Global capability centres: India
This is a collection of articles archived for the excellence of their content. |
Contents |
Retail GCCs
2021
Avik Das1, January 13, 2021: The Times of India
From: Avik Das1, January 13, 2021: The Times of India
“We are not here for cost; it is about talent, capability and building a team to support various functions, including our online platform. Our Bengaluru office is the engine room for analytics,” says John Kenny, director of KAS Services, the India tech arm of Australia’s biggest discount department retailer, Kmart.
The company is among the numerous global retailers that are establishing technology centres in India, or expanding existing ones, to become more digital, so that they can take on the likes of Amazon and Alibaba. The Covid-19 pandemic has only underlined the urgency – the internet is where customers increasingly want to buy on, and without a digital backbone, supply chains can get badly disrupted.
Bengaluru is home to the majority of these centres – Walmart, Target, Tesco, Lowe’s, JCPenney, Hudson Bay, L Brands, Ikea, Falabella. Not one has a single store here (an Ikea is coming up), but they are all developing new technology to make the shopping experience pleasant.
“The retail industry represents the highest levels when it comes to maturity of global capability centres (GCCs, as the captive centres are now called). They have become strategic to their parent companies,” says Lalit Ahuja, CEO of ANSR, a company that helps set up such centres in India. “Retail was slow to Amazon-ise, and now these retail centres are coming up to drive change and bring new technology and innovation,” he says.
India has nearly two decades of experience in retail tech. Target and Tesco came to Bengaluru in the early 2000s to consolidate back-office operations and make them more efficient with the use of IT. Flipkart’s emergence and Amazon’s entry, and their intense rivalry added to the retail tech talent pool. The new retail GCCs are benefitting from this talent. “The country now has extremely relevant talent – talent that understands all aspects of retail,” says Lalitha Indrakanti, head of global business operations for Sweden’s Ingka Group, which runs Ikea, and which recently established a global business operations cum digital centre in India.
Chilean retailer Falabella’s India centre has built the point-of-sale (PoS) system for its stores in seven Latin American countries, and integrated its indigenous e-wallet in the retail ecosystem. The centre also manages the e-commerce operations and digs into data to provide more personal experiences.
“Falabella has multiple retail formats, and a host of other businesses including financial payments, banking & insurance, driven by the goal to build an ecosystem for our customers. It requires a holistic technology transformation across the conglomerate. We knew it wouldn’t be possible to do that in Chile or anywhere in Latin America alone, so we chose India as a key location, given the talent pool,” Ashish Grover, MD of Falabella India, says.
The digital acceleration is taking place across ten key retail themes, consultancy firm Zinnov says. These include automated checkout, contactless payments, omnichannel inventory management, warehouse automation, stores as fulfilment centres for online orders, autonomous last-mile delivery, virtual trials, assisted shopping, social commerce, and move to marketplaces. It estimates that globally, the retail sector has invested in three years’ worth of digital transformation within six months, spurred by the pandemic.
Walmart’s engineers in India have helped build the tech stack for the US supply chain and have developed tech solutions for its Mexican e-commerce platform. They are reimagining in-store and online shopping experiences.
US home department chain Lowe’s centre in Bengaluru is involved in developing and pricing products. It has product management, engineering, data analytics and operations teams in India that help manage assortments at the stores, pricing, inventory and store design.
Kmart’s Kenny says one of the advantages of having a base in Bengaluru is the presence of other retailers, which facilitates sharing and learning unlike other places. “The team here works on high-end technology. We have built PoS solutions, we have built solutions that make teams more effective. We have a demand fulfillment team that allows us to forecast stock in store a lot more accurately,” he says.
Minneapolis-based Target started in India as a shared services centre. Today, the centre supports global strategy across technology, marketing, human resources, finance, merchandising, supply chain, analytics, and reporting. The company says the work involves creating highvalue tools and products to create a competitive advantage.
Retail GCCs, says KS Viswanathan, vice president of industry initiatives at Nasscom, are increasingly working on services like marketing, social media campaigns, designs for new shops and managing e-commerce operations and online customer experience. And are providing analytics and insights.
2022: India’s rise as GCC hub
SWAMINATHAN S ANKLESARIA AIYAR, India’s rise as GCC hub shows way forward
One form of globalisation is progressing rapidly without much recognition. This is the rise of Global Capability Centres (GCCs). Nasscom (National Association of Software and Service Companies) estimates that by 2021 more than 1,400 MNCs (multinational corporations) set up GCCs in India, employing 1. 3 million highly skilled people with a revenue of $36 billion. Nasscom projects that by 2025 India could have 2,000 GCCs employing 2 million people and generating $60 billion of revenue.
Many Indian start-ups have been created by former employees of the GCCs. Thus, skills nurtured by GCCs spill over into other sectors. This helped India create 100 unicorns (unlisted start-ups with an estimated market value of over one billion dollars).
The rise of GCCs has escaped attention because MNCs do not publish separate balance sheets for offshore operations, in India or anywhere else. Many MNCs have no interest in highlighting the growth of their GCCs because it might open them to accusations of exporting jobs to low-wage countries. Once, high-level skills were available only in advanced economies. Today MNCs cannot get enough skilled staff in their home countries and so search the world. They find India is a major source of talent.
Back in the 1990s, foreign companies began offshoring low-level work like call-centres and medical transcriptions to India and other developing countries. Next computer software and business processes were offshored on a large scale after 1998. Much offshored work went to Indian companies but an increasing amount was also done by captive centres of MNCs in India, an in-house form of offshoring. These centres have now risen in sophistication and technical excellence to become GCCs that are global hubs for design and R&D. Nasscom estimates that 42% of employees in GCCs are in engineering R&D.
Ironically, education in India is terrible overall. Schools and colleges produce millions of semi-literate students who are unemployable. Yet India also has some world-class educational institutions that are expanding in both the public and private sectors. MNC managers say that no other coun-try (save China) produces half a million engineering graduates of decent quality every year. Doing business in India can be tough, but fierce competition for talent obliges MNCs to come to India, in services if not manufacturing. Deloitte estimates that 45% of the world’s GCCs are in India. Accenture, the world’s biggest consultancy company, recently revealed that of its 700,000 employees worldwide, no less than 300,000 were in India. Goldman Sachs reportedly plans to expand its Indian GCC to 2,500 employees by 2023. IBM and CapGemini have over 100,000 employees in India.
Historically pharma MNCs were reluctant to expand in India for fear of losing their intellectual property rights to Indians who were seen as expert “copycats. ” Today Indian skills have gone well beyond mere copying and so MNCs are beefing up their R&D centres in India. AstraZeneca had a great collaboration with Serum Institute of India to produce anti-Covid vaccines that saved millions of lives globally. AstraZeneca now plans a GCC in India.
The status in 2023
June 15, 2023: The Times of India
On the eastern side of Bengaluru, sits a campus housing three cube-like glass buildings. Each is 10 storeys high, with facades glistening in the sun.
These are the offices of Goldman Sachs group, home to about 8,000 workers, the bank’s largest venue outside New York. When Goldman set up in the city in 2004, it had roughly 300 people mainly providing information technology and other support. Now, its workers are quants and software engineers, building systems for everything from making trades to managing risk.
Across India, the offices set up by multinationals to provide cheap operational support are taking on more sophisticated roles. While the shift has been underway for years, recent economic data highlights a rapid service-sector expansion that many attribute to the offices known as global capability centres (GCCs).
These now account for more than 1% of India’s gross domestic product (GDP). But the boom also creates challenges, both for the companies and the cities that host them. Finding qualified employees is becoming more difficult, pushing salaries up, while offshoring may become politically sensitive again in the US presidential race.
The pull of India
“Over the last 30 years, while China specialised in becoming the world’s factory, India specialised in becoming the world’s back office,” said Duvvuri Subbarao, a former governor of the Reserve Bank of India. “Over the years, India moved up the value chain,” he said. But it can’t “take its comparative advantage for granted”.
India has roughly 1,600 of the centres, more than 40% of the number worldwide, according to Nasscom, a trade body for the technology industry.
Dotted around Bengaluru are the offices of luxury retailer Saks Fifth Avenue, aircraft-engine maker Rolls Royce, US bank Wells Fargo and Japanese e-commerce firm Rakuten. Some 66 global companies set up their first GCC in India in 2022. Even the lingerie brand Victoria’s Secret has a Bengaluru GCC.
The offices generated about $46bn in combined revenue in the fiscal year ended March, more than the output of Nepal.
The qualities that turned India into the world’s back office starting decades ago are propelling GCCs’ metamorphosis: A vast pool of young people, an education system that emphasises science and technology, and the lower staffing costs that made India attractive in the first place.
Add an unforeseen catalyst: The pandemic, which convinced decision-makers jobs can be done anywhere, including far-flung shores.
“India’s story starts with its demographics and its talent,” said Gunjan Samtani, the country head of Goldman Sachs Services, the entity that operates the bank’s GCCs in India. A software engineer by trade, he still codes from time to time. “What brought us here even two decades back was our ability to get access to technology and talent.”
More than a back office
Last year, a mysterious surge appeared in the country’s economic data. Services exports rose to a record for December, leading economists to speculate why. The trend continued. They climbed to about $323bn in the fiscal year ended March, up 27% from the year before. Analysts reached the same conclusion: It was the GCCs.
GCCs have been driving the exuberance in services exports, Pranjul Bhandari, HSBC Holdings' chief economist for India and Indonesia, and colleagues wrote in a report in March, calling it a “meaningful” shift in India’s economy.
Its significance went beyond the boost in output. The increase helped narrow the country’s current-account deficit, which in turn could support a rupee that’s been depreciating for years. It was an important moment for a business that’s been in the making for decades. Global capability centres trace their roots to the 1980s, when Texas Instruments established a facility in Bengaluru.
India took off as an outsourcing hub in the 1990s, when airlines, technology companies and firms including American Express and General Electric set up centres in the country. The facilities took over business processes including accounting, payroll and customer support, with lower labour expenses allowing companies to cut costs.
The multinationals soon saw they could use their India offices for more than back-office functions. Today, they often handle core operations, such as inventory management or purchasing, while also using AI and other advanced technologies to improve how businesses run.
Retailer Target is working on new systems for order collection and shipping. At Goldman, engineers have helped develop a trading system called Atlas for quant clients with latency in microseconds. They’ve also expanded a commodities platform called Janus, which provides data analytics.
“The conversation has changed completely,” said Sindhu Gangadharan, senior vice-president and managing director of SAP Labs India. Cost is “a beautiful advantage that we have, but that’s not the conversation starter like it was 20 years back”.
SAP Labs India is now responsible for almost 40% of software firm SAP’s global research and development and a quarter of its patents annually, Gangadharan said.
Goldman’s GCCs carry out more than 120 global functions across engineering and business operations. JPMorgan Chase employs more than 50,000 people at GCCs in five locations across India, in areas including quant research, data science and cloud computing.
GCCs “are now following a very different path”, said Lalit Ahuja, the founder and chief executive officer of ANSR, a consultancy that has helped clients establish more than 100 of the centres in India. He says he sets up two every month and has never been busier.
The pandemic changed everything by making remote work more acceptable, Ahuja said. The industry came of age in the last few years, he said.
Huge talent pool
One of India’s biggest attractions is its supply of workers. In April, it overtook China as the world’s most populous country. It’s now home to almost a fifth of humanity, and more than half its population is under 30, with a median age of 28. That compares to 38 in both the US and China.
In a nation obsessed with education, many parents want their children to take subjects that will help them get good jobs and careers. Some 34% of students study science, technology, engineering or mathematics at university, the highest among major economies, according to Unesco Institute for Statistics data.
And these days, India’s thriving startup scene is also a boon for companies setting up GCCs and seeking people to hire. India has about 90,000 startups, the third-biggest number of any country in the world.
But the surge in GCCs is making it harder to find employees and creating a need to pay them more. Companies are forming ties with academia to develop hiring pipelines.
SAP Labs India has a partnership with engineering school Birla Institute Of Technology and Science, Pilani. Goldman runs an annual contest called GS Quantify for students to find solutions to real-world financial problems. Samtani says the bank gets job applications from more than 1,100 campuses in 20 states.
“The war for talent definitely exists,” SAP Labs India’s Gangadharan said.
Even before competition for staff intensified, companies needed to spend much time training new hires, according to Dileep Mangsuli, executive director and head of the development centre at Siemens Healthineers, a medical-technology company involved in imaging and diagnostics, which now does half its software and digital-services research and development (R&D) in India. Good jobs exist in the country, but the booming education industry often doesn’t adequately prepare people to do them.
The employability of new graduates “is still a challenge”, he said. “Till they’re trained and retrained and many times trained, they don’t become employable.”
As GCCs use more advanced technologies, they’re also finding it harder to find staff. An example is artificial intelligence. India has about 416,000 AI workers, far short of the more than 1mn it will need by 2026, according to Nasscom.
Not an easy road ahead
Making the most of India’s demographic advantages “will require significant investments and government attention”, said Partha Iyengar, the country leader for research at Gartner in India. Only 30-40% of graduates in India are employable, he estimates. “Not enough attention is being given to this, given the massive scale of intervention required”, he said. “If that is not done on a war footing, the demographic dividend can very easily and quickly turn into a demographic disaster.”
The boom is also adding to challenges for India’s cities, especially Bengaluru.
Home to about 30% of the country’s GCCs, India’s tech capital is constantly congested. As work continues on expanding the metro system, large stretches of the city are dug up, resulting in long traffic jams. Last year, torrential rain caused floods across key roads, forcing chief executive officers to ride to work on tractors.
Multinationals are setting up in other places. Hyderabad is emerging as a popular location. Goldman opened its second India GCC there in 2021 with a focus on consumer-banking services and business analytics. Pune is another favoured destination, as are some areas near New Delhi.
Another risk is that Donald Trump will revive his campaign against offshoring of jobs as he runs for president again in 2024. Data sovereignty — another argument for keeping jobs at home — could also become an issue.
Still, Nasscom estimates India will have at least 1,900 GCCs by 2025, and annual revenue from the industry will increase to as much as $60bn. “India can overcome the geopolitical challenges because such a large talent pool is not available elsewhere,” said K S Viswanathan, the trade body’s vice-president of industry initiatives.
At Goldman, Samtani shares the optimism. He points out the bank had one managing director in the city in 2004. Today, in Bengaluru and Hyderabad, 58 people have reached the coveted rank. “If India is not part of the talent story for any firm globally, they’re missing something,” he said.
See also
Global capability centres: India
[[Services sector: India]
