Engineering innovation: India’s opportunity to emerge as the world’s engine room

Over the years, the number of global organisations choosing India to set up their Global Capability Centres (GCCs) has witnessed an exponential rise. At present, India hosts GCCs of approximately 1,300 global organisations, largely driven and sustained by the country’s success as a global engine room enabled by the presence of a large talent pool. While GCCs were originally set up for wage and cost arbitrage of their parent organisations, over the years, they have grown to provide significant value beyond those parameters. Today, GCCs are at the centre of their parent organisation’s innovation and research initiatives, with a growing focus on tech-led differentiation.

This shift has borne multi-faceted benefits not just for parent organisations but also for India. First, in India’s journey towards digitalisation, GCCs have provided a considerable push in skilling and developing a high-quality and tech-savvy workforce. Further, the sector has acted as a channel of support for India’s social and environmental objectives. GCCs spend ~US$100 million on CSR, of which, 40 percent is relegated for educational initiatives, and save between 190 and 200K tonnes of GHG emissions through green initiatives. The sector makes a considerable and holistic impact across the economic, human capital, innovation, social, and environmental dimensions of India. Currently, the sector contributes ~US$103 billion to India in direct, indirect, and induced output—amounting to ~1 percent of the country’s GDP. Additionally, GCCs also bring forth investment opportunities, with global parent organisations having invested ~US$1.5 billion in India, while also directly contributing ~US$15 billion to start-up revenue annually. 

The moment of opportunity 

With the advent of digitalisation, GCCs have an added impetus to evolve to become Research and Development (R&D) hubs, with Engineering Research & Development (ER&D) emerging as an area of burgeoning focus. The 2022 Global Engineering R&D Pulse Survey, conducted by Deloitte and NASSCOM, found that 85 percent organisations indicated using a GCC for their ER&D activities. Further, ~75 percent of those were already based in India, while many more are expected to come in. 

A significant avenue of investment for GCCs has been human capital, largely to derive sustainable value from a diverse pool of talent that India offers. The GCC sector generates employment for close to 5.5 million Indians, directly employing 1.2–1.3 million Indians (~25 percent of the direct employment generated by the Indian IT sector). Owing to its academia that is fast growing to match global standards, a diverse range of start-ups, and an existing ecosystem of GCCs, India understandably continues to remain a preferred destination in this regard. 

India GCCs also continue to offer ever-improving performance for parent organisations; and this is evident in the survey findings, with 85 percent companies’ leadership indicating a positive experience with their India GCCs. The evolving maturity of the centres and the push for digital engineering are expected to translate to more than 90 percent surveyed organisations maintaining or increasing their spend on India GCCs in the immediate future. Of these, half of the organisations intend to increase their spend by more than 10 percent this year—a higher percentage than the global increase in the R&D budget. The increase in spend is projected to be seen across all major segments on the back of key emerging technologies that India has proven to have a strong talent base in. 

As GCCs today assume the role of innovation centres, there is a growing need for both, domain expertise and future-focussed leadership skills. Talent development, thereby, is also assuming increased relevance for GCCs. Beyond emerging tech skills, GCCs are likely to focus on augmenting the existing talent base with leaders who are capable of holistic ownership of products and solutions, with domain expertise in product management, software development, and manufacturing engineering. 

Poised for success 

What also aids India’s momentum is its robust start-up ecosystem, ranking third largest in the world, with 80,000 start-ups. Survey findings point towards a growing propensity amongst India GCCs to forge partnerships with start-ups, academia, and Engineering Service Providers (ESPs). This is largely to keep pace with the accelerating innovation cycles seen in the market today. Co-creation is thus, quickly emerging as the model of choice with ~70 percent companies exploring or already being involved with start-ups and ESPs in co-creating. 

The survey also found that ER&D GCCs in India are likely to drive front-line innovation for their parent organisations and oversee end-to-end product development over the next three years. With the availability of talent in key and emerging skills such as AI, ML, data analytics, IoT, and cloud, organisations are exploring the possibility of outsourcing several of their core businesses to India. While there has been an uptick in the value and number of tasks being migrated to GCCs in India, the volumes continue to be low. However, the survey findings suggest an upward trend to set in over the next three years. This bodes well for India in cementing its reputation as a GCC destination of choice as both - a “volume” and a “value” creator. The growth of GCCs in India and the subsequent rise in ER&D within the country presents the opportunity to bolster India’s research capabilities, compounded with a rich pool of IT (and more specifically, digital) talent. The crucial need for India now is to ensure its talent pool stays competitive and is future-ready, while strengthening the ER&D ecosystem to truly uncover the value of the GCC sector in general, and ER&D specifically. 

The article has been written by Keerthi Kumar, partner with Deloitte India