India-based captives move up the value-chain

With 20 per cent of the Indian information technology (IT) services employee base working at global in-house centres (GICs), these captive centres of global corporates have not only played a significant role in growing the IT services industry in India, they have also matured over time, handling complex research and development (R&D) works. Captives that were set up in India for pure labour arbitrage reasons have now positioned themselves as core units for their parent companies.

Take the case of Japanese consumer electronics giant Sony. The company started its captive research and development (R&D) operations in Bangalore in 1997 with 100 people. Today, the centre has grown to a headcount of 1,800 people, developing applications for smartphones manufactured by Sony India Software Centre. It is Sony's biggest R&D centre outside of Japan.

"We've our biggest R&D centre in India after our Japan headquarters. The India centre develops technology for our smartphones and has helped us grow," said Yukio Taketari, managing director, Sony India Software Centre, at the roundtable conference held at the GIC Conclave on 'Enabling a global operations platform', organised here recently.

Manhattan Associates, a US-based supply chain management software company, had set up its R&D centre at Bangalore in 2002 with only five people. Today, it has grown to a centre of 1,100 people, the largest for the company outside its headquarters in the US. Another such example is Sears Holdings, a supply chain management software company, which has its centre in Pune with 1,000-plus employees.

UK-retail giant Tesco is another example. Tesco Hindustan Service Centre (Tesco HSC), which completed a decade of its presence in India this March, manages about 72-75 per cent of Tesco's global IT requirements. Vinod Bidarkoppa, group director and chief information officer, Tesco HSC, believes that the India centre is a strategic asset for the group.

According to Nasscom, exports from GICs in India are expected to be $17 billion in FY14, up by 21.5 per cent as compared to $13.9 billion in FY12.

These centres employ over 530,000 people, and account for 17 per cent of the overall IT export revenues in India. There are over 825 GICs in India offering the entire spectrum of services - IT services, BPM, ER&D, and software products - across Tier-I/II/III cities in India.

A few years ago, the rise in third-party service providers in India and around the world made it imperative for GICs to reinvent themselves in order to compete with these vendors for offshore and outsourced work from parent organisations.

GICs were no longer the only choice of the parent organisations. Indian GICs today have managed to deploy new and innovative services that make business processes more efficient and are aligned with attaining strategic business objectives.

"As GICs evolve and take on more business 'ownership', collaboration with third party service providers or vendors will continue to increase. For GICs to move up the value chain, we believe that it is important for them build stronger strategic partnerships with their ecosystem, including third-party service providers," said Gerd Hoefner, managing director and chief executive officer, Siemens Technology and Services.

These captives, which were established to make use of the cost advantage, have moved beyond that factor. "Talent is more important or is the challenge for Indian GICs. There is a need to train fresh engineering graduates according to industry requirements," said Xavier Lofficial, chief executive officer, Societe Generale.

According to Deloitte and Nasscom's joint report, Defining the GIC CEO agenda for talent in 2013 Beyond hypergrowth: What's next for GIC talent in India?, the average career of an employee in the GIC over the last five years has been less than five years.

According to the report, with cost arbitrage beginning its slow decline, and the recession in the West leading to tighter budgets of parent organisations, captives started re-evaluating their business operations and models. In many cases over the past five years, this led to parent organisations increasing their investments in GICs focusing on broader value addition, client management, and managerial capabilities.

"With the largest GIC landscape in the world, the industry in India has matured and continues to move up the value chain. Over time, GICs have invested in global leadership, newer capabilities and differentiating talent," said Navneet Kapur, president and managing director, Target Corporation.