By Nitin Bhatt and Arindam Sen

The remarkable rise of global capability centres (GCCs) over the past few years has served to brighten an otherwise lacklustre market environment for the Indian tech sector. The country’s 1,750 or so GCCs account for annual revenues of $64 billion and a headcount of two million. In addition to supporting a range of routine front- and back-office functions, this workforce drives innovation, for instance, by building and infusing emerging technologies across the enterprise. According to an EY study, GCC revenues are projected to rise to $110 billion annually across 2,400 units by 2030, employing over four million professionals.

While new centres and the scaling up of existing ones account for much of the growth, another key driver has been the trend of GCCs insourcing projects that had been contracted out to global systems integrators (GSIs).

Some industry experts believe that as GCCs build tech muscle, the growth of Indian GSIs will be affected. This fear is unwarranted. GSIs and GCCs will continue to share a symbiotic relationship. In fact, their partnership will continue growing, driven by three factors: value, risk, and cost.

Value

The role of GSIs in the GCC universe has changed over the last several years. As GCCs aspire to become revenue generators as well as drivers of digital transformation and product innovation for their enterprises, they are also partnering with GSIs to leverage the latter’s proprietary platforms, accelerators, and intellectual property. Doing so enables the GCCs to benefit not only from early investments made by GSIs in emerging technologies, but also from learnings and best practices garnered from multiple clients in niche areas such as cloud, artificial intelligence, and cybersecurity.

For example, a prominent GSI is enabling a global automobile company’s GCC to accelerate the organisation’s transformation to a software-defined mobility business. In addition to helping design the company’s road map, the GSI is serving as a strategic partner for building its next-generation software-defined vehicle platform. Indeed, the credibility of leading GSIs to deliver benefits across the value-volume spectrum is enabling GCC leaders to make build-versus-buy decisions that align with their strategic priorities.

Risk

Partnering with GSIs can serve as a risk mitigation strategy for GCCs. First-time GCC adopters account for almost 50% of centre set-ups in India. They are often unfamiliar with the country’s regulatory and tax landscape. They are also concerned about the human capital challenges and operational risks that come with setting up GCCs, especially in tier-II and tier-III cities.

Engaging with GSIs on a build-operate-transfer model allays such concerns. By leveraging their functional knowledge, domain-specific playbooks, and ecosystem relationships — including regulators, finance and legal advisors, and talent sourcing companies — GSIs provide sound governance, accountability, and business model flexibility that enable GCCs to accelerate speed to market. Many GSIs co-invest in such ventures, and often offer to put their fees at risk to provide comfort to management that the “transfer” of the GCC to the parent organisation will indeed happen according to the original agreement.

Cost

Enterprise buyers are reevaluating their sourcing model options across suppliers and their GCCs to drive transformation in a holistic manner. In many instances, GSIs can offer better value at lower costs compared to GCCs. Some companies choose not to build GCC capabilities in important but non-core areas like procure-to-pay and help desk services, where scaled GSIs can offer platforms and outcome-based pricing that offer improved performance metrics at reduced transaction costs. In addition, companies turn to GSIs should their GCCs become non-viable due to unsustainable operational costs and scaling challenges. Over the last two years, for example, over 50 global companies have transferred their GCCs to GSIs due to cost pressures or lack of competitiveness.

One such recent transaction involved the acquisition of a European bank’s captive division by a prominent GSI. The GCC had been serving the parent company for over a decade. However, it became value-erosive due to leadership challenges, high attrition, and a bloated cost structure that was impeding the organisation’s ability to embark on transformational initiatives. We expect 15-20% of global GCCs to be offloaded by their parent companies over the next five years.

GSIs and GCCs have been trusted partners in each other’s growth story. Their synergistic relationship will continue to fuel India’s technological prowess as it supports the front and back offices of companies across the globe. In doing so, it will drive innovation, set new benchmarks, and shape the future of industries and organisations. Indeed, GSIs and GCCs are stronger together.

The writers are respectively technology sector leader, & partner and GCC sector lead, EY India.

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