Staff costs hurt India's global capability centres as maturity curve lags

Experts warn current trajectory could make several centres unsustainable

Inflated payrolls and top-heavy teams are putting pressure on India’s global capability centres (GCCs), even as many struggle to deliver strategic value or scale innovation. 

Experts warn that the current trajectory could make several centres unsustainable. The trend is visible not only in small and new GCCs, centres that have been set up in the last seven-eight years, but even in big and old ones, which have been operating for more than a decade. 

Sector experts warn that if employee costs continue to soar without adequate and productive returns, such centres may become unsustainable in the long run. 

Average employee expenses as a percentage of total costs for Indian GCCs were at 76.2 per cent for 2024, up from 65.9 per cent in 2020, according to an analysis by Wizmatic Consulting for Business Standard. 

That number, for example, rose to 61 per cent from 44.6 per cent for a global card company and 82 per cent from 69 per cent for a UK bank.

One of the reasons for such a steep hike in expenses was probably the aftermath of the pandemic when companies splurged on getting talent related to artificial intelligence (AI), data, digital, and cybersecurity. 

On-demand roles like AI and machine learning (ML) engineers, Cloud architects, data analysts, and product managers usually command more than 20 per cent higher salaries year-on-year (Y-o-Y) in some cases. 

“GCCs now need to justify value creation through automation, AI, and outcome metrics. With wages forming over 76 per cent of cost structure, attrition is becoming expensive. Learning and development (L&D), career paths, and engagement will be the top focus areas for growing GCCs,” said Sandeep Panat, founding partner of Wizmatic Consulting. 

Aveek Mukherjee, managing director (MD) and co-founder of Gloplax Solutions, a GCC advisory and enablement company, said there is a thin line between having senior-level capability to drive a GCC versus becoming top heavy GCC with too many senior people. “Many GCCs think capability means having many senior people; it actually requires the right number of people across various levels to do the job for you. These centres are here not just for talent but also the cost. That is the primary layer and if it is not managed properly, the chief financial officer (CFO) at the headquarters will ask difficult questions,” Mukherjee added.   

Such red shoots are already being seen. A recent report by the Boston Consulting Group (BCG) mentioned that just 8 per cent of Indian GCCs fall in the category of top performers. Around 66 per cent are classified as average performers and 20 per cent as above average. 

“You are entering a phase of a lot of competition with even other geographies starting to scale. So, why is it that with this kind of foundation that we built, we are not standing out. If you were to name 100 great GCCs, we will all struggle beyond 30-40,” said Sreyssha George, MD and partner at BCG. 

India has about 1,760 GCCs, according to IT industry body Nasscom, which is expected to cross more than 2,000 in the next few years. 

“It starts with continuous process improvement, then a little bit of re-engineering, followed by reverse migration of some of the best practices the parent has done. The transformation needs to begin at the maturity stage when the GCC has product ownership and process ownership,” said Sriram Dhanyamraju, strategy head of Gloplax.