Indian Global Capability Centres Approach 5% Revenue Contribution for IT Giants
In a significant development for the Indian IT landscape, Global Capability Centres (GCCs) are inching closer to contributing 5% of the revenue for major IT service firms. This growth comes despite the competitive environment where GCCs vie for the same systems budgets as their parent companies. The GCC services business is currently estimated to be around the sub-$10 billion mark within the broader $283 billion software services industry.
Understanding GCCs and Their Role
Global Capability Centres serve as offshore back-office operations for multinational corporations, primarily focusing on IT services, staffing, and consulting. According to Gaurav Vasu, founder and CEO of UnearthInsight, a data and research platform based in India, GCC spending from Indian entities is estimated to be between $5 billion and $6 billion. This figure represents approximately 3-4% of the total revenue generated by the Indian tech industry.
The largest beneficiaries of this trend include industry giants such as Tata Consultancy Services (TCS), Infosys, HCLTech, Tech Mahindra, and Wipro. These companies are increasingly integrating GCCs into their business models, leveraging them for managed services, staff augmentation, digital transformation, and research consulting.
Revenue Reporting Challenges
Despite the growing significance of GCCs, many IT outsourcing firms do not explicitly disclose the revenue generated from these centres. Instead, such revenues are often categorized under client relationships rather than specific industry verticals like banking, manufacturing, or retail. This lack of transparency makes it challenging to gauge the full impact of GCCs on the overall revenue of these companies.
Mid-sized IT player Coforge has reported a notable shift, with approximately 10% of its revenue-around $147 million-now coming from GCCs. Sudhir Singh, CEO of Coforge, noted that about 1.5% of their revenue this year is expected to stem from the establishment of new GCCs, while an additional 8% is derived from long-standing partnerships with existing centres.
Tracking GCC Growth
UnearthInsight has been actively monitoring the financial performance of over 1,000 GCC entities in India, out of nearly 1,800 currently operational. This tracking is based on government filings and primary research focused on India’s technology spending, including managed deals, subcontracting, and staffing. The firm emphasizes that GCC revenue remains a small fraction of the overall business for IT service providers, as these companies typically bill Indian entities directly.
The Shift Towards Digital Transformation
The past few years have seen a significant shift in how digital transformation programs are managed, with many moving to GCCs. Ramkumar Ramamoorthy, a partner at Catalincs, a tech growth advisory firm, highlighted that major IT services companies are adopting various models to capitalize on these opportunities. These include strategic staffing, build-operate-transfer (BOT) arrangements, co-development of products, and co-investment in Centres of Excellence (CoEs).
Given the sluggish organic revenue growth in the sector, IT companies are exploring multiple avenues to stimulate growth. This includes expanding their GCC footprint, increasing sales of pre-purchased product licenses, and taking on client assets.
GCCs: A Growing Force in India
GCCs are experiencing remarkable growth in India, with an annual increase of over 40% projected for FY24. This growth positions them not just as implementers but as co-creators of enterprise strategies. In contrast, the top five Indian IT companies have reported negative to sub-5% growth for the same period, indicating a stark divergence in performance.
According to the National Association of Software and Service Companies (Nasscom), India is recognized as the GCC capital, hosting around 1,750 centres that contribute approximately $64.6 billion to service exports. This figure is expected to reach $100 billion by 2030, underscoring the critical role GCCs play in the global IT landscape.
Strategic Alignments and Future Prospects
Several IT firms are aligning their strategies to capitalize on the GCC trend. Arindam Sen, partner and GCC leader for EY India, noted that companies are not only establishing dedicated GCC practices but are also rolling out “GCC-as-a-Service” models. Some firms are even pivoting their service portfolios and creating senior leadership roles focused solely on GCC initiatives.
This structural shift is not limited to the largest players; mid-sized firms are also carving out niches within this expanding market. Sen emphasized that this trend could define the next decade of growth for both India’s IT and GCC industries.
Conclusion
The rise of Global Capability Centres in India marks a pivotal moment in the evolution of the IT services sector. As these centres approach a 5% revenue contribution for major IT firms, they are reshaping the competitive landscape and driving innovation. With the potential for continued growth and transformation, GCCs are poised to play an increasingly vital role in the global IT ecosystem. As companies adapt to this shift, the future of India’s IT industry looks promising, with GCCs at the forefront of this evolution.
