Is a captive GIC right for you ?

Co-innovation is a great fit for product innovation in a connected landscape

Due to the recent travel curbs curtailing the ability of foreign IT professionals to work in US, UK, and other western countries, spotlight is on the role of Indian IT service providers. There is a lot of hand wringing and rhetoric on the purported threats to the global economy and free trade. For those who are rattled, my advice is take a deep breath, as this is nothing more than a passing storm. While these protective measures can temporarily stop people from coming in, they can’t stop western businesses from going global in search of talent, and the phenomenal success of Global In-house Centers (GICs) based in India is a testimony to this trend.

Status of Indian GICs

Over the past two decades, thanks to the abundant availability of skilled talent and the obvious cost advantages, scores of western companies have established their captive development and delivery centers in India, which came to be known as Global In-house Centers (GICs). A recent report by the consulting company Bain & co and the trade association, NAASCOM on the status of Indian GICs, offers a glimpse of the size of the Indian GICs:

• Number of Indian GICs > 1100
• Number of people employed > 800,000
• Revenue generated > $ 23 billion USD

As you can  see from the above figures, the sheer size of the industry is a testimony to the fact that Indian GICs have succeeded in:

• Providing access to a vast pool of talent
• Delivering significant cost savings and enabling impressive growth
• Creating enormous wealth

Majority of Fortune 1000 companies including most technology majors as well as businesses with sizeable IT operations have setup their own captives in India. Google, Facebook, Amazon, IBM, Apple and a host of other iconic companies have reaped significant benefits from their Indian operations. However, all is not well on this front. The above cited report shares some interesting insights on what’s working well, and about the changing priorities in a digital landscape.

Rationale for setting up Indian GICs

Some interesting insights shared by global CXOs and senior leaders of the GICs:

• 90% indicated cost savings and 70% indicated access to highly skilled talent as the strategic rationale for setting up Indian GICs
• 70% stated that they expect their Indian GICs to play a bigger role in the future
• 60% stated that they expect an increase in the scale and scope of work handled by their Indian captives
• Majority indicated that they want their captives to excel and handle more high-value work, especially in emerging technologies and support digital transformation initiatives

Factors for success

The above cited report has validated many of our long-standing views about the potential for Indian GICs to play a crucial role in supporting global operations of their parent companies. Looking at the landscape and track-record of the successful India-based GICs, a few facts stand out:

• Overwhelming majority are owned by large, western multi-national companies
• Financial resources to invest in the right, people, process, and infrastructure
• Large operations with size and scale to justify having senior leadership based in India
• Capacity to setup full-fledged legal entities in India, along with the management and organizational bandwidth to manage distributed operations on a global scale
• Managerial focus at the highest level from their headquarters
• Long-term perspective and providing adequate time for integration

Factors for failure

Over the course of the past decade, we have come across numerous small and mid-sized GICs, especially in the product development space that have failed to fulfill their mandate and performed far below their potential. We can summarize the reasons for their failure as follows:

• Tussle for power and political issues becoming detrimental for growth
• In a smaller setup, the capability of the local center head becomes a limiting factor
• Difficulty in establishing brand recognition and an inability to scale
• Conflicting priorities between growing headcount and meeting delivery expectations
• Failure to overcome cultural differences, leading to a mistaken perception that different culture is difficult culture
• Lack of adequate managerial oversight from headquarters
• Failure to develop local, sustainable managerial structure, leading to operational silos
• Lack of mature governance, forcing parent company to focus more on operational management rather than on delivery management
• Perspective that the Indian GIC is a cost center, putting enormous strain to justify continuing investments in people, process, and infrastructure

Objective criteria for setting up captive GIC

This brings us to the crucial question of what should be the criteria, based on which companies can make an informed choice of whether to setup a captive GIC or not. In our judgment, businesses can setup their own GIC, if their situation matches  the following criteria:

• If there is a strategic need for establishing global delivery capabilities
• Experience in managing distributed operations
• Willingness to invest in brand building and nurturing local senior management
• Risk appetite to handle the operational and regulatory aspects of running own legal entity
• Medium to long-term plan of scaling up to justify the financial outlays
• Willingness to not focus on meeting short-term expectations, and prepare for future

Managed GIC

If one goes by the above-cited criteria, setting up a captive GIC is a highly risky and unviable option for small and medium sized software-driven businesses. If, for obvious reasons, working with third-party offshoring vendors is not an option for these businesses, what’s the alternative to captive GICs?

With our insights and experience in enabling the growth and success of a wide range of software-driven businesses in diverse domains, and our keen understanding of the intricacies of scaling up, we have evolved a collaborative model of Managed GIC. The key features and advantages of a Managed GIC are as follows:

• A collaborative model, where a customized and dedicated GIC is setup, that is fully owned and controlled by the customer
• Model based on shared services and shared infrastructure, delivering significant cost savings and providing quick return on investment
• Customer can leverage the branding of coMakeIT to recruit and retain top notch talent, avoiding the need to investing in expensive and time-consuming brand building
• Loyalty of the team from day one is towards the customer
• Quick setup and flexibility to scale as per the customer’s evolving business needs
• No need for setting up own legal entity, and at the same time flexibility to do so at any point of time
• No scope for political issues or leadership struggle, as the focus of the senior and executive leadership is solely on delivery and technology management
• With a shared-services model, there is no need for the customer to invest in their own infrastructure
• Need to invest only in Opex and no Capex
• No burden of operational issues and local center management, freeing the leadership to focus on strategic business issues
• coMakeIT’s (strategic partner) ineretsts are fully aligned with that of the customer and its loyalty is towards the success of the partnership

Innovative companies like Planon, MPO, Keylane, Chevin, DeakinPrime, GAC and many other software-driven businesses from Netherlands, UK, and Australia have benefited from our strategic partnership model, and have setup their Managed GICs, which vary in size from 15 to 100 +. Each GIC is tailored for the customer, and the organizational structure, process and tooling is customized for their needs. It is a matter of great pride to us that across our customer landscape, the average engagement tenure with us is 5+ yrs, which is a testimony to the success of our collaborative model.

We would like to reiterate that small and medium sized software-driven businesses are best served by a collaborative and Managed GIC model, which will deliver the cost advantages, provide access to talent, and scalability without any of the risks associated with a captive GIC.