GCCs will not kill good old IT baby-sitters. But....

It is not a surprise anymore to go to a house-warming party and walk about with no signs of a working kitchen. And no porch. For that matter, no washing machine parking-spots anywhere as well. The more the new generation lives in apps and on things on hire, the more real estate they have for the gaming zone or the gym. But then, the flip arrived. Many people have started going back to home-made food and owning cars. And like these ‘lifestyle switchers’, many global companies also realised that they would rather trust their children in their own hands instead of relying on a governess. Not because she failed on being Mary Poppins but because when you love your kid, it is just too hard to see that treasure being raised by someone else. Is that why GCCs are promising to be the next new model after outsourcing, insourcing, nearshoring and captives? Mohammed Faraz Khan, Partner and Head of GCC Practice - EMEA, Zinnov (A global management and strategy consultancy firm) gives a tour of this new layout.

There is no point in reinventing the wheel. A lot of non-core work would remain with the service provider.

Let’s start first with how, and why, the IT industry has evolved from complete outsourcing paradigms to GCCs today? What are the industry’s contours today and do service providers now lose their spot?

The industry can be divided into three categories. The top service providers, the GCCs and the startups. When global companies wanted work done some years back, they would easily hand it over to an Infosys or a TCS. Outsourcing became the common model due to its low cost and vast scale. These providers could also turn out immediate project completions because of the benches they kept. It was logical. It was prominent. Over the years, outsourcing vendors have, perhaps, created some inefficiencies. The talent in major outsourcing pools like India and Manila, now, does not aspire to work for a provider but for a global brand. That’s where Global Capability Centres rise.

About 33-37 per cent of Fortune 500 companies are already here. The service providers go after the big names, and this is where small and medium-sized companies opt for a GCC approach.

But was not this need and degree of control being met with the captive model earlier?

The ODC model, as we called it, was an alternative to outsourcing but here the employee was still on the payroll of a provider, albeit, working in the environment of the client company. In the GCC model, the employee is on the client’s payroll and the focus is completely on the work being done. The talent does not move as per the service provider’s preferences. It stays on one focused area and is oriented towards outcomes. Plus, this is a good option when you want to trust your people with IP-related work. There was also a stability issue. If an outsourcing provider shut down, the client’s work would come to a standstill. That’s not the case with GCCs. A GCC is very strategic and stable.

How well are they growing? Is it good news for the talent side?

In the last one year the headcount of top service providers has come down but GCCs have grown significantly. The margins taken by the service provider can be now passed on to the employees in the form of better packages and prospects. Earlier models had a long hierarchy – an employee had to report to a program manager who tied in to the service provider who, then, stepped up to the client. In the GCC model, the relationship is directly with the customer.

Is it a zero-sum game? Do GCCs win at the cost of service providers?

No. The pie is big enough for both. But if the pie were to shrink, for some reason, then GCCs would have a better chance over service providers. That’s why service providers are now showing a ‘pivot’ to agentic AI. All that, eventually, expands the pie.

But is this not against the basic premise of the IT industry’s model and surge? The idea was to entrust a provider to do the non-core work and focus on your core. What about that?

A lot of non-core work would remain with the service provider. It makes sense because they have reached that kind of maturity and automation tools. There is no point in reinventing the wheel. But areas like customer experience, or employee experience, revenue-related functions or strategic ones are still core. They should be kept inside – as per a GCC model. That’s what our core-context framework also suggests. The mission-critical aspects of IT would not go to a service provider. The rest can move. It has to be a portfolio approach.

That also shakes the realm of multi-billion and multi-year deals, then?

If we look at GCCs, the biggest companies are in this bracket. About 33-37 per cent of Fortune 500 companies are already here. The service providers go after the big names, and this is where small and medium-sized companies opt for a GCC approach. It works great for the ones who get left behind in mega deals. Now they also have a solution.

How do you explain the rise of the next trend now—GCC-as-a-Service?

It is all about terminologies. We have seen many already. Like BOT (Built, Operate, Transfer), then hybrid BOT and GCCaaS. Our interpretation is that there are two key aspects of a GCC. One is the core where engineers and products come in. The next is support—where payroll, compliance, real estate, hiring processes etc, come in. This is where GCCaaS happens. Core work is still GCC.

Do geographical implications matter more now for GCCs?

Companies decide on many angles. Some choose a region based on proximity and time zone. Some go for skill-availability. Some choose as per costs or regulations or market-led elements (like a region with high revenue). Choices like Poland, Romania (Near to mainland of Europe and with native language factor), Brazil, South Africa, and Mexico (time zone advantage for US companies) have different reasons for being a GCC option. India appears as a strong choice for both US and European GCCs. It is also easy to transfer employees from service providers to GCCs if a region has that kind of talent density.

Would it be an ‘India-and’ scenario or a state where a company will choose GCC in either India or UK (or Europe)?

A diversified strategy would be better. Do not keep all your eggs in one basket. But do not be over-diversified.

Where does India sit on this map—with all the geopolitical chaos seen recently?

India is at the best vantage point. We are on strong terms geo-politically with every region—Russia, the US, France etc. We trade in oil in one place and explore defence equipment in another one. The only region that is odd is China, but we are trying to address that too. India is on a good axis, geopolitically.

Does data sovereignty matter in such decisions?

India is strong on this factor. Our DPDP is at par with GDPR and we have lots of checks and balances. A lot of companies leverage data via VPNs and there is no data replication in India. A lot of data is encrypted and masked. We are still learning more in that area. Until it gets more complex, I guess we are doing pretty well.

One is the core where engineers and products come in. The next is support—where payroll, compliance, real estate, hiring processes etc, come in. This is where GCCaaS happens. Core work is still GCC.

If we sit again to talk on this topic after five years, would GCCs still be relevant? And is the Indian outsourcing saga over?

The saga is not over. The outsourcing providers are pivoting. Most tech organisations would move towards the GCC model so that market will be reduced. But there are many retail and manufacturing organisations that do not understand software. So for this market both GCCs and service-providers will co-exist. It’s a win-win for both. In five years from now, service providers would not be throwing people at problems, and we will see a lot more GCCs than ever.

pratimah@cybermedia.co.in