Vol 7. Issue 4. 1 - 30 NOV 2020 | For Private Circulation Only
pg 4. GCCs IN INDIA - To be or not to be...
pg 44. Indian Economy: Trend Indicators
pg 41. Interview: Mr Sashidharan Balasundaram, ISG Research
pg 46. PhillipCapital Coverage Universe
3GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 2
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FOR EDITORIAL QUERIESPhillipCapital (India) Private Limited. No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400 013
MANAGING DIRECTOR & CEO Vineet Bhatnagar
EDITORIAL BOARDManish AgarwallaKinshuk Bharti Tiwari
DESIGN & ILLUSTRATION Chaitanya Modakwww.inhousedesign.co.in
EDITORRoshan Sony
HEAD- INSTITUTIONAL EQUITIES Kinshuk Bharti Tiwari
RESEARCHAUTOMOBILESSaksham KaushalAmar Kant Gaur
AGRI INPUTSDeepak Chitroda
BANKING, NBFCsManish AgarwallaSujal Kumar Pradeep Agrawal
CONSUMERVishal GutkaPreeyam Tolia
CEMENTVaibhav Agarwal
ECONOMICS Anjali VermaNavneeth Vijayan
ENGINEERING, CAPITAL GOODS Jonas BhuttaSandesh Shetty
HEALTHCARE, SPECIALTY CHEMICALS Surya PatraHrishikesh PatoleRishita Raja
IT SERVICESVibhor SinghalKaran Uppal
INFRASTRUCTUREVibhor SinghalDeepika Bhandari
LOGISTICS, TRANSPORTATIONVikram Suryavanshi
MEDIA, CONSUMER DISCRETIONARY Ankit Kedia
METALS Vikash Singh
MIDCAPS Deepak AgarwalVineet Shanker
REAL-ESTATEVaibhav AgarwalDhaval Somaiya
STRATEGYAnjali VermaManoj Rawat
TECHNICALSSubodh Gupta
PRODUCTION MANAGERGanesh Deorukhkar
EQUITY SALES & EVENTSRosie Ferns
SALES & DISTRIBUTION Archan VyasAshka GulatiJignesh KananiSneha BaxiAmarinder Sabharwal
CORPORATE COMMUNICATIONS Zarine DamaniaMrunal Pawar
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3GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 2
4. COVER STORY
GCCs IN INDIA – To be or not to be...By Vibhor Singhal & Karan Uppal
41. INTERVIEW
Mr Sashidharan Balasundaram, Senior Manager, ISG Research
CONTENTSLetter from the MD I would like to continue expressing my sincere gratitude to all
frontline COVID-19 warriors; words cannot adequately capture
their courage in fighting this crisis. As always, I hope you and your
loved ones are staying safe and doing well. While the prolonged
uncertainty, ups and downs, and anxiety continues, the silver lining
– that we got to spend so much quality time with our loved ones –
has been appreciated by many. We live in a different world now, and
for the foreseeable future, it will be a ‘post-covid-19’ world. But the
indomitable human spirit has prevailed and we have adapted both
personally and professionally, faster-than-anticipated, to a virtual
way of working. The show must indeed go on, and it has gone on,
considering everything that has happened.
The pandemic has had an economic fallout across sectors. But
what has turned out to be adversity for one, has emerged as an
opportunity for others. While the Indian IT services vendors have
seen a significant jump in the demand environment for their services,
the other part of the Indian IT ecosystem – the captives (or the
Global Capability Centers (GCCs)) have faced multiple headwinds
like Business Continuity Planning (BCP) issues and financial stress for
their parent organizations. This, our technology team believes, can
lead to an unprecedented opportunity for IT services providers – in
terms of acquiring some of these GCCs; a win-win situation for both
the parties. Vibhor Singhal and Karan Uppal, from our technology
team, have dug deep into this scenario, and have carried out some
interesting analysis of how the scenario could playout, and of who
could be the potential winners and losers.
In addition to this riveting story, they have also interviewed Mr
Sashidharan Balasundaram, Senior Manager at ISG Research, one
of the largest global IT consulting firms – to understand the GCC
landscape in India, and how the current pandemic could impact it.
Cheers and Best Wishes, Vineet Bhatnagar
44. Indian Economy: Trend Indicators
46. PhillipCapital Coverage Universe Valuation Summary
5GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 4
COVER STORY
BY VIBHOR SINGHAL & KARAN UPPAL
pg. 6 INDIAN GCC LANDSCAPE How it all began___________________________________ pg. 9 EVOLUTION OF GCCS IN INDIA From cost efficiency to value creation ___________________________________ pg. 18 FUTURE GROWTH POTENTIAL What’s in store for GCCs in India___________________________________ pg. 22 INSOURCING-OUTSOURCING CYCLES Third-party vendors or captive centres?___________________________________ pg. 25 FOCUS SECTION GCC Monetization – a massive opportunity for service providers___________________________________ pg. 35 CRYSTAL GAZING Potential buyers and sellers___________________________________
5GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 4
The Indian IT industry, ever since its birth five
decades ago, has always been composed of two
critical parts – the third-party IT services providers
(TCS, Infosys, Cognizant, etc.) and GCCs (Global
Capability Centres – the captives). Both have their
own important place in the ecosystem, and have
grown together over the last five decades.
This year, the Covid-19 pandemic has had a wide-
ranging multi-dimensional impact on various
industries. With the world moving to WFH (Work
from Home), technology adoption has seen
unexpected and unprecedented acceleration
across enterprises and consumers. This has led to a
significant reset in the demand environment for the
technology industry, especially for Indian IT services
vendors.
As for the GCCs – when they were forced to shut
operations due to the lockdowns imposed by
various governments (including India), the world
realized that many of them did not have credible
Business Continuity Planning (BCP) and were not
prepared for a WFH scenario. It is expected that
the economic/financial crisis has led (or will lead) to
many of the MNCs struggling financially, eventually
leading them to terminate/postpone their plans to
set-up/expand their GCCs in India/ROW. It is also
widely anticipated that many MNCs might actually
shut down their GCCs, by selling them off to IT
services vendors – to effectively monetize their
‘non-core’ assets to remain financially viable.
This presents an unprecedented opportunity for
the Indian IT-services vendors, to acquire these
talent houses, and boost their inorganic growth,
while expanding their geographical, vertical and
technological reach. It promises to be an interesting
time ahead, with both parts of the Indian IT
ecosystem looking to grow together while also at
the cost of each other.
7GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 6
INDIAN GCC LANDSCAPE
How it all began An overview of the Indian IT Services Industry and GCCs in India
The beginning of the Indian IT industry
India’s IT services industry was born in 1967 with the
creation of Tata Consultancy Services. In 1974, Burroughs
(an American mainframe manufacturing company) asked
TCS (its India sales agent then) to provide programmers for
the installation of system software for an American client.
This led to the birth of the Indian outsourcing industry.
Simultaneously, the first software export zone, SEEPZ – a
precursor to the modern-day IT park – was established in
Mumbai in 1973. It has been almost five decades since then,
and the IT industry has come a long way. It not only provides
critical support and services to thousands of companies
across the world, but it is also the largest private sector
employer in the country.
In the 70s, the Indian IT industry struggled. The state then
was hostile to it, imposing high import tariffs, as high as
135% on hardware and 100% on software. Eventually, in
1984, a New Computer Policy (NCP-1984) was formulated,
which offered a package of reduced import tariffs (by 60%)
on hardware and software. This gave life to the Indian IT
industry, that has today achieved a size of US$ 200bn –
contributing to 7% of the country’s GDP.
The beginning of GCCs or captives
However, what is left unsaid most of the times, is the role
of captives or GCCs (Global Capability Centres) in this
growth and evolution of the industry. The history of captives
in India started in 1985, with Texas instruments (TI) setting
up its captive/R&D centre in Bengaluru. TI was attracted
to India because of the country’s engineering talent and
costs advantage. What followed was an avalanche of global
companies setting up their captives in India, initially as cost
centres, that have now evolved into full grown centres of
innovation and IP creation.
The global technology outsourcing landscape
The global technology industry stands at US$ 2.5trillion
(FY19, including ER&D, excluding products). It grew by 5.4%
in 2019. In contrast, the global sourcing industry stands
at a mere US$ 300bn, just 12% of the global tech spend.
However, global sourcing spend has outgrown global tech
spend with a CAGR of 7% over the last five years.
The Indian outsourcing business
The Indian outsourcing industry stands at US$ 156bn
(FY19: NASSCOM, including ER&D, excluding products)
representing 53% market share of global sourcing – making
it the leader in the industry, by far. A large part of the Indian
IT outsourcing industry comprises of the glamour boys such
as TCS, Cognizant, Infosys, and Mindtree, and a plethora
of third party service providers. However, a decent chunk
of it is composed of the captive centres – the GCCs – set
up by various global companies in India. In 2019, GCCs
contributed US$ 28bn to the Indian outsourcing industry,
Global sourcing landscape (FY19)
Sour
ce: N
ASSC
OM
7GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 6
making up for 20% of the overall business. Over the last five
years, GCCs have seen a higher CAGR of 9.9% compared to
the total Indian IT outsourcing industry CAGR of 8.4%.
India has evolved as one of the hotbeds for setting up
GCCs over the last two decades
Over this period, the GCC industry has taken a huge leap,
not just in numbers, but also in the quality of the services
it offers. From a cost-arbitrage driven model, to a value
addition one, Indian GCCs have come a long way.
Salient features of the current GCC landscape in India
• No of MNCs with GCCs in India: 1,250+
• GCC Market size: US$28bn
• Employed workforce: c.1mn
• Global 2000 firms with GCCs in India: 383
• Key countries: USA, UK, Germany, France, Switzerland,
Japan, Canada, Singapore, China
• Key verticals: Software/Internet, BFSI, Consulting,
Healthcare, Telecom, Automotive, Manufacturing
• Key cities: Bengaluru, Hyderabad, NCR, Mumbai,
Chennai, Pune
Distribution of GCCs in India based on HQ location
Source: Nasscom, Zinnov
9GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 8
Distribution of GCCs in India by verticals
Location-based split of GCCs
Source: Nasscom, Zinnov
Source: Nasscom, Zinnov
9GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 8
EVOLUTION OF GCCs IN INDIA
From cost efficiency to value creation Mapping the last four decades of GCCs in India
It all began with Texas Instruments
The first wave of offshoring started in 1985 with
Texas Instruments setting up a first captive/R&D
centre in Bengaluru, India. Texas Instruments was
attracted to India’s engineering talent and costs
advantage. The 1990s is when the first wave
of offshoring happened in India; many MNCs
were testing and proving this model/concept by
assigning non-core designated functions.
In addition to the cost advantage, the first wave
of offshoring was also driven by organizations that
wanted to focus on areas of core competency.
Processes that did not significantly impact
revenues were lifted, re-engineered, and shifted
to offshore centres, where skilled graduates
delivered services. Results were measured based
on pre-defined benchmarks on dedicated time
lines, leaving no scope of subjective judgement
for evaluation. But now, owing to rapid disruptions
Before 2004 2004 to 2009 2009-2014 After 2014
Key Focus First time offshoring, cost arbitrage
Cost arbitrage and mature delivery
Business impact and thought leadership
Competitive advantage for the enterprise
Vertical Adoption Hi-tech, airlines, financial services (BFSI), telecom
Ecommerce, internet, manufacturing, professional services
Broad-based adoption by all major industry verticals
IT Services ADM, technical support SI, testing, package imple-mentation
Infra outsourcing, consulting, platform-based solutions
Cloud migrations, cybersecu-rity, core modernizations
BPO Data processing, document management, customer care
Finance and accounting, procurement, HRO
Legal Process Outsourcing (LPO), analytics, KPO, plat-form-based solutions
Analytics, automation, BPaaS
ER&D Product support, digitizing engineering drawings, mi-grations of CADs to systems
Product design, prototype testing, 3D modelling, 2D to 3D conversion
Engineering analysis,product conceptualizations
India/APAC based product designs, industrial IoT, digital twins, designing
GCC Evolution
across industries, technology is becoming a
central part of business strategy. Hence, GCCs
have transitioned from being just offshore centres
providing cost arbitrage – to centres of innovation
and IP creation. Enterprises are rapidly adopting
digital technologies, building new products and
services, transforming their business models
through these GCCs.
IT Services: Traditional application managment
to Cloud/AI
For IT services, offshoring to captives began with
traditional custom application management and
application support in the 1990s. In the early
2000s, the services being delivered out of captives
got expanded to package implementations,
testing applications. Later, Infrastructure
Management Services (IMS), consulting, platform-
based solutions, cloud, and cybersecurity
11GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 10
gained prominence. Software giant Microsoft,
for example, has been running its research lab
in India since 2005. The lab employs a large
number of PhD scholars conducting research on
theory and algorithms, machine learning and
artificial intelligence, systems including cloud,
security and privacy, programming languages,
networking, and technologies for the emerging
markets. Another example is of IBM’s India R&D
centre – it was set up in the 1990s mostly to
support its global business; but today, it is working
on modern technologies like artificial intelligence
and robotics. It is using data analytics to deliver
predictive agricultural insights for farmers with low-
end smartphones to help boost yields and lower
input costs.
BPO: From Data processing, customer care to
analytics
American Express, General Electric, and British
Airways were the first ones to set up an in-house
BPO facility in Gurgaon in the early 1990s.
The early reasons for considering offshoring
to India were centred around reducing costs
and minimizing the effort spent on “non-
core” activities. These activities – such as data
processing, document management, customer
care (primarily voice, to begin with) – were the
first to be outsourced to Indian captive BPO units.
With increasing confidence of the companies in
the capabilities of their Indian operations, higher
value-added activities such as processing of HR,
accounting (F&A) and other non-core functions
were also offshored. Today, apart from non-core,
functions like analytics and insights are also being
offshored to Indian units.
ER&D: From high-volume work to cutting edge
R&D
At the onset of the 1980s, the Engineering,
Research and Development (ER&D) segment
catered primarily to offshore requirements of high
volume, low value activities such as scanning and
digitization of engineering drawings, migration of
Computer Aided Design (CAD) from one system
to another, converting 2D drawings into 3D, etc.
The major driver for offshoring during this phase
was largely cost-related, as the high-volume
activities required limited application of domain
knowledge. However, some organizations saw
unlimited competency of Indian engineering
talent, and started setting up captive centres, like
Texas Instruments, to carry out activities like chip
designs. Posts the 1990 era, the captive centres
gradually elevated their scope of offshore activities
in terms of the value proposition and knowledge
intensity. India centres began to service higher-
end engineering activities such as 3D modelling,
2D to 3D conversion, finite element analysis,
computational fluid dynamics (CFD) analysis,
drawing up technical specifications for tenders,
plant engineering, redesigning for improved
cost/performance ratio and value engineering.
Today, Indian centres are also working on product
conceptualization, designing India/Asia Pacific
specific products for local markets, Industrial
Internet of Things (IoT), digital twins, etc.
India is now a destination of choice
Indian units serve various verticals like telecom,
utilities, heavy engineering, pharmaceuticals,
automotive, aerospace and electric/electronic
machinery design. The country is clearly the
destination of choice for auto majors like Ford,
General Motor, Cummins, Johnson Controls,
Nissan, Toyota and BMW for engineering design
work, which they do either through captive centres
or third-party service providers. Companies
like Ford, DailmerChrysler, General Motors,
Caterpillar, Texas Instruments, Motorola, Bechtel,
and Emerson have set up captive units in India.
Boeing has a research and technology centre
in Bengaluru, which plays a crucial role in areas
like materials and processes, flight sciences, and
structure and software. Rolls-Royce has R&D
centres in Bengaluru and Pune, focussing on areas
like data analysis, electrical systems, computer-
aided design and aerospace projects.
11GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 10
Initially attracted by the country’s engineering talent, Texas Instruments (TI) became the first multi-national company to set up an R&D centre in India (in Bangalore) in 1985. It started its India operations with the development and support of Electronic Design Automation (EDA) software systems, which are used for integrated circuit design. In 1989, the company set up another R&D facility in Bangalore to enhance its operations in the Asia Pacific region.
In 2006, it opened another R&D centre in Chennai to focus on the wireless segment. Through its Indian operations, TI works in the areas of library and software tools, SoC, signal processing technologies and microcontrollers. Many of TI’s strategic businesses globally are integral to the R&D work that takes place in TI India. Almost every product that
Texas Instruments sets up first R&D centre in India in 1985!
it develops has the involvement and contribution of the company’s engineers in India.
In the past decade, TI has recognized the semiconductor market potential in India. Today, with seven sales and applications support operations across eight cities in India, it has one of the largest pres-ences in the country amongst semiconductor companies. TI India has made significant inroads into various market segments like industrial, telecom, medical, consumer, and automotive. It works closely with customers to design products for large emerging segments including industrial, automotive, energy, electronic manufacturing, education, and healthcare.
Texas Instruments in India – Timeline and key developments
Source: PWC
CASE STUDY
13GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 12
Timeline – from being captives to becoming GCCs
Originally called captive centres in the early 1990s, they were
offshore facilities that performed designated functions for
large organizations. The 1990s marked the early adoption
period, as a lot of MNCs established and ramped up the
captive centres in India. However, due to unprecedented
digital disruption in industries worldwide, the role of Indian
captives has evolved from being designated function-
oriented captives to becoming value providers.
1985 - Initiation: TTI set up its first R&D centre in India in
1985, the first multinational to set up a technology centre
in India, starting an era of offshoring in the country. Initially
attracted by India’s engineering talent, today, many of its
strategic businesses globally are integral to the R&D work
that takes place in TI India. Almost every product that it
develops has the involvement and contribution of the
company’s engineers in the country.
1990-98 - Early adoption: During this phase, many
companies established and ramped up captive centres in
India. Initial adopters were from verticals like hitech and
telecom and involved IT related work like ADM (Application
Development and Management). BPO captives were still
few. Some examples of the work profile included application
development, maintenance, Y2K issues, service desks, end-
user computing, server and storage management, network
and voice management, remote infrastructure monitoring,
and support and IT service management.
1998-06 – Rapid growth: Global financial services sector
(BFSI) rapidly adopted the captive model during the
explosive growth phase. BPO captives also started during
this phase. In 2006, captives delivered US$ 8bn worth of
services. Indian engineers’ coding skills and their comfort
with English brought a lot of jobs to Bengaluru. MNCs that
had spent over five years came here in a big way because
of talent, out-of-the-box thinking, and the ability to use
global tools seamlessly. More than 78 global banking and
financial services companies, including Goldman Sachs,
Deutsche Bank, JP Morgan and Standard Chartered, set up
captive units in India to employ a combined 250,000 people,
according to Zinnov.
2006-09 – Introspection: Many captives faced the
dilemma of their relevance and cost while some of them
were monetized due to the global financial crisis hitting in
2008-09. The biggest example of captive monetization was
TCS acquiring Citigroup Global Consulting Services (CGSL),
Citigroup’s BPO captive, for US$ 505mn in an all-cash deal in
Oct 2008. Similarly, Wipro acquired Citi Technology Services
Source: PWC
13GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 12
(CTS), the technology and infrastructure outsourcing arm
of Citibank, for US$ 127mn in Dec 2008. Both transactions
involved multi-million multi-year Masters Service Agreements
(MSA) for providing services to Citibank.
However, growth continued, and new captives continued
getting added. Captives delivered US$ 10.6bn worth of
services in 2009.
After 2009 – Coming of Age: Many captives reoriented
themselves and are now being seen as business partners
rather than a back office. Captives are now taking end-to-
end ownerships in product development and processes.
Following are some of the recent examples – a) Tesco’s
captive is now managing mission-critical applications, apart
from managing global operations; b) Bosch’s captive now
offers services to customers other than Bosch; c) Ford’s India
captive is the second-largest software development centre
for Ford globally, and also its global analytics hub.
Digitisation is changing the way MNCs are leveraging their GCCs
Developing products from India for India and the world
Global firms are looking at developing countries for R&D
because these countries are becoming huge consumers, with
India and China at the forefront of this trend. In fact, markets
are shifting to what used to be called the developing world
or the emerging world. Development activities require a lot
of local content; sitting in the US, Germany, or Japan one
cannot develop products that will be used in India or China.
Multinational companies are using their centres in India,
to not only develop products that can be sold in India, but
also to be tested in the Indian market and then sold in other
countries.
15GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 14
Quick example # 1
JP Morgan India employees are creating global solutions for the bank
Quick example # 2
Samsung tweaked its washing machine design to better suit India markets
Quick example # 3
ABB – end-to-end engineering of smart sensor for electric motors developed in India
JP Morgan has global technology centres in Bengaluru,
Mumbai, and Hyderabad. These centres are at the
core of JP Morgan’s new tech playbook, including
blockchain, API (application programming interfaces),
and AI (artificial intelligence). A third of its 50,000 tech
employees are based in India. Overall, it employs about
34,000 people in the country.
In a media interview, JP Morgan’s CIO Lori Beer
mentioned that most of the technolgy talent in India
consists of its own employees, as the bank wants to
build core products and services completely different
and wants to build it internally. Indian teams are
creating global solutions with complete product
ownership. Beer manages a tech budget of more than
US$10bn, one of the largest technology budgets within
the BFSI sector.
The projects piloted out of India include trade finance
and next-gen payment platforms in investment
banking. Here, Beer also piloted the concept of ‘virtual
branch’ – where 300 clients across the globe were
connected to a branch. Cross-border payments, which
require documentations, were created virtually. This
was replicated in many Asian countries, Latin America,
and Mexico. The CIO mentioned that applications
built out of India were enabling four lines of business
– retail, investment banking, wealth management,
and commercial banking. The new roles in which JP
Morgan has begun hiring talent include architects,
data scientists, hybrid cloud, and cyber security experts.
The bank has developed several digital innovations
including Finn, a mobile only bank with tools designed
to help customers take control of their money. JP
Morgan’s Chase Business Quick Capital delivers small
business customers same day access to capital in a
digital way.
Samsung has five R&D centres in India. It developed its ActivWash washing machines in India to meet the unique demands of local customers.
Dipesh Shah, Managing Director, Samsung R&D Centre, Bengaluru, in an interview to Fortune India explained that in India, people don’t trust an automatic washing machine to do its job; they still prefer to rub collars and cuffs themselves first. “This was strange behaviour, because it’s an automatic washing machine, but people still had to do this additional manual job. So, we provided a sink on top of the washing machine, which allows people to do the rubbing. This product is now sold worldwide”
At Samsung, he explained, in the 1990s, the cost factor was important, and the second was the availability of talent. In the beginning, Bengaluru helped the company scale up really fast, in the rapidly changing mobile market.
“Samsung India R&D contributed to development of 3G and 4G for the global world. 4G was done from Bengaluru. When this kind of jump comes in technology, you need a lot of people to scale it, and take it worldwide. Bengaluru really helped in scaling these.”
The Bengaluru centre is one of ABB’s
seven R&D centres in the world. In
Bengaluru, the company has a global
research centre, a business R&D unit
for product development, and a global
engineering and services centre in
the same building. This is unique
because even though ABB does a
lot of R&D in Europe and the US, it
houses different functions in different
countries or cities. Bengaluru is its only
centre where different functions – from
conceptualisation to remote monitoring
analytics – are at the same location. ABB
started an R&D centre here, because
of the availability of talent and the
availability of business cases and
customers in the market.
ABB India’s unit developed a
smart sensor (used to monitor the
performance, efficiency, reliability
and lifespan of electric motors); it was
both conceptualized and developed in
India. It can be retrofitted to almost any
low-voltage motor and connected to the
industrial IoT. With the smart sensor,
ABB can monitor vibrations, and voltage
of motors, and using analytics, it can
predict ways to improve the efficiency of
the motor. The company has many more
products developed in India – such
as solar pumps for rural areas with no
electricity. These products are now sold
around the world.
Source: Fortune India Source: Fortune India
15GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 14
Quick example # 4
SAP Labs India – developing software products for the world
Quick example # 5
Royal Dutch Shell working on a waste-to-fuel project from India, for global deployment
Quick example # 6
Lowe’s set up its first technology centre outside the US in Bengaluru
SAP’s R&D centre in Bengaluru is present in
India since the last 20+ years. It employs more
than 8,000 people and is already the second
biggest R&D location for SAP globally, after its
headquarters in Germany.
Initially, the goal of SAP Labs India was to
meet local requirements catering to localized
software and legal requirements. However,
over the last 20 years, focus has changed
to developing and conceptualizing more
products in India, to be used both domestically
and globally. SAP Fashion Management
Solution is completely conceived, designed,
and developed out of SAP Labs India. The
product enables fashion companies to manage
their business processes across one large
data system. This product was developed in
collaboration with global brands like Giorgio
Armani, Adidas, Luxottica, and Tommy Hilfiger.
The platform brings wholesale, retail, and
fashion-specific processes in one back-end
system, and is now being licensed by more
than 125 customers across the globe.
In an interview to Fortune India, Dilipkumar
Khandelwal, Managing Director, SAP Labs
India, said “Today, there is no software or
product development or (strategic initiatives
for SAP in the next five years) that’s not been
developed out of India. Today there is not a
single thing which goes out of SAP, which
doesn’t have a significant India footprint. A
large part of the work for building a global
software meeting the global requirements is
done out of India”.
Royal Dutch Shell has a technology centre in Bengaluru, one of the three centres of the British-Dutch company; the other two are in Amsterdam (Netherlands), and Houston (US).
The Shell Technology Centre in Bengaluru is developing the IH2 technology for global deployment. It was invented by the US-based Gas Technology Institute (GTI) in 2009, and has been further refined through joint development with Shell-owned CRI Catalyst Company.
Shell’s IH2 is more advanced than other waste-to-fuel projects, and the price of this fuel is expected to be quite competitive with oil prices. More importantly, the fuel produced through this process is much cleaner, and will meet Bharat-6 specifications, the new standards for pollutant emissions implemented in India in 2020.
Lowe’s, a home-improvement company,
competes with its larger US rival Home
Depot, and generates a majority of its
revenues through sales from its offline
stores. It announced its first captive centre /
GCC in India in 2015, where the goal was
not just costs arbitrage, but also to focus on
the next-generation customer experience
by laying emphasis on technology and
analytics to provide its customers with a
more personalized shopping experience. This
Bengaluru-based centre enabled Lowe’s to
become an omni-channel home-improvement
company and was its first technology
innovation centre outside the US.
The mandate was completely different
from being a single-function cost-arbitrage
model. Instead, the GCC’s focus was on
enablement of omni-channel retail, analytics,
and personalized shopping experience.
Lowe’s wanted to increase the share of
online revenues and was looking to leverage
Bengaluru’s start-up culture and talent pool.
This centre started with just 11 employees,
but in about 12 months the team size was
over 300.
Source: Fortune India Source: Fortune India
17GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 16
GCCS: Growing in size and revenue
As of now, India has 1,250+ GCCs, with a talent pool of
more than 1mn employees. The total market size of GCCs
in India is US$ 28.3bn (up from US$ 19.5bn in FY15, 10%
CAGR in the last five years). Within that, the market size of
Engineering Research & Outsourcing (ER&D) is US$ 15.7bn
(up from US$ 10.2bn, 11% CAGR in last five years) while IT-
BPM is US$ 12.6bn (up from US$ 9.3bn, 8% CAGR).
The ER&D market size has grown faster than IT-BPM over
GCC evolution in IndiaGCC distribution (ER&D and IT-BPM),
market size (USD bn) and growth
the last five years due to increasing focus of enterprises on
building products and platforms, and the rising penetration
of software across industries. The IT BPM market size has
seen a CAGR of 8% to US$ 12.6bn, driven by volume
growth in IT BPM work, infrastructure management, etc.
As per Nasscom, ER&D will dominate the GCCs market
with an increased focus on digital transformation and
end-to-end ownership of global product developments
from India. The key verticals where mainstream software
product development is happening is BFSI, retail, media and
professional services.
Talent split in GCCs
In the talent split of the GCC landscape, IT-BPM employs
about 590,000 people, while ER&D is at around 410,000.
Within ER&D, the largest share of talent (70%) is in Software
Product Development (SPD) followed by Embedded
System Design (ESD) and Mechanical Engineering Services
(MES). SPD is the order of the day among ER&D GCCs, re-
emphasizing the digital transformation focus. Within IT-BPM,
the talent split between IT and BPM is around 60:40.
Talent split of GCCs within ER&D and IT-BPM
Note: Within ERD - Software Product Development (SPD), Embedded System Design (ESD), Mechanical Engineering Services (MES)
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As MNCs across verticals shift to cloud infrastructure, the
emphasis on ADM and IMS is rising. India’s role in global
engineering is demonstrated through large work in ADM
and SPD. In BPM, large work around finance & accounting
and knowledge services points to MNCs shifting their global
Share (%) of captives in IT exports is flat
Despite strong growth, GCCs’ share in total IT exports remains stable
Although more enterprises are leveraging GCCs for their
core technology projects, the share of the Indian GCCs to
total export has remained stable in the last 4-5 years. While it
appear that due to strong growth of GCCs in India over the
last 5-10 years, insourcing by MNCs is eating into the share
of Indian IT services players, the current share of Indian GCCs
to the total export revenue for the industry stands at 21%,
which has been stable (the share was 20% in FY15). However,
Indian IT services companies continue to compete with GCCs
for incremental revenue and digital talent.
business services to India, and increasing focus on data
analytics to solve business-focused problems. Going forward,
as per Nasscom, as GCCs gain ownership, Procurement
(VMO) and S&M (pre-sales) will lead the next leap of growth
in BPM workloads.
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FUTURE GROWTH POTENTIAL
What’s in store for GCCs in IndiaThey are transforming into the global sourcing hubs from just single-function providers
GCCs have come a long way from when they first started – as
cost centres to take advantage of cost-arbitrage and India’s
talent pool. Today, GCCs are perceived as competency
centres and business enablers for the organisation.
Increasing collaboration between IT & R&D teams has led
to significant changes in their governance model. Adoption
of Agile has allowed IT functions to be integrated and
shared, and the work now involves a full lifecycle of product
development. GCC employees, too, are now hired from tier-
1 institutes; they have a defined technical career path.
19GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 18
Indian GCCs are ready to take the next big leap over the
coming decade
GCCs are transforming into a global sourcing hub for
the parent organisation’s entire IT and business process
needs. They are all set to become hubs for the digital
and futuristic products of global companies, and evolve
from being enablers - to being strategic business partners.
Single-function GCCs will expand into other functions and
new multi-function centres will be set up. There will be
increasing focus on business value and innovation, which will
be adequately supported by high quality talent, technology,
and leadership, hired from the best universities/companies.
Overall, partnerships between GCCs and ecosystem players
will become deeper and wider, leading to an enhancement in
the quality and quantity of their work profile.
GCCs will focus on these three key aspects over the next
decade:
• Adoption of digital technologies
o Building new-age technology CoEs around AI/ML,
Cloud, IoT, etc.
o Transitioning to hyper-converged infrastructure for
supporting digital work-loads.
o API-led development to reduce the time-to-market for
new age applications.
• Delivery model transformation
o Adoption of productized models for product and
application development.
o Becoming hotbeds for multi-function shared services
centres.
• Future skills development
o Re-skill the workforce and acquire niche skills.
Domain Software/In-ternet
BFSI Semicon Telecom Auto Electronics Industrial
AI/ML Creating generic malware signa-tures, ML based security solutions
AML pattern detection, improving CX
Developing new age chipsets for next-gen AI/ML solutions, smart nano-chipsets
Enhancing network capabil-ity with AI/ML, improving user device interac-tion through AI
AI solutions for autonomous cars,
Home automa-tion using AI/Ml and IoT, Ml based cyber security solutions
Intelligent power solutions using AI, AI led video surveillance for human detection & tracking
IoT IoT led payments building high-end reference platform, IoT led platforms
Marketing assistance
IoT led solutions for smart cities, building infrastructure, connected engines
Data Analytics Customer ana-lytics, Contextual extraction, Dis-ease detection
data analytics in cash manage-ment, payment analytics, cash management analytics
Network analytics, edge computing solutions
monitoring driver behaviour, warranty diag-nostics, demand forecasting and product mix prediction
predictive analyt-ics solutions for control systems
Cloud / Cyber Security
Connectivity platforms, SaaS, PaaS, IaaS solutions
Fraud detection GPU accelerated cloud containers
home automa-tion products, Cloud SDN solutions
connected cars, infotainment systems
RPA Chatbots, Loan/Claims process-ing automation
Blockchain Global payment, P&C Insurance, Capital Markets
Supply chain
Digital Tech adoption across verticals
21GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 20
MNCs with GCCs in India from thelargest global 2000 firm
Regional split: Global 2000 firms withGCCs in India
More than 1600 firms have not leveraged the India advantage yetNorth American firms have the highest penetration with over 176 firms having a GIC in India, followed by Euro-pean firms
Six key domains have emerged as new-age technology
hotbeds, where GCCs in India can present a value
proposition to assert their increasing importance on the
global technology landscape:
• Artificial Intelligence (AI)/ Machine Learning (ML)
• Internet of Things (IoT)
• Data Analytics
• Cloud / Cyber security
• Remote Process Automation (RPA)
• Blockchain
GCCs should make significant headway in these domains
over the next decade. BFSI and industrial verticals are where
majority of the use-cases have been developed till date, –
but their applications are only expected to expand, as these
technologies gain momentum and credibility.
A MAMMOTH opportunity for expansion
The opportunity for the expansion of GCCs remains HUGE–
not just in terms of numbers, but in terms of their scope of
work. As per Nasscom, only 383 of the Global 2000 firms
have GCCs in India. Around 80% of the Global 2000 firms are
yet to leverage the Indian opportunity. Within the regional
split, Americas and Europe lead, with 28% and 22% of Global
2000 firms having GCC presence in India, followed by APAC
at 10%. Potential growth opportunity of the Indian GCC
landscape remains immense.
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Challenges for GCCs
Companies across the globe are actively deliberating
setting up their own captives versus engaging with a third-
party service provider. This dilemma itself is a testimony of
the value that GCCs provide. However, GCCs are also not
without their share of challenges:
• Domain knowledge: Even after over four decades of
being in operations, GCCs in industries such as insurance,
BFSI and energy, still do not have enough people with
adequate skill sets and deep domain knowledge; this limits
the growth potential.
• Leadership: Leaders who have an ability to match both
technical and business perspectives are very rare in the
Indian GCC ecosystem. Leaders with the adequate skillset
prefer to work for third party vendor, where they can see
a clear career path to the CXO position, as opposed to a
longer and uncertain future in GCCs.
• Talent attraction: GCCs are facing a significant challenge
in attracting talent, as a number of newer GCCs and
start-ups are coming up with competitive talent-attracting
policies. The Indian start-up ecosystem has undergone
exponential expansion over the last decade, leading to
salary levels reaching unprecedented levels. This has
become a severe headache, not only for GCCs, but also for
traditional Indian IT vendors; the USP for both is their cost-
arbitrage models.
• Financial constraints/cost arbitrage: While Indian GCCs
have traversed the value chain and are now increasingly
demonstrating their effectiveness as centres of excellence
(COEs), the cornerstone of their existence remains the
cost-arbitrage model. However, an increase in the quality
of work being delivered and higher competition to attract/
retain talent has meant greater pressure on maintaining the
cost arbitrage.
• Technology disruptions: With the technology disruption
caused by digital transformation, GCCs are facing
difficulties in keeping pace with the transformation, both
in terms of infrastructure and talent. Simple case in point
being availability of data scientists (for analytics) and
people trained in cloud application development (cloud).
The last decade has been an eventful one – with multiple
crises, technology disruptions, and the rise of the right-
wing across the world. Many of these events have directly
impacted the growth of GCCs in India – an impact that might
be long-term:
1) GFC crisis: (2008-09) – The 2008-09 GFC crisis’ impact
was limited to a handful of sectors - primarily housing,
BFSI. India did not see any major effect on its economy,
and actually benefitted from increased outsourcing. But
given the propensity to conserve cash, in times of crisis,
most MNCs prefer third-party services vendors over
setting up their own captives in India.
2) Eurozone sovereign debt crisis: (2011-12) – The 2011-
12 Eurozone debt crisis was born out of the GFC crisis,
but directly impacted the credit rating of European
countries, leading to an overall weak macro and demand
environment in EU. This led to the postponement/
cancellation of plans of many EU companies to set-up/
expand their captives in India and elsewhere in the world.
3) Brexit: (2016) – As Britain voted to move out of the EU
Union in 2016, it created large financial implications for
companies with business across Europe. They had to
split their operations between UK and EU; many of them
opted for Eastern Europe (Austria, Hungary, Poland)
as destinations for their captive units rather than India.
In fact, the city of Cluj-Napoca (in Romania) – which is
famously touted as Silicon Valley of Eastern Europe – was
born out of the Eurozone debt crisis and Brexit.
4) Covid-19: (2019-20) – The world is currently reeling under
the Covid-19 pandemic, and will take some time to come
out of it. It is an unprecedented healthcare crisis, fast
taking the shape of an economic and financial crisis too.
The calamity has impacted GCCs operations in two ways:
a) As GCCs were also forced to shut operations due
to the lockdowns imposed by various governments
(incl. India), the world has realized that GCCs did not
have credible Business Continuity Planning (BCP) and
were not prepared to Work-from-Home (WFH), unlike
IT services vendors, which promptly and efficiently
migrated to WFH.
b) The economic/financial crisis has led (or will lead) to
many of the MNCs struggling financially, eventually
leading them to terminate/postpone their plans to set-
up/expand their GCCs in India/ROW. It is also widely
anticipated that many MNCs might actually shut down
their GCCs, by selling them off to IT services vendors –
to effectively monetize their ‘non-core’ assets to remain
financially viable.
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INSOURCING-OUTSOURCING CYCLES
Third-party vendors or captive centres?Both approaches reduce costs on non-core activities
Ever since the dawn of the IT outsourcing industry, the
companies have had this perennial dilemma – whether to
outsource to a third-party vendors or set-up own captive
centres /GCCs. Both models have their own advantages
and disadvantages – but both offer one value proposition
unequivocally – both lower costs incurred on the non core
aspects of business.This one agenda has driven the growth
for both third-party vendors and GCCs over the last three
decades – and this will not change in the next three. What
keeps changing, however, is the proclivity towards either
of the two, depending on the parents’ financial condition,
state of technology development and disruption, and global
macro-economic factors.
Historically, global MNCs have switched from one model to
another – from insourcing to outsourcing and vice-versa –
primarily due to three factors:
1) Financial state and business priorities of the company:
Outsourcing today is as much a business decision as
a cost decision. Hence, the business outlook/strategy
and the financial state/preferences have dictated the
insourcing-outsourcing decision for companies. A
company in good financial health and/or looking to
grow its business across emerging markets, typically
tends to favour insourcing. A company with stretched
financials, just looking to save costs on IT, tends to prefer
outsourcing. In fact, many a times, the same company
switches from one model to another, depending on its
priorities. Classic example is UBS – discussed in detail
later in this article.
2) State of technology development/disruption:
Technology is no longer just an enabler, but also a USP
for many businesses. The advent of digital technologies,
especially, has completely changed the perspective of
global leaders about technology. As a new technology
raises its head, it becomes a key differentiator and
business USP for companies. In that phase of technology,
companies tend to prefer insourcing – to keep control on
their “IP”, the technology. But as technology becomes
commonplace, the same companies prefer to outsource
its development/maintenance – looking to save costs
rather than innovate. A classic example is the auto
industry. In the early 2000s, when infotainment systems
were key product differentiator, auto OEMs across the
world preferred to develop it in-house, in their own
GCCs. As the decade turned, and the technology
became commonplace, it is now the first piece of
business they want to outsource.
3) Global macro-economic factors: Global events, too, play
their part in determining the trajectory of the insourcing-
outsourcing cycle. Events such as GFC provided
boost to outsourcing while ones like Brexit impacted
it negatively. The current Covid-19 pandemic, which
is fast transforming from a healthcare to an economic
to a financial crisis, is expect to negatively impact the
insourcing cycle, and lead to many GCCs being sold
and/or further outsourcing to the third-party vendors
(discussed in detail in the next section).
To illustrate the different insourcing-outsourcing cycles, we
deep-dive into the case of UBS. The Swiss bank is a prime
example of how enterprises prefer different models (third-
party vs. captives) at different points of time, depending on
different business requirements and the macro environment.
The covid-19 pandemic is one macro event that will force
many enterprises to rethink their IT outsourcing strategies.
While few might decide in favour of setting up captives,
majority will look to sell their captive units – to monetize
non-core assets and reduce operating costs. That is the main
thesis of this report – discussed in more detail in the next
section.
23GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 22
UBS remains a key BFSI client for almost all IT vendors across
the world. It has been, by far, one of the largest and most
diversified clients for the outsourcing industry. It has had a
long and interesting history of outsourcing.
• UBS started its own captive, ISC (Indian Service
Centre) in Hyderabad in 2006, which rapidly grew to
2,000 employees, providing services that were not yet
commercially available in the market.
• Later, as a shift in strategy to “BUY” rather than “BUILD”,
it sold the ISC to Cognizant in 2009 for US$ 75mn.
The sale marked the start of the next stage in the
development of the UBS offshoring and outsourcing
strategy – where it engaged various vendors across the
world.
• Today, UBS has multiple IT outsourcing vendors on its
rolls, including Accenture, Cognizant, Infosys, Wipro, HCL
Tech, Luxoft and ePAM.
In 2013, it began building up its own capacity in India and
elsewhere. Today, 10,000 people work at UBS in India –
almost 6,000 employed through external providers, and over
4,000 on its own payrolls.
Current scenario
UBS remains a key account for many vendors. For Wipro
and Luxoft, it is one of their top clients – while it contributes
a substantial share of revenues for Cognizant and ePAM.
Accenture and Infosys, too, derive a decent share of their
BFSI revenues from UBS.
CASE STUDY:
Perfecting the insourcing-outsourcing cycles
The flip-flop of UBS’s outsourcing strategy UBS is a key client for multiple vendors
In 2018, UBS started to focus more on increasing its internal IT staff, at the expense of external vendors
25GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 24
Moving to insourcing
In October 2018, UBS reported a 7% jump in its staff count
to 63,684 people, from 59,470 a year ago. This was a result
of it expanding its captive centres in Mumbai/Pune, which it
intended to use as global insourcing hubs. Thereafter, UBS
decided to keep 60% of its IT services in-house; almost 70%
was outsourced to third-party vendors in 2018. The company
took this U-turn in its outsourcing strategy on two counts:
• Expanding captive centres is one of its largest levers for
cost reduction, which in turn is a strategic pillar of its
corporate transformation plan.
• The management believes that the typical business
processes outsourced ten years ago (like data inputting)
can be digitized or automated. With the speed of
digitization picking up, classic IT services providers (like
Wipro, Cognizant, etc.,) are struggling to keep up with
this speed.
Over the next year, as the company increased its overall
workforce count by 3%, it reduced its external staff by a
whopping 25% – from 21,805 in June 2018 to touch 16,277
in June 2019. This was supposed to lead to significant
cost saving for the company. Key details about this new
outsourcing strategy:
• In 2018, more than 30% of UBS’s staff was offshored. It
decided to shift more activities from high-cost to low-cost
locations, using its own offshore and nearshore shared
services centres.
• With the opening of a second site in Pune in 2018, it now
operates six offshore service centres in India, China, and
Poland, and two nearshore centres in Switzerland and the
US.
• For its outsourced services, it decided to consolidate
third-party vendor locations from 35 in 2018 to only
9 by 2020. This was to reduce costs and improve risk
management.
• It is internalizing select activities, currently performed by
external providers, to enable higher productivity, lower
costs, and to build critical in-house knowledge. Over
June 2018-19, it increased internal staff by over 3,000.
Majority were hired into its offshore centres in India. This
increase was more than offset by a huge reduction of
5,500 in external headcount, leading to an overall decline
of roughly 2,289.
• It intends to further reduce the external headcount,
through automation of processes, specifically in
operations and IT.
• It has reduced vendors by 45% since 2013 and aims to
push this above 50%. In addition, it has implemented
measures to further tighten its internal demand
management. “To say it in very simple terms: We will buy
less, cheaper, and smarter.”
• Automation is expected to be a key driver for cost
efficiency.
While UBS’ insourcing strategy intends to cuts vendor
revenues, it represents a strategic bet on India. The company
and its management realize the strategic significance of
India, with the huge pool of engineers, mathematicians,
statisticians, physicists, and other highly-qualified science
and technology graduates. Hence the importance of India as
a delivery / innovation centre for UBS is definitely increasing.
But at the same time, it also represents the perfect flip-flops
that MNCs undergo, in terms of their outsourcing strategy,
from captives in one decade to third-party in another.
Significant reduction in UBS’s external workforce over 2018-19
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GCC Monetization – a massive opportunity for service providersPhillipCapital India’s IT research team’s exclusive database provides details of India’s GCC landscape
To understand the massive opportunity represented by
the GCCs/Captives, PhillipCapital India’s IT research team
has created an exclusive and exhaustive database, which
represents the overall GCC landscape in India. It contains
the following aspects
• List of the MNCs (1,200+) operating their GCCs/captives
out of India
• Verticals that they belong to (e.g. BFSI, retail,
manufacturing)
• Geographic region they belong to (America, Europe,
APAC)
• Services provided by the GCCs to the parent (IT, BPO,
ER&D, etc.)
• Headcount
• Location
PhillipCapital’s database gives a broad-based understanding
and insights into the GCC landscape in India. In terms of
geography, 66% of all GCCs operating out of India are
headquartered in America, 25% are from Europe, 7% are
from Asia Pacific, and 1% from the Rest of the World.
Geographic distribution Service-line distribution
Vertical distribution
FOCUS SECTION
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The Indin GCC landscape - PhillipCapital India database
Key GCCs in different verticals operating out of India
Geography
Total Americas UK Germany Rest of EU Japan RoW
Software/Internet 258 17 2 21 1 16 315
IT & services 109 7 3 11 3 6 139
Manufacturing 82 8 15 25 8 5 143
BFSI 56 9 2 11 1 6 85
Healthcare & Lifesciences 57 3 9 11 2 4 86
Telecom 47 5 1 6 1 10 70
Industrial 25 4 5 25 1 2 62
Hi-Tech 28 0 3 9 9 7 56
Automotive 18 3 14 15 8 4 62
Media/Entertainment 26 8 1 2 0 3 40
Consulting 33 6 1 4 0 2 46
Semiconductors 26 2 1 3 2 1 35
Retail & CPG 22 4 1 6 0 2 35
Travel & Transportation 9 3 0 7 1 2 22
Oil & Gas 9 2 0 4 0 0 15
Aerospace and defence 7 1 0 6 0 0 14
Total 812 82 58 166 37 70 1225
IT-BPM 449 43 10 48 6 30 586
ER&D 248 24 40 93 27 29 461
SPD 9 1 0 1 0 0 11
IT-BPM & ER&D 60 4 7 17 4 8 100
IT-BPM & SPD 36 6 1 5 0 3 51
Consultancy 10 4 0 2 0 0 16
Total 812 82 58 166 37 70 1225
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Software/Internet Manufacturing BFSI Healthcare Automotive
Adobe Akzo Nobel JP Morgan Abbott Fiat Chrysler
Google Adidas Goldman Sachs AstraZeneca Ford
Microsoft BASF BNP Paribas GlaxoSmithkline Honda
Oracle Danaher Nomura Mylan Hyundai
Pegasystems Cummins AIG Pfizer John Deere
Indeed Dow Chemical Barclays Boston Scientific Komatsu
Go-Jek Dupont American Express Johnson & Johnson Continental
Retail CPG Travel Aerospace Telecom Energy
AB inbev Amadeus Airbus AT&T Exxon Mobil
GAP Expedia Boeing Verizon Baker Hughes
Hersheys Fedex Bombardier Telstra Castrol
Lowe’s Sabre Lockheed Martin Sprint Shell
Modelez Travel Tripper Safran Ciena Total
Pepsico Kuoni Thales Ericsson Valvoline
Target Maersk Collins Aerospace Netgear Halliburton
27GROUND VIEW GROUND VIEW 1 - 30 November 2020 1 - 30 November 2020 26
Amongst verticals, software/internet forms the majority share
followed by IT and services, manufacturing, and BFSI.
Software/Internet
• This vertical represents 26% share of the total with MNCs
like Adobe, GE Digital, Google, Microsoft, Temenos,
Oracle, Pegasystems, Servicenow, Indeed, and Go-Jek
operating out of India.
• 82% of the Software GCCs are headquartered in
Americas, 13% are from Europe.
• Bengaluru and Hyderabad have the highest proportion
of MNCs in the software/internet domains. New product
development, testing and support work happens in these
development centres.
o For example, Temenos’ Bengaluru and Chennai
offices are involved in designing and supporting
leading banking products like T24 (Temenos’ award
winning core banking platform).
o Similarly, Pegasystems, which has two development
centres with 1,500 employees in Hyderabad (1,100)
and Bengaluru (400), carries out its new product
development and support work from its captive
centres.
o Servicenow launched its new innovation centre in
Hyderabad in 2018 for product engineering and
developing ServiceNow’s next generation AI and
machine learning capabilities.
IT & Services
• This vertical represents 11% share of the total with MNCs
like Fujitsu and Ripple operating out of India.
• 78% of the IT and services GCCs are headquartered in
the Americas, 15% in Europe.
o Ripple claims to be the only enterprise blockchain
company with products in commercial use by
hundreds of customers across 55+ countries.
o Fujitsu global delivery centres in Pune, Noida and
Hyderabad cater to its US operations.
Manufacturing
• This vertical represents 12% share of the total with MNCs
like Akzo Nobel, Adidas, BASF, Caterpillar, Cummins,
Dow Chemical, Danaher, and Dupont operating their
GCCs/captives out of India.
• 57% of the manufacturing GCCs are headquartered in the
Americas while 33% are in Europe (6% in UK and 10% in
Germany).
Geography
Americas UK Germany Rest of EU Japan RoW
Software/Internet 32% 21% 3% 13% 3% 23%
IT & services 13% 9% 5% 7% 8% 9%
Manufacturing 10% 10% 26% 15% 22% 7%
BFSI 7% 11% 3% 7% 3% 9%
Healthcare & Lifesciences 7% 4% 16% 7% 5% 6%
Telecom 6% 6% 2% 4% 3% 14%
Industrial 3% 5% 9% 15% 3% 3%
Hi-Tech 3% 0% 5% 5% 24% 10%
Automotive 2% 4% 24% 9% 22% 6%
Media/Entertainment 3% 10% 2% 1% 0% 4%
Consulting 4% 7% 2% 2% 0% 3%
Semiconductors 3% 2% 2% 2% 5% 1%
Retail & CPG 3% 5% 2% 4% 0% 3%
Travel & Transportation 1% 4% 0% 4% 3% 3%
Oil & Gas 1% 2% 0% 2% 0% 0%
Aerospace and defence 1% 1% 0% 4% 0% 0%
Total 100% 100% 100% 100% 100% 100%
Common size – geography-wise
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Geography Total Americas UK Germany Rest of EU Japan RoW
Software/Internet 82% 5% 1% 7% 0% 5% 100%
IT & services 78% 5% 2% 8% 2% 4% 100%
Manufacturing 57% 6% 10% 17% 6% 3% 100%
BFSI 66% 11% 2% 13% 1% 7% 100%
Healthcare & Lifesciences 66% 3% 10% 13% 2% 5% 100%
Telecom 67% 7% 1% 9% 1% 14% 100%
Industrial 40% 6% 8% 40% 2% 3% 100%
Hi-Tech 50% 0% 5% 16% 16% 13% 100%
Automotive 29% 5% 23% 24% 13% 6% 100%
Media/Entertainment 65% 20% 3% 5% 0% 8% 100%
Consulting 72% 13% 2% 9% 0% 4% 100%
Semiconductors 74% 6% 3% 9% 6% 3% 100%
Retail & CPG 63% 11% 3% 17% 0% 6% 100%
Travel & Transportation 41% 14% 0% 32% 5% 9% 100%
Oil & Gas 60% 13% 0% 27% 0% 0% 100%
Aerospace and defence 50% 7% 0% 43% 0% 0% 100%
Common size – vertical wise
• Majorly, manufacturing MNCs have their ER&D centres in
India where they develop and support key products for
the Asia market.
o Caterpillar’s India presence includes state-of-the art
manufacturing facilities, research and development
centres, service and support organizations.
o In April 2018, Dow Chemical inaugurated a state-
of-the-art application development hub, ‘Dow
India Technology Centre’ (DITC) in Navi Mumbai,
with highly skilled, research and development
specialists with capabilities in analytical science,
material science, process optimization, and IP search
analysis to support business units in India and extend
application support to markets in the region.
Retail & CPG
• There are about 35 retail and CPG GCCs in India.
• It represents 3% of overall GCCs with MNCs like AB
inbev, GAP, Hersheys, Lowe’s, Modelez, Pepsico, and
Target operating out of India.
• 63% of the retail and CPG GCCs/captive centres are from
the Americas while 31% are from Europe.
o Target employs around 2,100 people in Bengaluru
who carry out administrative support, business
analytics, supply chain management, finance and
accounting and other roles.
o Unilever’s technology and innovation centre in
Bengaluru currently provides IT services to its global
operations.
BFSI
• This vertical represents 7% share of the total, with MNC
banks such as JP Morgan, Goldman Sachs, Deutsche
Bank, Nomura, BNP Paribas, Barclays, Allianze, AIG, and
American Express operating their GCCs/captives out of
India.
• 66% of the BFSI GCCs/captive centres are headquartered
in the Americas while 26% are in Europe.
• BFSI vertical MNCs’ IT-BPM centres are also one of the
largest employers in India.
o AIG’s analytics and service team supports commercial
insurance by providing insights through accurate and
comprehensive data capture, catastrophe modelling,
risk engineering, advanced portfolio analytics, and
actuarial services.
o BNP Paribas’ India centre provides application
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services and operations support to the group
including development of new applications, features,
extensions, interfaces, upgrades as well as enhancing
and maintaining existing applications.
Healthcare
• This vertical represents 7% share of the total with MNC
pharma companies such as Abbott, AstraZeneca,
GlaxoSmithkline, Mylan, Pfizer, and Johnson & Johnson
operating their GCCs/captives out of India.
• 66% of the healthcare GCCs/captive centres are
headquartered in the Americas while 27% are from
Europe.
• Majority of the healthcare and life sciences GCCs are
operating as ER&D centres for the parent.
o For example, in 2016 Abbott picked up an entire
under-construction space in Mumbai to set up its
innovation and development centre.
o AstraZeneca has its Global Technology Centre (GTC)
in Chennai, which provides IT services and support
to the group with an employee strength of +2,400.
AstraZeneca also has a R&D centre in Bengaluru to
support AstraZeneca’s global established medicines
portfolio. Its team of 90 employees consists of
scientific experts in the fields of regulatory science,
clinical science, and patient safety.
Automotive
• There are about 62 automotive OEMs and tier-1 GCCs in
India.
• It represents 5% of overall GCCs with MNCs such as
Continental, Fiat Chrysler, Ford, Honda, Hyundai, John
Deere, and Komatsu operating out of India.
• 52% of the automotive GCCs/captive centres are from
Europe (23% from Germany alone) while 29% are from
US.
o Continental’s R&D centre headcount has doubled to
around 3,000 employees from 1,400 in 2015, and it is
one of the three systems & technology hubs world-
wide.
o In 2016, Ford announced its new technology centre
in Chennai, which is its third R&D base in Asia. This
centre is a hub for product development, mobility
solutions and business services for India and also for
the world.
o Hyundai’s Hyderabad R&D centre coordinates with its
Namyang (Hwaseong, South Korea) centre to improve
synergies between Hyderabad and Namyang, reduce
the time-to-market, and address competitive intensity.
Why would the MNCs sell their GCCs now ?
2005-15 was a period of hyper growth – it saw many new
GCCs set up by companies based out of US, Europe, Japan,
and the Middle East. The total number of GCCs set up saw
a CAGR of 7% between 2005 and 2015. These GCCs had
embraced the at-scale local talent availability and benefited
from lower costs of operations. But from 2015 to the present,
growth of new captives being set up has slowed down – to
1% CAGR from 2015 to 2019 (vs. 7% during 2005-15). Future
growth will be impacted by the financial pressure posed by
the Covid-19 crisis as well.
Covid-19-led impact on demand on several industries such as
retail (non-essential), travel & transportation, manufacturing,
and automobiles is leading to severe pressure on firms to
continue with their existing operations. As the volume of
work falls, it becomes difficult to justify the costs of running
The pace of new GCCs has slowed since 2015
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captive centres. Hence, there has been an active interest
from MNCs to sell their captives at the moment.
So why would parents sell GCCs/captives?
1. Monetization: A GCC/captive is often viewed by
its parent organization as a liquid asset, which it can
relatively easily slice off and sell to generate immediate
cash. This situation is further exacerbated by the
pressures that the parent organization faces due to the
pandemic. An example can be JC Penney, which has filed
for bankruptcy in the US; or Fedex (possibly) hiving off its
captive centre in India to generate some liquidity.
2. Operational: Parent organizations will often sell a captive
that has either served its purpose or never lived up to
expectations. They might find it useful to transfer work
to service providers, as these are much better versed
with latest technologies across diverse spectrums. Also,
parents may realise that having a captive is not as cheap
or efficient as third-party service providers.
3. Strategic: After setting up and running a captive, parent
organizations may realise it is best to focus on their
core business and outsource non-core work to service
providers. Recent examples include ABN AMRO selling
a majority stake in Stater (mortgage services player in
Benelux and Germany) to Infosys to focus more on its
core business – selling mortgages. Similarly, HCL Tech
acquired Volvo’s external IT services in Nordics business
as that was not the core business of Volvo group.
Why would service providers want to acquire GCCs/
captives?
1. Access to talent: Acquiring a GCC/captive will help
a service provider get access to niche talent, which is
difficult to tap from the market due to unavailability of the
necessary skillsets or lack of domain experience. And that
talent can be leveraged to win new clients in the market.
For example, TCS acquired certain assets of GM’s captive
in 2019; 1,300 employees of General Motors India were
transferred to TCS. Through this deal, TCS got key talent
in the advanced automotive ER&D space, which it can
leverage for its other clients and also to win new clients.
2. Access to key IP or technology: A service provider
would benefit from the key IP or technology by acquiring
the captive. When TCS bought GM’s captive in 2019,
it benefitted through GM’s key technologies being
delivered out of its India centre. GM had established
GMTC-I in 2004 in Bengaluru, and it contributed to GM’s
global programs across propulsion systems, vehicle
engineering, controls development, testing, creative
design and special projects. It houses a design studio
and an engineering centre with state-of-the-art, in-house
electronics hardware and software testing and validation
infrastructure. TCS can leverage this sort of infrastructure
and technology domain knowledge to win new clients in
the automotive space.
3. Geographic expansion: Acquisition of captives can
also open the gates for a service provider for expansion
into new geographies. Setting up a delivery centre with
capacities in the thousands and then acquiring talent
from local markets can be daunting. Service providers can
really benefit by acquiring a captive in such geographies,
with pre-existing delivery infrastructure. A good example
would be HCL Tech’s acquisition of Volvo’s external
IT business; here, HCL on-boarded 2,500 Volvo IT
employees, which made HCLT the largest Indian-heritage
firm present in the Nordic region.
4. Vertical expansion: Besides geographic expansion,
a service provider can expand its vertical delivery
capabilities by acquiring a captive, or create a completely
new vertical for itself. For example, the acquisition
of PSA Group’s R&D centre in Germany by French
engineering major Segula Technologies expanded the
latter’s capacity by 2,000 employees and gave it a strong
presence in Europe’s largest automotive market. Europe
has very large R&D spending and while Segula already
has a presence in automotive R&D, this acquisition
expanded its capabilities, reach, and client exposure.
In terms of leveraging the R&D centre further, Segula’s
MD mentioned that the company wants to use the
competencies of these 2,000 engineers to increase
Segula’s market share with other German automakers
such as Volkswagen, BMW, and Daimler.
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Case Study # 1
TCS to acquire Postbank Systems from Deutsche Bank
Case Study # 2
TCS to acquire staff and select assets of Pramerica Systems from Prudential Financial
Year: 2020No of Employees: 1,500
In October 2020, Tata Consultancy Services and Deutsche Bank AG announced an agreement under which TCS will acquire 100% of the shares of Postbank Systems AG (PBS) from Deutsche Bank AG. PBS is a full-range captive IT service provider; it offers project management, application management, and infrastructure support services to Postbank and other subsidiaries of Deutsche Bank (DB).
PBS and its c.1,500 employees will become part of TCS, deepening the relationship between the two organizations. This will add to TCS’ scale in Germany and strengthen its growth outlook. TCS is ranked by analysts as the fastest-growing IT service provider in Germany, with a 10-year CAGR of over 24%. The transaction is expected to be complete by the end of 2020, and is subject to both parties finalizing further agreements and regulatory and government approvals.
For DB, this deal will help in its restructuring plan to reduce costs. As per media articles, its cost restructuring plan is centred around cutting 18,000 jobs with half of those job cuts expected to be in Germany.
TCS is already a IT services provider to DB. For TCS, this acquisition will further deepen its relationship with DB, and help gain more market share in DB’s overall spend, as it paves the way for fetching more business in other transformational and strategic projects within Deutsche Bank. TCS can leverage the domain skills of 1,500 employees to expand in other accounts in Germany in BFSI and other verticals. It gets ready infrastructure and talent in Germany, from where it can service the larger European market. Lastly, language and culture are still huge barriers in Europe, which are addressed for TCS via acquiring local talent. The company will earn a revenue of EUR 460mn (USD 543mn) over the next five years from this deal.
Year: 2020No of employees: 1,500
In October 2020, Tata Consultancy Services and Prudential Financial Inc. (PFI) announced an agreement under which TCS will acquire staff and select assets of Pramerica Systems Ireland (Pramerica), a subsidiary of Prudential. PFI will retain the Pramerica Ireland entity, which will continue to operate from Letterkenny and will focus on providing regional business services, reporting under its global asset manager, PGIM.
Pramerica’s 1,500 employees will be transferred to TCS. As part of TCS’ new Global Delivery Centre in Ireland, they will continue to provide PFI with a range of business, digital, and technology services, while also expanding TCS nearshore capabilities to provide the multifunctional, digital services and solutions to other customers in Ireland, the UK, Europe and the US.
This transaction is yet another example of global banks and insurance companies shedding non-core assets as they navigate through economic uncertainty. For Prudential, shedding the operation is expected to help the insurer trim costs, as it aims for US$ 750mn in savings by the end of 2023. For TCS, acquiring Pramerica will bring multi-year services contracts, strategy expertise and a development centre in Ireland. It will also enhance TCS’ capabilities in Insurance from Ireland, to service EU and US customers. Pramerica Systems has 80% IT services work while 20% is BPS (actuarial and customer engagement processes). TCS will be offshoring a lot of that work and will redeploy these teams to service other customers from a new nearshore centre in Ireland. It will generate a revenue of USD 300mn over the next five years from this deal.
CASE STUDIES:
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Case Study # 3
Infosys signs the largest deal in its history with Vanguard, takes over 1,300 of its employees
Case Study # 4
Infosys acquires 75% stake in ABN AMRO’s mortgage services unit (Stater)
Year: 2020No of Employees: 1,300
In 2020, Infosys entered into a multi-year agreement with Vanguard, which is perhaps the biggest deal the company has ever signed (approximately USD 1.5bn as per media articles). Through the partnership, Infosys will assume day-to-day operations, supporting Vanguard’s Define Contribution (DC) recordkeeping business, including software platforms, administration, and associated processes. Also, approximately 1,300 Vanguard employees, currently supporting the full-service recordkeeping client administration, operations, and technology functions, will transition to Infosys. All Vanguard employees currently performing these roles will be offered comparable positions at Infosys, in close proximity to Vanguard’s offices in Malvern, PA, Charlotte, NC, and Scottsdale, AZ. Transitioning employees will receive the same salary and comparable benefits for a transition period of 12 months.
Martha King, MD of Vanguard Institutional Investor Group, will move to Infosys to head the latter’s Mid Atlantic Retirement Services Centre of Excellence and serve as its Chief Client Officer. As per media articles, Infosys has set up a 3,000-seater facility in Bengaluru to service the deal, which includes BPS services and digital transformation work, to take Vanguard’s record keeping services onto a cloud platform.
For Vanguard, the deal allows the company to focus on its core business – retirement services and asset management. Additionally, it has successfully avoided negative media attention (had it laid off 1,300 employees) by transferring employees to Infosys.
Infosys acquires key talent in the core retirement-services industry via this deal, which it can leverage to grow in other BFSI accounts in the US. Infosys currently serves half of the top-20 retirement service firms in the US, helping clients to manage risk, improve participant experience, and deliver better retirement plan outcomes through technology services and digital solutions. Since it is a large deal, it provides revenue visibility; also, there is the possibility of increasing the scope of the deal in future.
Year: 2019No of employees: NA
In March 2019, Infosys signed a large deal with ABN AMRO, the third largest bank in the Netherlands, headquartered in Amsterdam. As a part of the deal, Infosys acquired 75% of the shareholding in Stater N.V., a wholly owned subsidiary of ABN AMRO Bank N.V., that offers pure-play, end-to-end mortgage administration services in the Netherlands, Belgium, and Germany. Infosys paid EUR 127.5mn for a 75% stake in Stater. ABN AMRO will continue to hold the remaining 25%. Stater is a market leader and one of the largest mortgage service providers in the Benelux region, operating across the mortgage and consumer-lending value chain, with deep capabilities in digital origination, servicing, and collection. Stater also brought deep European mortgage expertise and a robust digital platform to drive superior customer experience for Infosys’ clients.
At the time of acquisition, Stater serviced 1.7mn mortgage and insurance loans for approximately 50 clients in The Netherlands and Belgium. The company was started in 1997, and had a solid client base, including many of the largest Dutch and Belgian banks for their most important product – mortgages.
ABN AMRO’s management revealed that while mortgages are a key product for the bank, providing administrative mortgage services is not a core activity. Hence, the management is quite happy to hand over majority control to Infosys, where it will continue to hold 25% stake, and will remain a strategic client for Stater. As the same employees were going to service ABN AMRO, comfort level is also ensured.
For Infosys, as it was already operating in mortgage services, this deal has only added revenue in a similar line of business, along with access to a key client – ABN AMRO. Also, Stater gave direct access to the key markets of Netherlands, Belgium and Germany. Infosy