India is the world’s most popular location for Global Capability Centers (GCCs). At 1,750 GCCs, India houses around 50% of the world’s total GCCs. There has been a ~250% growth in GCCs in India over the last decade.
Indian GCCs employ over one million workers while contributing a total economic value of ~ $28 billion. Almost 70% of the Indian GCCs cater to US-headquartered firms, followed by Europe (20%), and the APAC region (10%).
Along with the bigger organizations, last year witnessed mid-sized global businesses setup their GCCs in India, thus indicating that the pandemic might have positively impacted India’s growth as a GCC destination.
India’s attractiveness as a GCC hub has to do with several factors, but perhaps the most important factor is its highly skilled talent pool that promises to keep growing over the next decade.
Size of the annual graduate pool
A mature education system helps GCCs to scale up their operations while keeping a check on the overall talent costs. Every year over 3 million graduates, 300,000 post-graduates, and 500,000 engineering graduates pass out of India. Over 200,000 IT graduates are added to the IT workforce every year, thus making it the youngest employable population in the world.
India’s high caliber talent
According to NASSCOM, by the end of FY21, India’s tech industry is expected to hire 138,000 employees taking the total employee base to around 4.5 million. During the same period, the digital talent base is expected to cross 1.2 million, reflecting a year-on-year growth of 32%. This talent base and the resulting growth compared to other countries make it an attractive destination for GCCs.
Talent surplus over the next decade
A report by Korn Ferry shows that by 2030, India will be the only nation in the APAC region with a potential labour surplus of 240 million.
In contrast, China and Japan will have a labor deficit to the tune of ~7 million and ~14 million, respectively. The industries that will majorly contribute to the surplus talent in India are financial services (1.1 million), manufacturing (2.4 million), and technology, media, telecom (TMT) (1.3 million).
The rise of Level A (highly skilled) TMT employees will open more opportunities for India and the country might challenge the US’s position in the TMT sector over the next decade.
Other reasons that make India the most popular GCC destination
When searching for a GCC, companies focus on locations that would offer them enhanced growth and profitability. In India, Bangalore has the highest share of GCCs, followed by Chennai, Hyderabad, and Pune. Here are some of the reasons why Indian cities are favored as GCC locations:
- Proximity to service providers
A GCC location should offer opportunities to easily collaborate with technology and knowledge partners. An EIU report has ranked Bangalore as the number one city among 45 global cities that help businesses to transform digitally. Bangalore houses over 140 accelerators and incubators along with technology leaders such as Amazon, Google, and Cisco.
- Mature real estate market
India’s mature real estate market ensures that global organizations have more options to choose from when planning to set up base in India. The organizations need to consider the future expansion prospects of the GCCs. India’s high-end tech parks in cities like Bangalore and Hyderabad offer such real estate options to companies that need Grade-A workspaces.
- Favorable government policies
India’s Information Technology Act, IT policies, and other supportive government policies help to make it a popular GCC destination. The Indian government strives to promote and nurture the technology market space. For example, in view of the pandemic, the government had announced measures to encourage working from home/working remotely while removing many reporting related obligations for BPOs, KPOs and other ITeS companies.
Trends that will continue to make India a favored destination
Below are some trends that are expected to dominate the Indian GCC growth trend:
1. The Engineering Research & Development is leading the GCCs growth in India. While the GCC market grew by ~8% in FY2019, the GCC ER&D market size grew by ~11%. The ER&D market is predicted to dominate the Indian GCC space in the coming years due to the rising focus on digital transformation and end-to-end ownership of Indian products.
2. Bangalore will continue to enjoy the biggest share of Indian GCCs, especially with companies developing Hi-tech solutions. Almost all the unicorns choose Bangalore as their preferred Indian location.
3. Other than the tier-1 cities, tier-2 cities will also show a growth in housing GCCs in the coming years. Some such tier-2 cities are: Vadodara (R&D centers for Chemical, Industrial, and Software & Internet), Kolkata (R&D centers for Software), Coimbatore (low cost of operations and ease of doing business).
4. Besides the US-based companies, India will also be a preferred GCC destination for the APAC-based companies
5. India is also an attractive destination for global unicorns. As of 2019, eight global unicorns have India-based centers.
Indian GCCS can provide savings up to 45% over the next 3-5 years
According to a webinar conducted by Nexdigm, a global business advisory organization, GCCs could bring about savings of ~45% in the next three to five years. The savings will be driven by factors such as a young and growing talent pool, world-class infrastructure, intra-country connectivity, and supportive policies. India’s cost to value proposition is around 3 to 4 times lower than that of the US.
India’s success as a GCC location has to do with a lot more than mere cost advantage. India’s global centers are centers for value creation and innovation.