Even as Tier-I cities remain preferred for setting up global capability centres (GCCs), existing GCCs are expanding into Tier-II and -III cities to derisk their portfolios and tap the talent pool available at lower costs.
According to the latest Nasscom-Zinnov report, India had 1,580 GCCs with 1.66 million employees as of 2022-23. In Tier-I cities such as Mumbai, Pune, and Bengaluru, 18 GCCs were set up in the first half of 2023. However, for the first time, Tier-II and -III cities such as Ahmedabad, Mysuru, Vadodara, Nashik, Tirunelveli, and Coimbatore emerged as key hubs for the expansion of the established GCCs.
GCCs, also known as global in-house centres or captives, emerged in the early 1990s as offshore units of large multinationals such as General Electric, Texas Instruments, Citigroup, and American Express to perform designated technology operations.
India has emerged as a hotspot for GCCs as companies look to drive innovation and world-class technology solutions from the country.
During the first half of 2023, at least five GCCs expanded into Tier-II cities. For example, Metso, a sustainable energy company, recently extended its operations to Vadodara. Pernod Ricard, the premium spirits company, has expanded into Nashik, and Flex, the manufacturing services provider, has established a presence in Coimbatore.
Some GCCs already have a strong presence in Tier-II cities.
For example, First American (India), the GCC unit of US-based financial services company First American Financial Corporation, has a major presence with over 800 employees in Salem, a small town in Tamil Nadu.
“Companies that are already well settled in Tier-I cities in India may start exploring how they can derisk their portfolio in the case of natural disasters, by moving to other cities across various parts of the country. Tier-II cities add to the cost-benefit as well as other advantages like lower attrition among employees, easier availability of talent, lower chances of no-shows or offer declines,” said Mohammed Faraz Khan, partner at Zinnov.
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“In turn, the GCCs offer good employment options in the Tier-II cities by providing better compensation and work profiles,” he added.
Moreover, GCCs already established in Tier-I cities understand their internal demographics well and know how to operate their centres remotely.
“So, they typically identify one or two strong leaders who are ready to shift to Tier-II and -III locations and build and expand their centre there… this trend is increasingly being seen in terms of expanding existing centres,” added Khan.
According to GCC consulting firm ANSR, there has been a 30-40 per cent increase in demand for the workforce across sectors in Tier-II cities.
The hub-and-spoke model with one central office hub and smaller spokes (satellite offices) provides greater flexibility as employees can go to an office close to their homes.
Considering that many people have relocated from metros to nearby suburbs in response to the pandemic, several organisations have set up “spokes” in Tier-II and -III cities. This approach not only spares employees from lengthy daily commutes but also preserves the organisation’s work culture.
The improvement in technology infrastructure in Tier-II and -III cities is also driving the expansion of GCCs in these locations.
“The focus has now shifted from metro cities to other regions due to various reasons. Low competition, an abundance of the untapped talent pool, infrastructure, and expansion potential remain the major factors pulling captive centres increasingly towards Tier-II and -III cities like Vadodara, Nashik, Coimbatore, and more,” said Sachin Alug, chief executive officer of NLB Services, a talent solutions company.
According to an NLB Services’ report on GCCs titled India Captivating, 78 per cent of GCCs have chosen India to augment talent.
“The country has no dearth of capable talent in niche technology domains. Some of the areas where skills will be in focus are artificial intelligence/machine learning, cybersecurity, Cloud computing, data science, blockchain, etc,” added Alug.