Location Strategy for GCCs in India
Future of work

Location Strategy for GCCs in India

By 
Aushini
|
November 11, 2024
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4
 minute read

Introduction

Global Capability Centers (GCCs) are a strategic weapon for MNCs in today's dynamic business landscape. With its vast talent pool and cost advantages, India is a top destination.

India is a major center for Global Capability Centers (GCCs), with over 1,500 already established in the country.

  • These GCCs are significant employers, providing jobs for roughly 1.3 million people in India.
  • The Indian GCC market has been experiencing an average annual growth rate of around 11% between 2015 and 2021.
  • Expansion of over 500 more GCCs by 2026.

However, choosing the right location for your GCC is critical. It shapes talent acquisition, operational efficiency, and ultimately, your bottom line. Let's explore beyond the generic Tier-1 vs. Tier-2 debate and craft a location strategy tailored for CXO-level decision-making

Traditional Tier-1 Cities: Advantages and Considerations

Established hubs like Bangalore, Gurgaon, Chennai, NCR, and Pune offer a compelling proposition for GCCs, acting as magnets for top talent and innovation.

Advantages:

Deep Talent Bench: These cities boast a vast pool of seasoned professionals across diverse functions, from data science to engineering. 

For instance, Bangalore, dubbed the "Silicon Valley of India," has nurtured a thriving IT ecosystem. 
Why Bangalore Is The Top Location For Setting Up GCCs?

It accounts for nearly 35% of GCCs in India. An analysis of GCCs in Bengaluru reveals a well-rounded industry mix, with an average of 20-25% of GCCs across all major sectors. The leader among these is telecom, with over 50% of telecom GCCs having a presence in Bengaluru, followed by software & internet, pharma, electrical & electronics, industrial, automotive, BFSI, and professional services.

Bangalore flourishes as the startup hub of India, housing over 25% of the country's startups, which presents a prime opportunity for collaboration for GCCs. It also attracts 50% of India's AI/ML talent and houses 60% of the highest-funded AI/ML startups.

Established Ecosystem: These hubs boast robust infrastructure, including high-speed internet connectivity, co-working spaces, and a network of experienced vendors and service providers.

  • Gurgaon, for example, has seen a surge in co-working spaces catering specifically to the needs of GCCs, offering plug-and-play solutions that expedite operational setup.
  • Chennai captures a noteworthy 10% of all GCCs in India. The city remains a preferred location for Automotive MNCs seeking to establish operations and Shared Services centers. Chennai is positioning itself as India’s SaaS capital.

Proximity to the Action: The presence of major MNCs and startups fosters a vibrant business environment. This allows for collaboration, knowledge sharing, and access to industry best practices.

  • For instance, Pune's proximity to Mumbai, India's financial capital, provides GCCs with invaluable exposure to the financial services sector.

Why Pune?

Pune's robust Heavy Engineering ecosystem positions it as a serious contender for Industry 4.0 leadership. The city houses 33% of automotive GCCs and boasts a diverse industrial base that includes chemicals & materials, industrial, and BFSI sectors. Notably, Pune captures a significant 12% share of both the national GCC market and its talent pool.

Considerations

  • Cost Pressures: Be prepared for high operational costs. Real estate prices and salaries in Tier-1 cities can be significantly higher compared to other locations. Gurgaon, for example, has witnessed a steady rise in office space rentals, putting pressure on cost margins.
  • The War for Talent: The intense competition for skilled professionals can make recruitment a constant battle. You'll need to offer competitive salaries and attractive employee value propositions to stand out. Bangalore, for instance, faces fierce talent competition, with established MNCs and aggressive startups vying for the same pool of IT professionals.
  • Saturation Concerns: While the talent pool is vast, saturation can be a concern in certain sectors. For example, the sheer volume of IT professionals in Bangalore might make it challenging to find highly specialized talent in niche areas.

Crafting a Winning Strategy in Tier-1 Cities

To navigate these challenges, consider these steps:

  • Specialize your recruitment efforts: Go beyond generic job postings. Target specific universities and skill sets aligned with your unique needs.
  • Get creative with compensation: Explore alternative benefits packages that enhance work-life balance and employee well-being to attract top talent.
  • Consider alternative locations within Tier-1 cities: Look beyond the central business districts to explore areas with lower real estate costs but still within reasonable proximity to talent and infrastructure.

Emerging Tier-2 Cities: The Next Wave

While established Tier-1 cities remain powerhouses, a new wave of opportunity is rising in emerging Tier-2 cities like Chandigarh, Jaipur, and Indore.

Advantages:

Cost Efficiency:

Tier-2 cities boast significantly lower Total Cost of Operations (TCO) compared to their Tier-1 counterparts. Real estate prices and salaries are more manageable, allowing GCCs to stretch their budgets further.

A recent analysis reveals that Tier-2 cities generally offer a 10% to 35% reduction in living expenses compared to their closest Tier-1 counterpart.

For instance, setting up a development center in Indore can offer substantial cost savings compared to a similar operation in Bangalore.

Untapped Talent Potential:

These cities are home to strong educational institutions, fostering a growing pool of skilled professionals. 

Chandigarh, for example, is known for its prestigious engineering colleges.

Jaipur's universities produce a steady stream of graduates in finance and business administration.

The India Skills Report 2023 identifies Lucknow and Mangalore, both considered Tier-2 cities, as ranking among the top three for talent employability in India.  

Furthermore, Coimbatore has emerged as a noteworthy location for engineering services, solidifying its position within the broader Indian industrial landscape.

Government Incentives:

Many state governments in Tier-2 cities are actively courting GCCs with attractive incentives. These can include tax breaks, subsidies, and streamlined regulatory processes. 

The government of Madhya Pradesh, for instance, offers special tax breaks and infrastructure support for IT companies setting up shop in Indore.

As per Tamil Nadu ICT policy 2018, new or expansion of IT/ITeS industries located in B&C districts will be provided an additional capital subsidy of 10% and 25% respectively over and above the eligible limit.

Infrastructure:
Studies on mobility index reports, rank two Tier-2 cities, Bhubaneswar and Jaipur, among the top five in India. 

  • Tier-2 cities even outperform some Tier-1 cities in terms of road infrastructure. 
  • Furthermore, Tier-2 cities are experiencing a faster rise in domestic passenger flights compared to Tier-1 cities. 
  • The Indian government's UDAN program prioritizes improving air connectivity and offering incentives for Tier-2 and Tier-3 cities.
  • Additionally, Tier-2 cities have seen a recent surge in coworking spaces. 

For instance, several Tier-2 cities including Chandigarh, Jaipur, Kochi, Ahmedabad, Lucknow, and Indore have more than four flex space operators, while other Tier-2 cities like Bhubaneswar, Visakhapatnam, Thiruvananthapuram, and Coimbatore have at least one.

Social Factors:
Several smaller cities (Tier-2) in India are becoming increasingly livable. In fact, 5 of the top 10 cities on a special ranking (Ease of Living) are Tier-2! These cities generally have cleaner air compared to bigger ones (Tier-1). 

This, along with other reasons, is making them more attractive places to live. It's no surprise that flights taking off from these cities are even busier than before the pandemic, showing more people are on the move there.




Other emerging locations for GCC
  • Ahmedabad: A magnet for enterprise software GCCs and a budding startup scene.
  • Vadodara: Rapidly emerging as a nearby location for industrial and chemical GCCs, thanks to its thriving manufacturing base. It's also being redeveloped as a smart city.
  • Coimbatore: Home to many IT-BPM-focused GCCs. The city boasts a strong presence of academic institutions, fueling its tech talent pool.
  • Thiruvananthapuram: Making a concerted effort to reinvent itself as a digital hub.
Crafting a Winning Strategy in Tier-2 Cities

Here's how CXOs can leverage this opportunity:

Become a Talent Magnet: Move beyond vanilla recruitment. Partner with universities to co-develop specialized curriculums aligned with your specific needs. Think "talent pre-creation" instead of just recruitment.

Embrace the Gig Economy: Tier-2 cities offer a unique opportunity to tap into the growing freelance and gig worker talent pool. This allows you to access highly specialized skills on a project basis, bringing agility and cost-efficiency to your operations.

Think "Phygital": While Tier-2 cities might have limitations in physical office space, they offer a ripe ground for exploring "phygital" work models. Establish a core team in a strategic location and leverage co-working spaces or remote work hubs in other Tier-2 cities. This distributed approach allows you to tap into wider talent pools while maintaining a collaborative core.

Become an Incubator: Tier-2 cities often have a strong entrepreneurial spirit. Partner with local startups or incubators to foster a collaborative innovation ecosystem. This not only fuels your own innovation pipeline but positions you as a thought leader and employer of choice in the region.

Beyond Metros: Alternate Models:

The traditional office model is undergoing a seismic shift. For GCCs, clinging to outdated geographical constraints could mean missing out on the brightest minds. 

Micro-Work Hubs:
Imagine a network of strategically placed co-working spaces in smaller towns and cities. These "micro-hubs" act as talent magnets, attracting skilled professionals who might not be interested in relocating to a major city.

VR Workforce:
By leveraging cutting-edge virtual reality (VR) collaboration tools, you can create a seamless work experience regardless of location. Imagine a team of engineers in India wearing VR headsets, working collaboratively on a 3D model with colleagues in Germany, all feeling virtually present in the same design space

Conclusion

In the world of global business, choosing the right location to access offshore resources is crucial. It unlocks a wider range of skilled workers and innovative environments. This strategic choice also acts as a safeguard against potential problems like economic instability, international conflicts, or employee turnover

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