By The growing trend of multinationals setting up global capability centres (GCCs) to insource technology services may seem to be a negative for Indian IT companies, but they are turning this to their benefit.
Traditional Indian outsourcing giants, that have thrived on providing IT services to clients in developed markets, are now increasingly entering into business partnerships with MNCs to work with the local GCCs, helping them offset the revenue impact.
This is also helping companies such as Infosys, HCLTech and Wipro increase the share of their revenue from the home market.
Industry experts see GCCs as a key revenue driver for India, as IT services companies diversify amid weakening demand from their core markets of the US and Europe.
“It’s party time again. GCCs are turning third-party in larger numbers,” Ramkumar Ramamoorthy, partner at growth advisory firm Catalincs, wrote on LinkedIn recently.
“For IT services companies, revenue from GCCs has been steadily increasing. I won’t be surprised if GCCs contribute $1 billion or more in annual revenue for the large players,” he told ET.
US-based technology research firm Everest Group estimates the revenue generated by IT and business process service providers from GCCs and GCC-related support at $20 billion, with Indian GCCs contributing a majority share.
“Indian and global IT services firms are viewing GCCs as a new business opportunity. This is a significant shift from their stance before 2020, when they primarily saw GCCs as competitors,” said Everest Group vice-president Hrishi Raj Agarwalla.
Half of the new GCCs established in the past one-two years have leveraged external IT and business process services firms for setup support, as per Everest Group data.
Within the GCC setup, the build operate transfer (BOT) model has seen significant growth as compared to virtual or assisted GCCs and joint ventures,” Agarwalla said.
According to Ramamoorthy, there are a number of partnership models in vogue. “From the most common staff augmentation to building tech centers of excellence, a BOT of the client entity, creating virtual captives as well as co-locating and co-innovating with these entities within the same premises, there are plenty of models,” he said.
French IT consulting major Capgemini sees gaining prominence of various business models, from BOT and GCC accelerator to GCC-as-a-service and joint venture.
In 2020, Ananth Chandramouli, managing director of Capgemini’s India business unit, said that GCCs were the largest segment of Capgemini’s India business, contributing to about two-thirds to the domestic revenue.
While he did not disclose the latest revenue share, Chandramouli said the firm continues to collaborate with GCCs across various stages of their life cycle.
“Newer GCCs leverage us for our expertise, accelerators and talent development to speed up their value creation. Larger, long-tenured GCCs partner with us to move up the value chain…While mid-sized GCCs partner with us to accelerate their growth and scale up faster,” he said.
“Companies beyond the tech and digital sectors, facing challenges in attracting top talent in advanced technologies, collaborate to drive faster innovation.”
In one of the projects, Capgemini helped a global logistics major set up an AI innovation lab.
Outsourcers tap Insources
Indian GCCs have been the buzzword for more than a year now, growing at 40% in fiscal year 2024 increasing their revenue contribution to $64.6 billion (from $46 billion in FY23) to the $250 billion technology services industry, as per a NASSCOM report.
Given the weakness in technology demand from clients amid disruption caused by generative artificial intelligence (Gen AI) and automation, IT and business process services companies faced their slowest growth in FY24.
In order to compensate for the slowdown, Indian software service providers are actively supporting GCCs in various capacities, including their establishment, operational management through staff augmentation, and facilitating digital transformation and process improvements.
The country’s second largest IT services company, Infosys, is increasingly working with its clients when they are setting up GCCs, chief executive Salil Parekh said recently.
“We are working with them when they do a BOT and we participate in it with the build, operate and when they transfer. We are working with GCCs in India to help scale them, to help with recruiting. And we are also working, in some instances, with clients when they are exiting from GCCs, when we have programs where we take them and they become a part of us, so a very strong connect with GCCs across India,” Parekh said during the company’s second-quarter earnings call.
