Several global capability centre (GCC) leaders are testing out their innovations in the Indian market, the outcome of which may determine a global template for their operations worldwide, according to a senior industry leader.
Rohan Lobo, Partner, Leader for Consulting – GCCs, Deloitte, noted that global organisations may have many processes that are not standardised because they may be an amalgamation of several companies or be operating in multiple geographies.
The drivers for growth in GCCs globally are companies wanting to standardise business processes, simplify their IT systems, and run them in one location to get economies of scale. While doing this, they prefer a shared location, providing cost arbitrage and access to talent at scale.
“When you transfer processes and systems to manage it, you prefer a country closely allied with yours. This is the concept of ally-shoring. India, as a democracy, is very closely connected with the values of the western world. A company based in the US, UK or Germany would like to set up a GCC in a country whose government is aligned with its own, because, this means the alignment of business and economics, therefore minimising business continuity risk,” Lobo told businessline.
A recent study commissioned by CaptiveAide in collaboration with Feedback Insights surveyed 255 decision-makers responsible for GCCs at companies based in the US and UK. According to the study, with factors like access to a deep talent pool remaining a key motivator for GCC-related investments in India, 38 per cent of the respondents claimed scalability as another factor, with 57 per cent emphasising cost savings compared with other locations. 29 per cent of those surveyed also mentioned cultural compatibility, shared cultural values and business practices facilitating seamless collaboration.
Cost arbitrage
“In India, on average, the full-time equivalent (FTE) cost might be about $20,000 while the equivalent cost in the US could be about $80,000. This is four times the cost arbitrage. Instead, if you move that role from the US to India, you might receive four times the benefit. We believe for the next 25 years, we will have this kind of cost arbitrage because of our low base. Even if India’s cost rate increases by 15 per cent every year, with the US cost rate increasing by 3-5 per cent, because of the inflation differences, we will continue to have cost arbitrage,” commented the Deloitte spokesperson, adding that culture is just as important. “India is an English-speaking country, so it’s easy to get into most countries that speak English,” he said.
Currently, India has over 1,600 GCCs and will have over 2,000 in the next 3-5 years. The number of people directly employed by GCC is going from around 1.7 million to around 2.6 million in the next two years. The $50-billion companies currently spending on GCCs in India would double to about $100 billion by 2030.
“The productivity per unit or dollar is now almost on par or even better than the productivity per unit anywhere in the world. Earlier, there was a misconception we take more time to deliver technology work than an American developer. This has changed because the tools are ubiquitous. An Indian engineer now knows just as much as an American one. So, the unit productivity per dollar salary cost will always be higher in India because the productivity is constant now,” said Lobo.