GCCs in India are going through a boom phase but are not immune from the happenings in the wider economy. Inflation, the great resignation, the war in Ukraine, and the lingering pandemic continue to disrupt business. Enterprises are also aware of the coming recession and beginning to plan for it.

An overview of the GCC scenario in India

Global Capability Centers (GCCs) have become popular over the last decade. India has become one of the preferred locations for setting up GCCs. According to a NASSCOM report, “GCC India Landscape – 2021 & Beyond!” there are over 1,430 GCCs operating in India, which is 50% of all GCCs globally. About 25% of Global Fortune 500 and 15% of Global 2000 companies have set up GCCs in India. These GCC service providers in India had a market size of $35.9 billion in FY2021 and employed about 1.38 million people and their CAGR was 11.7% between 2015 and 2020.

Within India, Bengaluru, Hyderabad, Mumbai, Pune, and Delhi are the top regions with GCC concentrations. 65% of GCCs open their first India center in Bengaluru or Hyderabad. 70% of the GCCs in India serve North American parent companies. 20% of the GCCs serve European companies, and the remaining 10% have conglomerates in the Asia Pacific as their parent companies.

The troubled economic conditions, including a possible recession, have not slowed the pace of GCC growth in India. The growth did not slow down even during the height of the pandemic. Twenty new GCCs set up shop in India during the first quarter of 2021-22. The top names among the new entrants include Aliaxis, ePropelled, NielsenIQ, Cardinal Health, H&M, and 7-Eleven.

GCCs across the world start as cost arbitrage centers and evolv into strategic offshore units. GCC service providers in India have a similar story. Most GCCs started as remote contact centers. They handled back-office and business-support functions. These units soon grew to manage advanced support services. Parent companies soon delegated app development, maintenance, and remote IT infrastructure management. Today, GCCs have progressed up the value chain further, and many GCCs function as Centers of Excellence (CoE). They orchestrate digital transformation and become invaluable assets during harsh economic times.

India’s robust infrastructure

India offers a unique ecosystem of a rich Talent pool combined with a robust digital infrastructure.

India has one of the top digital penetration levels in the world. Hi-speed broadband is available in most parts of the country. The government supports the IT industry by setting up special economic zones (SEZ) and tech parks. GCCs and other SEZ establishments enjoy tax benefits, reduced power tariffs, and other operational benefits.

Other initiatives such as the “Make in India” campaign encourage businesses to manufacture and operate from India. Infrastructural costs in India are already low compared to most Western countries. The low operating costs make the GCCs very competitive.

These conditions make India an even more attractive destination during a recession. As companies try to remain competitive, they will push more-and-more functions offshore. A recession will inundate Indian GCCs with more work than ever before.

India’s rich talent base

Multinationals set up GCCs in India with an eye on the country’s rich talent base. India has about 4.5 million qualified IT professionals. One out of four IT professionals works in GCCs.

India’s talent base makes it a fertile ground for the tech workforce. India has the world’s largest English-speaking population. Over 265 million people can speak and understand the language. English is a medium of education from kindergarten to higher education. Most professional courses, including engineering, architecture, and medicine, are in English. English is also the official court, commerce, and administrative language. Most Indians see English as a passport to better job and growth prospects.

India has a robust education system. Thousands of competent students graduate in IT and allied engineering sciences every year. A host of allied training centers offer value-added courses in the latest technologies. Fresh graduates enroll in such institutes to gain exposure to the latest technologies. Also, most engineering colleges have tie-ups with the industry for internships. Such a vibrant ecosystem improves the employability of Indian tech graduates.

One of the best indicators of GCCs in India being rich in quality talent is the heavy investment in research and development activities. About one in every six GCCs in India has a center for research and development. Such talent leverage will continue during a recession as businesses seek to adapt to the changed market realities. Businesses leverage India’s low-cost talent to create new revenue streams, develop low-cost products, and unlock competitive differentiation.

The scramble for talent

One of the remarkable phenomena in the post-COVID world is the “great resignation.”

The COVID-19 pandemic gave employees worldwide a pause from their harried, always-on busy mode. Employees got the time and space to rethink their careers, work conditions, and long-term goals. They also got used to the convenience of working from home and resented their stressful commute. Over the almost two years of work-from-home mandates, they developed a very effective work-life balance. When enterprises finally attempted to bring their employees back to the office for in-person work, the great resignation started.

Other causes of the “Great Resignation” include:

• Wage stagnation amid the rising cost of living, coupled with long-lasting job dissatisfaction. The pandemic stressed the finances of most businesses. Employees, already dissatisfied with their job, faced the double whammy of putting in extra hours with no tangible increase in salary. Most times, inflation eroded the actual value of their salaries.
• Health and safety issues. The COVID-19 pandemic and its aftermath raised the stakes of safety issues at the workplace. Several employees have long COVID, inducing disability and mental health issues. Many employees quit as a safety measure, even if it would mean remaining unemployed.

For businesses, the great resignation trend caused immense staffing issues. Attrition rates have shot up to the highest in two decades. A recent survey by HR firm Aon estimates attrition across sectors at 21% in 2021 compared to 12.8% in 2020. The figure will be higher in 2022. Businesses suffer the double whammy of increased hiring costs and a shortage of talent willing to accept their offer.

The staffing shortage and talent crunch have plagued most businesses in the USA, UK, and other developed countries. India is not immune to global trends and happenings, and GCC service providers in India have executed the following strategies to overcome the skills shortage.

Salary hikes

One way enterprises stem attrition is through salary hikes. In India, salary hikes will be 9% on average in 2022, which is the highest in five years. India projects the highest salary increases among the BRIC (Brazil, Russia, India, and China) nations in 2022. The average salary hike in Brazil is 5%, Russia at 6.1%, and China at 6%,

Salary increases are a double-edged sword for enterprises. As the economic recovery leads to increased business, enterprises must invest in new capabilities to stay atop the competition. All these expenses strain the finances of even well-run companies.

Employing talent in the GCC helps parent companies reduce payroll costs. Indian GCCs, despite hiking wages, still offer talent at a fraction of what it costs to hire the same skill in the high-priced western economies. GCCs in India give greater thrust to promoting internal efficiencies to offset the increased costs due to salary hikes.

Outsourced hiring

Businesses also leverage Recruitment Process Outsourcing (RPO) to overcome the staffing crisis. Localized outsourcing to boutique vendors helps enterprises solve hiring and attrition challenges. Boutique RPO vendors reduce both the cost to hire and time to hire.

For the enterprise, recruiting is a distraction from core activity. Recruiters are a cost center, and CIOs must take time out of their core tasks to interview candidates. For the boutique RPO vendor, recruiting is their core activity. They:

• Deploy tools and tap into their network to build a robust talent supply chain pipeline.
• Have an army of ready recruiters focused on hiring candidates with the right skills for their clients.
• Apply innovative sourcing strategies to head-hunt top talent.
• Apply tools such as talent analytics to shortlist and identify candidates with value alignment fit.
• Keep track of the developments in the recruitment landscape to gain the first mover’s advantage for sourcing talent.

Success depends on selecting the right RPO provider, though. RPOs without future-focused planning and talent-building approaches fail as competent or reliable partnerships.

Enterprises, including GCCs, must develop a good governance model to streamline hiring through RPO. A consensus on sourcing strategies, screening methodologies, and hiring time-lines will ensure frictionless hiring through RPOs.

Localized hiring

GCCs help their parents expand the geographical base of talent acquisition. GCCs source, screen, engage, hire, and onboard the right talent while building business agility. Most GCCs in India have increased their recruitment, either directly or with the help of RPOs.

The great recession

Any country falls into a recession when its gross domestic product (GDP) falls during two consecutive quarters. GDP is the gross production of goods and services in the economy. America’s GDP dropped by 1.4% in the first quarter of 2022 and is likely to do so in the next quarter as well. All economic indicators in the US and other western economies point to a recession. As a case in point, in 2022 Q1, the stock markets in most western countries have suffered the worst first quarter since 1970. Layoffs.FYI estimates 37,000 layoffs from start-ups in the second quarter of 2022.

The Indian scenario

The Nomura India Normalization Index (NINI) reports the Indian economy racing back to above-normal levels. The key drivers of the revival are consumption, investment, industry, and the external sector. The service segment, straggling around 4 percentage points below pre-Covid levels in March 2022, is up by 40% from those levels.

However, a recession in the US could slow IT growth in India, considering 60% of IT exports from India are to the US. The recessionary headwinds will also influence GCCs service providers in India. And they are already getting prepared for it by:

Thrust on Innovation

One main agenda for the GCC service providers in India is to unlock innovative products and services that will benefit the end customer.

The ANSR “Corporate Innovation in Global Capability Centers (GCCs) in India Report 2022” survey confirms an increase in innovation-focused activity among GCCs during the pandemic. 60% of the GCCs in India today deploy corporate innovation programs. Most of them have a structured innovation program with dedicated resources and funds. Centralized funding and a dedicated innovation mandate from their parent make it easy for Indian GCCs to innovate. The parent companies fund the GCC facilities and create new CoEs to promote innovation.

About 40% of the new GCCs that have set up shop in the last couple of years focus on new digital technologies. GCCs in India widely use new technologies, such as:

• Artificial Intelligence and Machine Learning
• Augmented Reality
• Blockchain
• Deep Analytics
• Internet of Things
• Natural Language Processing

Breakthroughs in these areas enable parent companies to unlock competitive advantages.

Majority of the GCCs in India partner with start-ups to drive their innovation efforts. They engage with:

• Start-ups through accelerator programs.
• Research students and faculties in colleges and universities to research emerging technologies. Such partnerships are with engineering institutes such as IITs and government-sponsored technical colleges.
• Running Intrapreneurship programs, which would unlock creative potential.

A recession may force a cultural change in GCCs, making them even more conducive to innovation. GCCs have become more accommodative of failure. With status-quo no longer possible, GCCs encourage risk-taking as part of their robust innovation agenda.

Enterprises worldwide seek to convert their GCCs into innovation hubs to grow in a challenging business environment. GCCs in India have a head start in curating an ecosystem and infrastructure that allows innovation to thrive.

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