The share of global capability centres (GCCs) in India’s GDP is expected to double to 2% by 2030, according to a note shared by ICICI Securities.These offshore units of multinational companies collectively generate about $46 billion in revenue, which is likely to touch $100 billion by FY30, the brokerage said.

India accounts for around 50% of the world’s GCCs. According to the note, the sector grew by 11% between 2015 and 2023, topping the 7% growth registered by the Indian IT services sector in the same period.

However, GCCs are not completely immune to the macroeconomic concerns which have impacted the IT industry. GCC additions had slowed in 2023 compared with 2022. Between January and December 2023, the country added 47 GCCs as compared with 65 in the previous year. Some analysts said this may have been because of the post-pandemic digital rush–which has settled down now—and macro concerns.

While some experts said the slowdown in GCC addition in India reflects GCCs reaching the saturation point in the offshoring model of global companies, others said that 2021 and 2022 were anomalies because of Covid-19, where global companies came in droves to India.

“Most of the Fortune 1000 companies have GCCs in India and they have also been scaling up in a big way, but when parent companies in the US and Europe are seeing global headwinds, the rate of scaling up in India is seeing some impact,” said outsourcing expert Pareekh Jain, who is chief executive at EIIRTrend. “The next wave of companies that will set up GCCs in India would be between Fortune 1000 to Fortune 5000 companies, and these are smaller companies adding smaller headcount to their global payrolls.”

Arindam Sen, partner and GCC sector leader (technology, media & entertainment and telecommunications), at EY India, said, “The fluctuation in the number of GCC setups in India could be seasonal, influenced by their financial periods, budget allocations, and the overall macroeconomic situation. While growth in the banking and financial services sectors is experiencing a temporary slowdown, prompting many companies to realign their priorities, it’s important to note that this is a strategic adjustment. The temporary reduction in GCC numbers may reflect a prudent approach by companies managing their discretionary spending in response to last year’s macroeconomic challenges.”

He said they are seeing the non-financial services companies continuing to expand.

“It would be a misnomer to say that GCC growth has slowed; it has a direct correlation with the impact on companies during a global slowdown. Therefore, we should not look at it independently. This is driven on a company-by-company basis; many GCCs hired aggressively, while some are now cutting down depending on their needs and priorities,” said Sen.

He said 2023 data is being compared with 2021 and 2022, which were anomaly years because of Covid-19.

The ICICI Securities note said that 48% of GCCs are planning to reduce headcount while 49% are planning to increase it.

“The current environment will likely be beneficial for micro-sized GCCs (<150 employees; will see most tailwinds and are in trend currently) and large GCCs (>1000 employees; will use their size and scale for hiring right talent and drive innovation),” the report said, adding that most of the new AI-ML GCCs are micro GCCs.

The note mentioned that interest rates and IT services are acting as headwinds for mid-sized GCCs, and that 50% of India’s AI talent is in Karnataka.

A recent survey of ISG also stated that globally, 40% of enterprises plan to reduce staffing through automation, 24% plan on moving their GCC to a more cost-effective location, and 10% plan to exit their GCC entirely.

Data shows that GCCs face different challenges depending on how long they have been in operation. While the newer GCCs struggle with cost and complexity, the older ones struggle with recruiting and retaining talent.

“The newest cohort (established in 2020 and 2021) is primarily facing cost challenges related to GCC operations,” said Stanton Jones and Alex Bakker, analysts with ISG, in one of their recent reports. “This is due in part to the rapid rise in salaries in India during the post-pandemic boom, which led to the Great Reshuffle. The newest cohort plans on consolidating operations into fewer locations over the next 24 months, likely in response to these cost pressures.”

They said that in the middle cohort (GCCs between 2016 and 2019), the majority are planning to add staff while a smaller percentage is planning on reducing staff. Meanwhile, the oldest cohort (established 2015 and earlier) is struggling mostly with recruiting talent and, to a lesser degree, operational complexity. “Over the next 24 months, this cohort is planning on reducing staff, with a small percentage planning to add staff,” the analysts said.

According to tech industry body Nasscom’s data, the nearly-1,600 GCCs currently present in the country have a market size of $46 billion compared with $250 billion for the technology outsourcing industry.

The share of global capability centres (GCCs) in India’s GDP is expected to double to 2% by 2030, according to a note shared by ICICI Securities.These offshore units of multinational companies collectively generate about $46 billion in revenue, which is likely to touch $100 billion by FY30, the brokerage said.

India accounts for around 50% of the world’s GCCs. According to the note, the sector grew by 11% between 2015 and 2023, topping the 7% growth registered by the Indian IT services sector in the same period.

However, GCCs are not completely immune to the macroeconomic concerns which have impacted the IT industry. GCC additions had slowed in 2023 compared with 2022. Between January and December 2023, the country added 47 GCCs as compared with 65 in the previous year. Some analysts said this may have been because of the post-pandemic digital rush–which has settled down now—and macro concerns.

While some experts said the slowdown in GCC addition in India reflects GCCs reaching the saturation point in the offshoring model of global companies, others said that 2021 and 2022 were anomalies because of Covid-19, where global companies came in droves to India.

“Most of the Fortune 1000 companies have GCCs in India and they have also been scaling up in a big way, but when parent companies in the US and Europe are seeing global headwinds, the rate of scaling up in India is seeing some impact,” said outsourcing expert Pareekh Jain, who is chief executive at EIIRTrend. “The next wave of companies that will set up GCCs in India would be between Fortune 1000 to Fortune 5000 companies, and these are smaller companies adding smaller headcount to their global payrolls.”

Arindam Sen, partner and GCC sector leader (technology, media & entertainment and telecommunications), at EY India, said, “The fluctuation in the number of GCC setups in India could be seasonal, influenced by their financial periods, budget allocations, and the overall macroeconomic situation. While growth in the banking and financial services sectors is experiencing a temporary slowdown, prompting many companies to realign their priorities, it’s important to note that this is a strategic adjustment. The temporary reduction in GCC numbers may reflect a prudent approach by companies managing their discretionary spending in response to last year’s macroeconomic challenges.”

He said they are seeing the non-financial services companies continuing to expand.

“It would be a misnomer to say that GCC growth has slowed; it has a direct correlation with the impact on companies during a global slowdown. Therefore, we should not look at it independently. This is driven on a company-by-company basis; many GCCs hired aggressively, while some are now cutting down depending on their needs and priorities,” said Sen.

He said 2023 data is being compared with 2021 and 2022, which were anomaly years because of Covid-19.

The ICICI Securities note said that 48% of GCCs are planning to reduce headcount while 49% are planning to increase it.

“The current environment will likely be beneficial for micro-sized GCCs (<150 employees; will see most tailwinds and are in trend currently) and large GCCs (>1000 employees; will use their size and scale for hiring right talent and drive innovation),” the report said, adding that most of the new AI-ML GCCs are micro GCCs.

The note mentioned that interest rates and IT services are acting as headwinds for mid-sized GCCs, and that 50% of India’s AI talent is in Karnataka.

A recent survey of ISG also stated that globally, 40% of enterprises plan to reduce staffing through automation, 24% plan on moving their GCC to a more cost-effective location, and 10% plan to exit their GCC entirely.

Data shows that GCCs face different challenges depending on how long they have been in operation. While the newer GCCs struggle with cost and complexity, the older ones struggle with recruiting and retaining talent.

“The newest cohort (established in 2020 and 2021) is primarily facing cost challenges related to GCC operations,” said Stanton Jones and Alex Bakker, analysts with ISG, in one of their recent reports. “This is due in part to the rapid rise in salaries in India during the post-pandemic boom, which led to the Great Reshuffle. The newest cohort plans on consolidating operations into fewer locations over the next 24 months, likely in response to these cost pressures.”

They said that in the middle cohort (GCCs between 2016 and 2019), the majority are planning to add staff while a smaller percentage is planning on reducing staff. Meanwhile, the oldest cohort (established 2015 and earlier) is struggling mostly with recruiting talent and, to a lesser degree, operational complexity. “Over the next 24 months, this cohort is planning on reducing staff, with a small percentage planning to add staff,” the analysts said.

According to tech industry body Nasscom’s data, the nearly-1,600 GCCs currently present in the country have a market size of $46 billion compared with $250 billion for the technology outsourcing industry.