Multinational firms continue to prefer setting up global captives, or global in-house centres (GIC), in India. According to a report, in the past two years, 70 companies set up GICs in India, taking the number to more than 1,448, with a headcount of 74,500.
GICs are an integral part of the Indian IT-BPO (information technology-business process outsourcing) sector. GICs have been viewed as cost-saving centres for parent organisations. But, with the growth of the global sourcing sector, GICs in India are evolving into centers of excellence, profit centres, and program management offices.
Over five years, around 220 GICs have been set up, with firms from Europe and Japan showing higher inclination, said the study by Zinnov. These GICs will hit a revenue of $20 billion a year in 2015, a growth of 11 per cent over FY10. Of this, almost 52 per cent will come from software product development and embedded engineering services; 25 per cent from BPM (business process management) and 23 per cent from IT.
"Year-on-year, we have seen an increase in the setting up of GICs in India. Barring a year or two, the growth has been positive. In the past two years, 70 companies set up their GICs in India and this year, about 20 companies are in different stages of evaluation for setting up of GIC in India," said Karthik Ananth, director, Zinnov.
Ananth cites growing instances of multinational firms from Europe and Japan wanting to set up centres in India. The total number of GICs from Germany has gone up from 28 to 39 from FY10 to FY15. In the case of Japan, the number of centres has gone up to 40 from 24 over the period. "While North America will continue to be the largest in terms of centres in India, firms from Continental Europe and Japan have also shown interest. Several firms from China are looking at India," said Ananth.
He added that new players do have an idea of working with Indian IT players, but setting up a GIC in India is new for them.
"Earlier, an IT budget would have 70 per cent for maintenance work, which was outsourced; 20 per cent for growing IT; and 10 per cent for transforming the IT infrastructure. This break-up has changed: 50 per cent for maintenance; 30 per cent for growing IT; and 20-25 per cent for transforming the IT infrastructure. It is in this last segment that firms are looking at what stays inside in GICs and what gets outsourced," added Ananth.
The report also points out that many GICs in India are enabling digitisation efforts of enterprises. India is emerging as the world's leading centre for digitisation, with the world's second-largest pool of digital talent and practitioners. Tesco, Honeywell, Schneider Electric, and Wells Fargo India's centres are leading efforts on mobility. Microsoft, Amazon, Google, and IBM's centre in India are leading efforts on machine learning.
MasterCard set up its GIC in 2013. The GIC will be an extension of the MasterCard Advisors' analytics group in New York, which leverages big data and analytics to solve business challenges.
Singapore-based Redmart, with a revenue of $2 million in 2014, set up its GIC in 2014 to act as an analytics hub for making business decisions.
"India is no more just a outsourcing base. It is a huge market. So, for firms that are tech-enabled such as Uber and LinkedIn, India is a huge market. Twitter acquired Zipdial. With that they got a vibrant engineering ecosystem. It is natural that they will want to leverage this for growth," said Ananth.
Ananth says only because the number of GICs are going up does not mean the role of third-party IT vendors will get affected. "Though firms are transforming, it does not mean everything changes. A lot of things will continue and for that you need partners. Also, there is a preference for a hybrid model," he says.
But skill sets will be a challenge. The IT sector has created a skill ecosystem that is outside university education. Ananth believes it will be crucial for this ecosystem to grow and nurture relevant skills.
- $20bn: GIC revenue in FY2015, a CAGR of 11 per cent over FY10
- 745k: Number of employees; 5x growth since FY03
- 1,000: MNCs have GICs in India; 220 new MNCs set up GICs since FY10
Global in-house centres (GICs) deliver IT-BPO services. These are set up by multinationals in countries where costs would be low. But GICs in India are evolving into centres of excellence, profit centres, and program management offices