Global Capability Centers (GCCs) in India Key Advantages of Establishing GCCs

Vishwang Desai

Global Capability Centres (GCCs) have increasingly become a strategic component of multinational corporations (MNCs) seeking to consolidate and optimize their operations internationally. India, with its well-developed infrastructure and skilled workforce, has emerged as a leading destination for the establishment of these centres. Global Capability Centres are specialized units established (usually) by multinational organizations to centralize one or more business functions including IT, finance, human resources, R&D and customer service. Unlike traditional outsourcing affiliates, GCCs are often wholly owned by the parent company, ensuring greater control over operations and direct oversight with corporate objectives.

Of course there are other structures by which GCCs can be established but that discussion is beyond the scope of this note. These centres play a crucial role indriving operational efficiency, innovation, and service excellence across global markets. Establishing Global Capability Centres (GCCs) in India provides several advantages to multinational corporations (MNCs), blending significant legal and commercial benefits. These centres not only capitalize on India's market potential but also align with global operational strategies to create value.

Key Advantages of Establishing GCCs in India

1. Low Cost: A primary driver for establishing a GCC is cost-saving. In the absence of costsaving the business case for establishing a GCC becomes weak. Establishing a GCC in India results in substantial cost savings on operational expenditures, particularly in labour-intensive functions such as IT, customer service, and back-office operations. India's labour market offers a significant cost advantage compared to Western countries, which can translate into lower overall costs of running global operations, providing a boost to profit margins. 

2. Available Skilled Workforce: India has a large pool of skilled professionals with expertise in various sectors including technology, finance, and engineering. This skilled workforce is not only proficient in English, which is a major business language globally, but also adaptable to multinational corporate cultures, making it easier to integrate global business processes.

3. Legal Framework: India has a well-established legal framework that supports technology transfer, intellectual property, and outsourcing. The Information Technology Act, 2000, provides specific regulations that facilitate electronic commerce and penalize cyber-crime, ensuring a secure environment for technology-based operations. Generally India is a common law jurisdiction, has mature laws and a legal ecosystem on all matters affecting the establishment and operations of GCCs and things associated with it including on matters of real estate, industrial relations, electricity and the like.

4. Government Incentives: The establishment and operation of Global Capability Centres (GCCs) in India are supported by a variety of government incentives. These incentives are designed to attract foreign direct investment, stimulate technological advancements, and create employment opportunities. The government has implemented a range of fiscal (Corporate Tax Benefits, SEZs, R&D incentives) Incentives, and Non-Fiscal Incentives (skill development programs, Digital India Initiatives, Infrastructure Development etc) across various sectors, which are crucial for both the initiation and sustained operation of GCCs in India.

5. Scalability: The vast size of the Indian market (in terms of real estate, infrastructure, skilled manpower) allows for significant scalability of operations. Companies can start with a small team and expand rapidly given the abundant supply of qualified professionals. This scalability is supported by India’s robust legal systems which facilitate easy scaling of operations without disproportionate increases in operational complexities.

6. Strategic Time Zone Advantage: India’s time zone allows it to act as a 24-hour working center when aligned with Western countries. This enables businesses to offer round-the-clock services to customers globally, enhancing service delivery and customer satisfaction.

7. Mature Vendor Ecosystem: India has cultivated a highly developed vendor ecosystem that is integral to the support and success of Global Capability Centres (GCCs). This ecosystem spans across multiple industries, including information technology, business process management (BPM), and engineering services, providing a robust framework for GCC operations. The maturity of this ecosystem is not merely a function of the number of vendors available but also their sophistication, compliance with international standards, and integration with global supply chains. India's mature vendor ecosystem presents a significant strategic advantage for Global Capability Centres (GCCs) looking to establish or expand their operations. This ecosystem comprises a wide array of service providers, consultants, and third-party businesses that specialize in delivering outsourced services across various domains such as information technology, business processes, legal processes, and human resources. For senior business and legal professionals, understanding the depth and breadth of this ecosystem can facilitate informed decision-making and strategy formulation. 

8. Robust Legal Precedents: India’s legal system is based on English common law, which provides a familiar foundation for multinational corporations, especially those based in the US or UK. This system facilitates understanding and compliance with local laws and regulations, including labor laws and contractual laws, which are crucial for smooth operations.

9. Innovation and R&D Capabilities: India has made significant strides in research and development (R&D) across various sectors. Establishing a GCC in India can leverage these capabilities for innovation, particularly in software development, pharmaceuticals, and biotechnology, supported by intellectual property laws that protect innovations and creations effectively. India's burgeoning innovation and research and development (R&D) landscape presents substantial opportunities for Global Capability Centres (GCCs), making it a focal point for multinational corporations (MNCs) aiming to leverage cutting-edge research and innovation capabilities. The emphasis on law and commercial aspects in this context underscores the strategic alignment of India’s legal frameworks with its growing R&D prowess.

10. Enhanced Market Access: By establishing a presence in India, companies not only benefit from the operational efficiencies but also gain direct access to one of the largest and fastest-growing markets in the world. This presence can be leveraged to understand local consumer behavior, tailor products and services accordingly, and establish a brand in the regional market