Why in News?

• India has emerged as a hub for Global Capability Centres (GCCs) with nearly 1,600 centres of multinational companies operating in diverse sectors.
• While GCCs contribute significantly to India’s services exports and generate employment, concerns are rising about their long-term impact on the domestic IT services sector, innovation ecosystem, and intellectual property (IP) creation.

What’s in Today’s Article?

• What are GCCs?
• GCCs in India
• Growth of GCCs in India
• Factors Driving GCC Expansion
• Concerns and Challenges
• Government Response
• Conclusion

What are GCCs?

• GCCs are fully-owned, strategic offshore units of multinational corporations (MNCs) established in talent-rich, cost-effective locations to provide specialized functions like IT, finance, R&D, and customer service.
• Initially focused on cost savings and back-office support, GCCs have evolved into innovation hubs and centers of excellence.
• They drive product development and complex business processes, adding significant value to the parent organization.
• Key benefits include access to diverse global talent, operational efficiency, enhanced control, and fostering innovation.

GCCs in India:

• India is home to over 1600 GCCs, employing 1.9 million professionals and generating $64.6 billion in revenue as of 2024.
• Key GCC hubs are located in Bengaluru, Hyderabad, Pune, Chennai, Mumbai, and the National Capital Region (NCR).
• The sector is projected to expand to $105 billion by 2030, with around 2,400 GCCs employing over 2.8 million people, solidifying India's role as a global hub for enterprise operations and innovation.

Growth of GCCs in India:

• India is now a center for high-value technology-driven solutions, with GCCs accounting for -
  • ~40% of digital transformation projects.
  • ~20% of the world’s chip designers.
  • ~40% of India’s services exports, second only to IT services.
• Major companies like Amazon (Hyderabad) and Goldman Sachs (Bengaluru and Hyderabad) have set up their largest global offices in India.
• Thus, India is becoming for services what China is for tech hardware.

Factors Driving GCC Expansion:

• Large talent pool: Of engineers and STEM graduates.
• Cost advantage: Relatively cheaper labour, real estate, and rentals.
• Favourable regulations: Simpler labour laws and longer working hours.
• Global digitalisation: Demand for R&D, data analytics, and design outsourcing.

Concerns and Challenges:

• Impact on IT services sector:
  • GCCs overlap with the traditional IT outsourcing model, threatening revenue streams of IT firms.
  • Possibility of zero-sum game - GCC gains may offset IT sector losses.
• Nature of work:
  • Most GCCs focus on outsourceable, fungible tasks, not high-end innovation.
  • Lack of core technology functions and CTO-level presence in India.
  • Very limited IP creation and patent registration in Indian entities.
• Quality of jobs:
  • Trend of hiring lower-paid science graduates instead of engineers.
  • Risk of AI tools replacing low-skill functions performed in GCCs.
• Policy dilemmas:
  • Balancing GCC promotion with protection of the domestic IT ecosystem.
  • Addressing risk of backlash from global markets, similar to China’s manufacturing rise.

Government Response:

• Push towards making India a ‘Product Nation’ by upgrading work quality.
• Exploring mandatory IP localisation requirements for foreign companies (Design Linked Incentive [DLI] scheme 2.0 for chip design).
• Encouraging IT firms to incubate GCC-like models to remain competitive.

Conclusion:

• India must move beyond cost arbitrage to high-value, innovation-driven work. Policy support should encourage R&D, patent ownership, and localisation of IP.
• Reskilling the workforce in AI, advanced digital technologies, and semiconductor design is crucial.
• GCCs can be an asset if they evolve into centres of core functions and innovation, rather than mere backoffices.