The Finance Minister in her address to Industry leaders recently, spoke about the importance and the growth of Global Capability Centers (GCCs) in India and the potential going forward, as an indicator of the confidence and trust that MNCs placed in India.
GCCs are facilities established by MNCs to provide specialised services to their parent company and their arms worldwide. These services encompass technology, cybersecurity, advanced analytics, R&D, advisory and a range of other business functions within the MNCs global corporate structure.
According to a report by Goldman Sachs, GCC revenues in India have surged nearly four fold at a CAGR of over 11 per cent over the past 13 years, reaching $46 billion in FY23. Over the same period, the number of GCCs has more than doubled from 700 to 1,580 with an employee base of 1.7 million.
GCCs, which started as just cost-saving measures, are much more than that now. They are hubs for innovation and collaboration between the parent company and its offshore arms; increasingly focusing on high-value activities like IP creation, expertise in emerging technologies, digitization mandates and establishing Centres of Excellence.
The process has only accelerated since the pandemic. India’s GCCs, comprising about 45 per cent of GCCs worldwide according to Nasscom, contribute to its reputation as the world’s services factory. GCCs benefit from a highly skilled, affordable and young population, thereby offering ample opportunities for sustained growth to the parent company.
Tier-2 expansion
Initially, MNCs focused on establishing GCCs in Bengaluru, Pune and Hyderabad given their infrastructure and talent pool.
With the availability of infrastructure and real estate at lower costs and ready talent, GCCs are now being established in Ahmedabad, Jaipur, Mysuru, Vadodara, Kochi, and Coimbatore.
Indeed, the establishment of GCCs in Tier-2 cities enables youth in and around these areas to avoid migrating to distant metros in search of employment opportunities.
The Tamil Nadu government has introduced payroll subsidies and favourable policies to leverage GCCs for economic growth, regional development and innovation. Karnataka is also drafting a GCC policy, focusing on Tier 2 city development and local job creation. This policy aims to boost the local economy through skill enhancement, extending benefits beyond infrastructure development.
GCCs provide employment opportunities for skilled youth, especially women. They play an important role in enabling youth to get upskilled upskilling in emerging technologies.
The Global Skill Gap Study by National Skill Development Corporation (NSDC) showed a growing demand for Indian talent across diverse sectors worldwide, including opportunities for women.
Multiplier effect
GCCs not only drive direct investment and job creation, but also yield numerous secondary benefits that foster economic expansion.
First, they generate employment directly and indirectly, nurturing skill enhancement and income generation across associated sectors.
Secondly, MNCs introduce advanced technologies and managerial methodologies, thereby enhancing efficiency throughout industries.
Thirdly, their extensive supply chains create opportunities for local enterprises, promoting entrepreneurship and strengthening inter-company connections. These initiatives also spur the enhancement of local infrastructure and real estate development, facilitating the growth of the informal sector.
Services exports
In FY23, India’s services exports saw an impressive 26.6 per cent surge, touching $322 billion, according to the Reserve Bank of India (RBI). The Information Technology and Services (ITS) sector, a leading contributor, particularly in segments like consulting, system integration, and management services, underscores the crucial role of GCCs in facilitating these exports.
India is positioning itself as a vibrant knowledge hub for MNCs, aiming to become a global centre for innovation and expertise.
Through investments in education and training, it seeks to meet global market demands and foster transformative change across sectors.
By attracting MNCs, India enhances its economic stature, enriches its cultural landscape, and strengthens diplomatic ties, solidifying its position as a beacon of knowledge and opportunity worldwide. The increasing research capabilities, as evidenced by the rising number of patents secured by semiconductor GCCs, further demonstrate India’s commitment to quality services and its reputation as a favourable and secure business environment.
To facilitate the establishment of GCCs in India and address the challenges foreign entities face in setting up a ‘place of business,’ several policy reforms are imperative. Simplifying the regulatory framework and tax policies to quickly set up legal entities in India is essential. This can be done by introducing single-window approval cells to fast-track issue resolution.
Improving public infrastructure and addressing local commuting challenges for GCCs and tech clusters in Tier-2 cities will enhance workforce productivity significantly.
Furthermore, initiatives to promote gender diversity, such as supporting upskilling programmes for women and creating conducive work environments, are essential for increasing female representation in GCCs and deep tech organisations, given their low representation now.
To conclude, GCCs have caught the attention the of leadership at the highest level in both the Central, many State Governments and MNCs for the enormous transformative impact they can have for businesses, local economies and the society at large, especially for women. Supportive state policies aimed at facilitating ease of doing business for GCCs can accelerate a further scaling of up to 2,400 GCCs by 2030 at a value of $110 billion as estimated by EY.
Since corporations are increasingly establishing centres across India, it presents Tier-2 cities with significant opportunities and simultaneously aids in alleviating urban burdens and distributing growth widely through the States. This will further lead to a domino effect, with the next phase of growth of GCCs moving to Tier-3 towns.
Sondhi is Chairperson National Board for Quality Promotion; Chauhan is Policy Unit, Quality Council of India