Private equity (PE) firms are increasingly encouraging their portfolio companies to establish Global Capability Centers (GCCs) in India, a move that has seen investments quadruple in the last five years. This surge is driven by the need for operational excellence and strategic agility in a competitive landscape. GCCs are no longer limited to large corporations; mid-market companies, often backed by PE firms, are adopting GCCs to unlock value, scale efficiently, and build future-ready operations.

Why India?

India has emerged as a prime destination for GCCs due to several compelling factors:

• Cost Efficiency: Setting up a GCC in India offers significant cost advantages compared to other global locations. Operational costs can be 30-40% lower than in Eastern Europe and Latin America. The total operational cost per employee in an Indian GCC is approximately $25,000 annually. Companies can save up to 70% on IT talent acquisition compared to the US.
• Skilled Talent Pool: India boasts a vast pool of skilled professionals in IT, engineering, and finance. The country produces over 1.5 million STEM graduates each year, ensuring a steady supply of talent in high-demand fields like data science, AI, and engineering.
• Evolving Ecosystem: India is not just a conventional offshore hub but a high-value innovation epicenter. The country offers a blend of technology knowledge, digital assets, policy-driven incentives, and a large pool of STEM talent. GCCs in India are transforming how the world operates in various sectors, including healthcare, retail, BFSI, and technology.
• Government Support: The Indian government has made strides in simplifying business regulations and offering incentives to attract foreign investment. These include tax holidays in Special Economic Zones (SEZs), reduced corporate tax rates, and exemptions on import duties. Some state governments have launched single-window clearance systems to fast-track regulatory approvals.
• Strategic Advantage: India's strategic position as a bridge between the East and the West makes it an attractive destination for multinational corporations. GCCs in India are well-positioned to help companies capitalize on the region's economic opportunities and expand their influence across Asia.

Benefits for PE-Backed Companies

PE firms are leveraging the GCC model to strategically position their portfolio companies for sustainable growth and enhanced enterprise value. GCCs offer several benefits for middle-market PE firms:

• Cost Optimization: GCCs help PE companies reduce operational costs through centralized delivery, automation, and access to offshore talent.
• Value Creation: PE-backed GCCs are designed for rapid value creation, driving product development, enhancing profitability, and accelerating platform transformation.
• Operational Resilience: Establishing GCCs allows PE firms to consolidate critical operations, standardize processes, and tap into global talent pools, ensuring business continuity.
• Access to Innovation: GCCs have evolved beyond cost arbitrage and serve as innovation engines for portfolio companies, driving digital transformation through AI, analytics, and automation.

Challenges and Strategies

Setting up a GCC in India is not without its challenges:

• Regulatory and Compliance Complexities: India's regulatory environment is multifaceted, with varying laws across states and sectors.
• Talent Acquisition and Retention: Competition for skilled professionals, especially in IT, AI, and data analytics, is intense.
• Cultural Integration and Communication Barriers: Cultural differences between the parent company and the Indian GCC can lead to misunderstandings.
• Infrastructure and Technological Challenges: Setting up state-of-the-art infrastructure and integrating advanced technologies are critical for GCC operations.

To overcome these challenges, companies should:

• Hire local legal experts for compliance: Ensure adherence to local labor laws, tax regulations, and data protection norms.
• Develop robust talent acquisition and retention strategies: Offer competitive compensation, employer branding, and employee engagement programs.
• Facilitate cultural integration through tailored training programs: Promote cross-cultural understanding and effective communication strategies.
• Invest in robust infrastructure and cybersecurity measures: Ensure compliance with global IT standards and facilitate seamless integration with the parent company's technological ecosystem.

The Future of GCCs in India

India's GCC sector is on an accelerated growth path. By 2030, India is expected to have an estimated 2,400 GCC companies, generating over 4.5 million jobs and having a market value of approximately $100 billion. The focus is shifting from cost optimization to value creation, with GCCs becoming innovation powerhouses. As global organizations seek to accelerate product innovation, India's GCCs are poised to become the epicenter of global innovation.