Pull, don't push: Global capability centres need enabling environment

One of the more exciting developments in the business services sector over the past few years has been the development of holistic global capability centres, or GCCs, which serve large multinationals. Many of these have been located in, or planned for, India and represent a significant increase in scale and value added for the domestic sector. Naturally, there is healthy domestic competition when it comes to the location of the proposed GCCs. The government of Karnataka has released a strategy targeted directly at GCCs. It has now been announced by Chief Minister Siddaramaiah that the state government plans three dedicated parks for GCCs — in Bengaluru, Mysuru, and Belagavi.

 

Mr Siddaramaiah’s focus on GCCs is both useful and necessary. The services sector, enabled by information technology (IT), has long viewed Bengaluru in particular as home, but there is no doubt that the sector has risked being left behind by technological, governance, and corporate developments over the past few years. But it must also be recognised that the basic requirements for GCCs to flourish in Karnataka — as in any other state — are those which are broadly applicable to all new investment, particularly foreign investment. These include the availability of land; upgraded infrastructure, including roads; reliable, cheap (and ideally green) power supply; and an easy dispute settlement. In the past, the Karnataka government did not cover itself with glory when it came to these. The state has sometimes taken the lead on tax and regulatory disputes. Its focus should be on increasing clarity, not reducing it.

 

Urbanisation is a crucial factor when it comes to moving up the value chain in business services. About 85 per cent, according to some estimates, of India’ IT and IT-enabled services exports in particular come from four states — Maharashtra, Karnataka, Telangana, and Tamil Nadu. Dynamic urban centres make this possible. The government of Karnataka stresses the importance of “balanced regional development”, but it must also recognise that it is world-class urban centres that will attract investment. “Beyond Bengaluru” is a good slogan, but it can be made a reality only when other urban centres in the state have connectivity, facilities, and quality of life comparable to the Bengaluru-Mysuru cluster.

 

In his discussion of GCCs, the chief minister added the state was already a “preferred destination” thanks to its “unmatched engineering talents and the highest number of AI (artificial intelligence) professionals globally”. He added a reference here to initiatives designed by his government to create an “industry-ready workforce”. It is a fact that human resources concerns rank high on how GCCs, which are human capital-intensive, evaluate destinations. The government must also recognise, however, that an “industry-ready workforce” is not one that discriminates against “outsiders”. No company planning a GCC wants to be embroiled in complicated political disputes over who counts as a local and who does not when it comes to hiring. Initiatives designed to improve the productivity and potential of the residents of Karnataka are clearly welcome. But harsh regulation that requires job reservation for locals is not. In general, investors respond better to carrots than sticks: The government in Bengaluru should focus on the supply of suitable local candidates for GCCs rather than forcing labour demand to adapt.