Global Capability Centres — Routes And Models

With the evolution of Global Capability Centres from cost centres to revenue drivers and centres of excellence and innovation, India has actively boosted its GCC sector.India's skilled workforce, supportive government policies and focus on tech and finance continue to drive its growth as a prime investment location. Microsoft, Unilever, JP Morgan Chase and PepsiCo are but a few examples of the growing India GCC success story.Anyone considering a GCC in India may choose from several structuring options to optimally utilise its resources..The group could consider establishing a fresh GCC from the ground-up (Greenfield GCC) or acquiring the operations of an existing GCC or similar entity providing the requisite services (Brownfield GCC)..Setting up a Greenfield GCC enables greater flexibility for a higher degree of customisation, basis the exact specifications and requirements of the Group. It would also enable the Group to choose the location where the GCC is to be set-up, keeping in mind the comparative advantages of each location and the applicable state government policies.However, setting up a Greenfield GCC involves a longer timeframe given it would have to obtain fresh registrations and licences, identify and acquire suitable premises and fit-out the same. A Greenfield GCC may also lack existing operational and business SOPs (standard operating procedures) and experience in the new market and would have to invest heavily in training employees..A Brownfield GCC may involve a larger initial capital layout. That said, its inherent advantage lies in it being an operating entity, with existing licences and approvals in place, local market knowledge and experience enabling the Group to hit the ground running. Further, the Group may inherit any existing benefits, including tax and other incentives and subsidies under government schemes and policies.Identifying Brownfield GCCs with the capacity to meet the specific requirements of the Group may prove challenging and hence, Brownfield GCCs are not seen in practice. Further, the Group may have to conduct a legal, financial and tax due diligence to ensure that the Brownfield GCC does not have legacy issues that could lead to future liability. Further, there may be post-acquisition cultural and fitment considerations in respect of the personnel being transferred which may need to be addressed..India's Success With Technology, GCCs Proves It Has Potential To Be AI Hub: Nadir Godrej.GCCs can operate through a variety of models, designed to align with the specific needs of the Group. Each model has its relative advantages and challenges, allowing organisations to select, basis their strategic goals, cost factors, regulatory requirements and the desired level of control and customisation..Under the do-it-yourself model, the Group may choose to build and run their GCCs entirely on their own. This approach grants full ownership and management, with external help focused on specialised local needs like legal and tax matters. This arrangement enables greater protection to intellectual property and sensitive data but would require internal expertise in Indian regulations and be more time-consuming..Under the build-operate-transfer model, the Group could partner with a specialised vendor to handle the initial setup and operation, who would gradually transfer ownership and control to the Group. Owing to the vendor's local knowledge and established infrastructure and talent network, the time required in such an arrangement is lesser.Under this arrangement, the Group would have lesser direct control during the initial phase and hence, requires careful vendor selection and contract negotiation. Further, it is key to ensure a smooth transition, particularly in respect of the employees, during the handover of the GCC to the Group, including by way of appropriate contractual arrangements in this regard..The Group could also consider a joint venture, where the vendor continues to hold a minority investment in the GCC after the transfer. Here, the Group would gradually buy-out the stake of the vendor upon the occurrence of certain trigger events like capitalisation, revenue and market share. While such a JV provides invaluable access to established networks, market knowledge and regulatory understanding, the structure would require careful negotiation to address issues, such as ownership, profit sharing and dispute resolution.A 'virtual captive' model would provide a bridge period wherein the vendor manages the GCC as a virtual presence to provide support services to the Group until the transfer. Subsequent to the transfer, the GCC eventually transitions to a captive entity and expands its services. The virtual captive model can be easily scaled up or down to meet changing business needs..With over half the GCCs opting for the DIY Model, it remains steadfast as the model of choice, given its inherent advantages in its ability to enable customisation to create a bespoke establishment and negate integration/transition challenges. The BOT Model has also found favour with some Groups with the emergence of third-party vendors and correspondingly the Hybrid Model appears to be losing its sheen. However, the main disadvantage of the BOT Model lies in the inevitable transition challenges.It is, therefore, important for each Group to identify and select the approach that works best for it depending on the specific circumstances and requirements of the Group, bearing in mind the relative advantages and disadvantages of each model..Paridhi Adani is a partner (Head – Ahmedabad Office), Anu Tiwari is a partner (Head – Fintech and Financial Services) and Jeeta Nayak is a partner (M&A and PE Transactions) at Cyril Amarchand Mangaldas.Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of NDTV Profit or its editorial team..Most GCCs In India Investing In Gen AI, Upskilling Teams In The Technology

Global Capability Centres — Routes And Models

Anyone considering a GCC in India may choose from several structuring options to optimally utilise its resources.

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