talents prefer employment with tech or product-focussed companies rather than, say, in retail. But we have our edge, the GCCs say. Panicker says GCCs offer their employees a breadth of roles because of the multiple functions many of them have going on. “You could come into an engineering role and move into business, operations, risk or finance. That is a powerful thing.”
Acknowledging the attrition, Arindam Sen, Partner and GCC Sector Lead-Technology, Media & Entertainment and Telecommunications at consultancy firm EY, points out that it has decreased from 35-40 per cent during the pandemic to 15-16 per cent now. Besides, with the cost play out of the equation in many cases, firms are able to pay competitively. Hiring skilled talent in India, even at a slightly higher cost, is still significantly more cost-effective than engaging expensive contractors in regions like the UK, Sweden, or the US, says AstraZeneca’s Padmanabhan. “Even if the salary average moves up, we are not worried as long as the value is proportionately higher. It is still only a third or fourth of what we would be paying somewhere else.”
The slowdown in IT is also helping GCCs to some extent. As Lalit Ahuja, Founder & CEO of ANSR puts it: “Business is moving from one side of the coin to the other.” The firm offers end-to-end services for GCCs such as sub-leasing office spaces, getting fit-outs done and payrolling employees for a fee. “There is some impact of GCCs on the IT industry as a whole, but the quantification is difficult,” says EY’s Sen. Experts also suggest that parent companies strategically decide on outsourcing less critical tasks while retaining the more transformational aspects in-house for better quality and intellectual property protection.
Going a step further, maturing centres are eyeing revenue streams within India. Thus far, most have operated as cost centres, funded by parent organisations for specific in-house purposes. GCCs operate on a transfer pricing model, where they mark up the costs of their tasks back to the parent and pay taxes to the Indian government on the margin. However, they are now exploring profit models by encouraging businesses to entrust their IT outsourcing needs to them rather than conventional IT services companies. The rationale is that they understand the sector better and offer competitive pricing. For instance, Saks is considering a subsidiary tech service for similar-sized retailers.
Similarly, Rakuten has launched its AI-based predictive software Sixth Sense for businesses in India and plans to roll out more. ANSR’s Ahuja, however, sees them as outliers with a relatively small revenue generation. Many are actually wary of the commercialisation of their secret sauce, he adds. “The cost of losing out a few million dollars in potential revenue is much lower than owning an IP that sets you apart.”
According to EY’s Sen, there are significant challenges in monetising these products and services. “Setting up scalable operations for open market sales involves considerable investments in technology, regulatory compliance, infrastructure, marketing, and distribution. Today, more and more GCCs today are thinking about it, he adds.
But whether GCCs expand their offerings and impact IT services or not, the sector itself is set to grow and generate higher-quality jobs in India. Now, that is captivating.
@SaysVidya