Sustaining cost advantage key to growth of Global Capability Centres in India

Global enterprises are flocking India to set up Global Capability Centres (GCCs) that serve as the technology hub for supporting and driving several functions across the world. In a recent report by industry body Nasscom, it has been pointed out that India is likely to be a home of around 1,900 GCCs by 2025 from 1,580 by the end of FY23. In a conversation with Hans Business,

K Krishna Sagar Rao, Managing Director and Chief Executive Officer of Yukti Global Services Pvt Ltd, said India will remain an attractive place for setting up GCCs given the rapid pace of infrastructure development in social, digital and economic space. Yukti Global Services is an international strategy consulting firm that enables setting up of GCCs in India with its end-to-end solutions across the spectrum. Rao, however, pointed out that cost advantage has to be maintained in India for retaining India’s spot in the GCC ecosystem. He also said that Hyderabad as a city has a lot of potential to become the GCC hub of the country, giving a tough competition to Bengaluru, provided the city improves its civic infrastructure to global standards

How do you view the growth of GCCs in India in recent years? Will this sustain in the coming years?

In 1990s and 2000s, what used to be called as back office operations, outsourcing units or offshoring; these terms and phrases actually consolidated into GCCs. So, it is not a new concept. Today, we call them as GCCs because worldwide, there is an integration of functions with the parent company, wherever they are located. So, there are two-way integration, transfer of knowledge, and functional capabilities for business function execution. The reason for the GCC industry’s rise is the cost arbitrage. The exchange value difference, cost of labour, overall cost of operations are the driving factors behind the cost advantage.

The second reason is the flawless execution capabilities with the increased bandwidth and speed of internet. The rise of digital infrastructure has created work from anywhere possibilities. That’s why global companies are looking at India both for the cost arbitrage and high availability of talent pool.

Around twenty years back, when outsourcing model started in India, things like digital security, internet security and our ability to provide digital, social, economic infrastructures were in a nascent stage. That time, only the big guys who could afford and had a vision for future came in to India. Likes of Microsoft and Oracle came in early.

Today, the second-generation IT companies are also looking at cost arbitrage, multiple global centres as part of their vision, just like their bigger peers. Apart from cost, there is also a strategic security aspect because, if there is something down in one nation, then the other nation can support the business. There is no disruption. That’s why they are increasingly betting on India because there is an increased infrastructural growth in social, digital, and economical aspects. Ease of doing business has improved. Language capability and substantial number of engineering graduates are also other driving factors. That is the reason that India is witnessing an increased interest from global enterprises to set up GCCs in India.

Many GCCs operated in India are doing cutting-edge product development work in the technology space. Is this a good sign for the whole ecosystem?

Of course, it is a good sign. It is about the maturity of the GCCs in India. As they mature, they are doing more than just providing backend functions. However, if there is no cost advantage, then the viability of having a GCC in India will reduce. Therefore, cost arbitrage remains an important factor in attracting GCCs to India apart from innovation. Another factor is India itself has a big market for consumption. But, if we become economically unviable then we can’t expect the same momentum to continue. We have to be very careful about the cost of running the GCCs in India. Currently, costs are rising and if that reaches certain threshold level, then other nations in our neighborhood will compete with us. Then, the country may lose its edge. Therefore, cost is an important factor.

The wave of setting up captive technology centres started by technology giants that was followed by financial services. Do you see any specific sector taking the lead in setting up GCCs in India now? Any specific sector, you want to highlight?

There is a multi-sectoral interest on India. It also becomes very evident as the multinational consumer product or services companies look at cutting costs and see the size of Indian market along with its consumption patterns, they become quite interested in setting up centres in India because of both cost and growth factors. It is pan-sectoral. Therefore, we should rather say which sectors are not looking at setting up centres in India. We are at a point where China was in 1980s. That was the time, when every large company from the US wanted to tap the consumption and growth in China. We are exactly at the same spot. China; owing to its lack of democracy, political instability, lack of security to corporate professionals; is losing sheen. Stability and continuity are the factors which large businesses look for long-term investment in a country. India becomes the obvious choice. As far as sectoral priorities, automobiles, insurance, FMCG (fast moving consumer goods) and beverages companies are very much interested to come to India and they are looking for GCCs both on technology and manufacturing end. This is likely to create a lot of jobs and socio-economic development for India.

Historically, any slowdown has led to more outsourcing to India with uptick in setting up of GCCs. Will it favour India again given the current environment of slowdown? Will it be helpful for companies like Yukti Global Services?

We are at the right time and right spot because offshoring is going to rise for many years to come. It will eventually make India global firms’ alternate headquarter. This is because of the market, talent availability and cost advantage. Our democracy and political stability become extremely important to remain attractive for global enterprises.

Hyderabad has emerged as one of the major cities to attract new GCCs in recent years. Do you think the momentum will sustain?

Hyderabad as a rising ecosystem for global capability centres has full potential to provide the best possible ecosystem for the incoming GCCs. Many GCCs have already set up their centres in the city and the trend can increase if the government looks at the western model of civic infrastructure and ensure the implementation of these models for enabling best quality infrastructure, executed at high speed.

If there is competition for Bengaluru as the GCC hub in the country, that is Hyderabad.