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The journey of Offshore Centers – From “Outsourcing” to “Global Capability Centers (GCCs)”
The journey of Offshore Centers – From “Outsourcing” to “Global Capability Centers (GCCs)”

March 17, 2021

GCC

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GCCs, an offshore infrastructure to support the overall operations of a global enterprise, have been recently receiving great attention and are becoming a prominent focus amongst global companies. India, as a global GCC destination, has also managed to attract multiple global businesses to set-up their GCCs in the country during the pandemic.

Though some GCCs went beyond delivery focus much earlier, most of the GCCs’ evolution was seen during the last five years wherein they started focusing on value creation and innovation beyond the cost delivery focus. This evolution implies that the multinational companies have relied greatly on GCCs, particularly in India, not only to outsource their businesses but for cost savings too. Currently, MNCs, are not only directing their GCC employees and infrastructure to handle operations (back-office, corporate business-support, and contact centers) and IT support (app development/maintenance, remote IT infrastructure, and help desks) to accelerate growth, but they have also started using GCCs as a center of excellence for automation, innovation, and analytics too. Digital technologies such as Robotics Process Automation (RPA), Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), and Cloud have proven to be the major growth driver of the GCC industry.

Global Capability Centers
Source: KPMG

The last decade had not only seen a change in the GCC’s business model however in its nomenclature too.

  • In the beginning, MNCs started outsourcing their business functions to developing countries such as India, China, Malaysia, Thailand, Philippines, etc. to save the cost and for global growth. These were named “Outsourcing/Offshore” Centers then.
  • Soon after, these MNCs realized to focus more on the quality and therefore moved from “outsourcing” to “offshoring” and opened the “Captives.”
  • After that, the Global In-house Centers (GICs) were set up to perform selected tasks for the parent organization while keeping a check on improved productivity and high-quality service.
  • As demand for global in-house centers surged, global MNCs started to explore cost-effective destinations, and therefore, ASEAN countries including India experienced exponential growth. Large MNCs then set up their “Global Capability Centers (GCCs)” in cost-effective locations based on the availability of economic and skilled labor.

 

GCCs have been largely contributing to transforming and adapting their functionality while finding new and innovative ways to support their global parent organizations. In India, GCCs have tremendously transformed in the past two decades. NASSCOM research revealed that India has a total of 1250+ GCCs, with ~1Mn total talent base in 2019. This number is expected to grow significantly, with greater diversification of existing ones into newer, higher-order work, as well as the opening of Greenfield centers and innovation labs. These GCCs generated revenues of about ~$28 billion in the financial year of 2019.

 

COVID-19 pandemic has further added momentum to the growth of the GCCs globally. At the beginning of the pandemic, GCCs had to rapidly transition their entire workforce to remote-working arrangements and they successfully did. Some of the GCCs put adaptive measures in place in advance. They learned from the pandemic situation in China and took proactive measures in India in early February. After the lockdown was announced in India, as they were already ready, they immediately took necessary measures such as delivering machines (laptops/desktops) home and redefining security protocols. Other GCCs which used cloud-based infrastructure were able to move to remote working easily and continued to work towards scaling their GCC up further. This proactiveness had led most of the GCCs to operate efficiently and effectively in the pandemic situation.

 

During the pandemic, some GCCs had to pick up additional activities than their normal work to support the parent companies. GCCs in the consumer market sector were flooded with high transaction processing volumes across product lines, specifically dealing in everyday essentials, as globally, consumers started stocking up items, sending demand processing support beyond normal, while necessitating tech innovations for contactless, safe, and timely deliveries. In other cases, sales of a few non-essential products/items increased significantly, hence, creating significant challenges for GCCs to ensure uninterrupted global services delivery that was managed successfully.

 

The continuous digital penetration in GCCs has made it important for them to focus on digital technologies like AI, ML, IoT, and Cloud. Because of this, MNCs are coming up in certain focused areas and are looking to build sector-specific skills amongst their GCCs. To cater to this, GCCs are adopting a hybrid approach to re-skill and acquire niche skills to continue building on their sector-specific requirement. They are also focusing on accelerating their digital agenda by build niche technology CoEs. To further boost their innovation agenda, particularly in India, GCCs are collaborating with start-ups and are employing various models (build, buy, and partner) to effectively collaborate with start-ups in India.

 

GCCs, undoubtedly, play a very significant role by collaborating with their onshore businesses. The growth of GCCs in India has remarkably accelerated and their value addition to India too. We look forward to presenting holistic research on GCC value addition to India, as well as the landscape view of the scope and scale of their accelerated growth in India. Do watch this space for more in 2021.

 

Sources:

NASSCOM-Zinnov GCC 3.0 - Spotlight on Digital, Partnerships, New Delivery Models & Future Skills

NASSCOM Evolution of Retail/CPG GCCs in India

McKinsey Global capability centers in the next normal


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