Are Rising Trade Barriers Threatening India's Booming Back-Offices?

In the past two decades, Tesco has transformed its operations in India from a basic back-office support model to a sophisticated Global Capability Centre (GCC) that plays a crucial role in driving strategic initiatives for the retail giant. This evolution illustrates the broader expansion of GCCs in India, which now perform a diverse array of functions, ranging from IT and finance to design and AI-driven analytics.

Last updated: 23 October 2023 (BST)

Key Takeaways

Tesco's Bengaluru GCC has evolved into a strategic hub, influencing store design and supply chain management.
The number of GCCs in India has increased significantly, from 700 in 2010 to over 1,700 by 2022.
India's talent pool in digital, data, and AI is a key driver of GCC growth, attracting major multinational companies.
Smaller towns are becoming attractive locations for GCCs due to lower costs and favourable government policies.
Future growth may be challenged by trade barriers and geopolitical tensions affecting outsourcing.

The Rise of Tesco’s Global Capability Centre

When Tesco first entered the Indian market twenty years ago, its operations were limited to performing IT and finance functions. Fast forward to today, and the company’s sprawling campus in Bengaluru has evolved into a "strategic engine" that handles complex tasks like vendor due diligence, data analytics, and inventory forecasting. Sumit Mitra, CEO of Tesco Business Solutions, highlights the importance of this transformation, noting that even the design of UK stores is now managed from India.

The Global Capability Centres Landscape

The expansion of Tesco mirrors a significant trend in India's Global Capability Centres (GCCs). Originally established as captive call centres or basic support units, these centres have now diversified their functions, taking on substantial strategic roles for multinational corporations. This shift is evident across various industries, with companies like Google, Goldman Sachs, and Victoria's Secret establishing their own GCCs in India.

Growth Statistics and Market Potential

The growth of GCCs in India has been remarkable. The number of multinationals operating these centres has surged from 700 in 2010 to over 1,700 as of last year. These centres employ approximately two million people and generate an impressive $65 billion in annual revenue. Consulting firm EY forecasts that the market for GCCs could exceed $100 billion by 2030, growing at a compounded annual growth rate of 14%. This growth is powered by the increasing demand for skilled professionals in various fields.

What is Driving This Growth?

Several factors contribute to the rapid expansion of GCCs in India:

Abundant Talent Pool: India boasts a large number of engineers, designers, and digitally skilled workers, making it an attractive destination for companies seeking to harness local talent.
AI and Digital Expertise: India has emerged as one of the fastest-growing hubs for artificial intelligence talent, with many skilled professionals available in one location.
Supportive Government Policies: Local and national government initiatives aimed at fostering a favourable business environment have encouraged the establishment of GCCs.
Cost-Effectiveness: The availability of cheaper talent and real estate in tier-II towns is prompting companies to expand their GCCs beyond major metropolitan areas.

The Influence of Location on GCC Growth

The geographical distribution of GCCs is also changing. While major cities like Bengaluru and Hyderabad remain popular, there is a noticeable shift towards tier-II towns due to cost efficiencies. For instance, French spirits maker Pernod Ricard has opened a GCC in Nashik, Maharashtra, leveraging lower operational costs. This trend has led to a boom in property leasing, with GCCs accounting for approximately 31% of overall office space demand in India last year.

Challenges Facing the GCC Sector

Despite the promising outlook, the GCC sector faces several challenges that could hinder future growth. These include:

Trade Barriers: Increased global trade protectionism could disrupt the expansion of GCCs, particularly in light of proposed tariffs on outsourcing.
Infrastructure Deficiencies: Rapid GCC growth has outpaced infrastructure development, especially in cities like Bengaluru, where many centres lack essential services such as piped water.
Geopolitical Risks: Current geopolitical tensions may lead to changes in outsourcing policies, affecting the viability of GCCs in India.

The Future of Global Capability Centres

Lalit Ahuja, an industry expert, suggests that the GCC sector may be at a pivotal moment. Companies like Target view their Indian centres as nearly second headquarters, with leadership driving significant business outcomes. This shift represents a fundamental change in how businesses operate, transitioning from viewing these centres merely as cost-saving measures to recognising them as profit centres.

Potential for Re-Domiciliation

As digital adoption continues to grow, some experts speculate that companies might consider relocating their headquarters to India. This would signify a substantial shift in the global business landscape, highlighting the importance of technology and talent availability in modern enterprises.

Conclusion: The Way Forward

Looking ahead, the GCC sector in India has immense potential for growth, but it must address several pressing challenges. These include improving trade relations, enhancing infrastructure, and ensuring compliance with complex regulations. As businesses increasingly rely on digital capabilities, the narrative surrounding GCCs will continue to evolve, shaping the future of global outsourcing in the process. The question remains: how will India navigate these challenges to maintain its position as a leader in the GCC space? #GCCs #TescoIndia #DigitalTransformation

FAQs

What are Global Capability Centres?

Global Capability Centres (GCCs) are offshore units set up by multinational companies to perform a range of strategic tasks, including IT, finance, design, and research. They have evolved from traditional call centres into sophisticated operational hubs.

How many GCCs are there in India?

As of last year, there are over 1,700 GCCs operating in India, a significant increase from 700 in 2010. These centres employ around two million people.

What is the projected growth of GCCs in India?

The market for GCCs in India is expected to surpass $100 billion by 2030, growing at a compounded annual growth rate of 14%, according to consulting firm EY.

What factors are driving GCC growth in India?

The growth of GCCs in India is driven by an abundant talent pool, expertise in AI and digital fields, supportive government policies, and cost-effective operational locations.

What challenges do GCCs face in India?

GCCs in India face challenges such as trade barriers, infrastructure deficiencies, and geopolitical risks that may affect their long-term growth and sustainability.