IT Services Firms Face The Heat From GCCs In War For Talent

Multinational corporations (MNCs), which used to see GCCs as hubs for back-office operations, are now turning them into innovation centres, which perform much the same tasks as IT service providers .

Industry body Nasscom said that India had over 1,500 GCCs as of July-end. The country gained 19 GCCs in the June quarter and 20 in the March quarter, it said.

Analysts and industry experts say that unlike in the past, MNCs have been turning their GCCs in India into innovation centres, working in areas such as artificial intelligence (AI), natural language processing (NLP), data science, web3, robotics, and thus, often tend to hire the same individuals who work at IT services firms in India.

For instance, when Lowe’s set up its GCC in Bengaluru in 2014, the US home improvement chain was adding value to its parent in areas such as business operations, finance and human resources. Over the next 12-18 months, Lowe’s India ramped up its operations by hiring skilled people, transferring more technology projects to India, turning the centre into a complete “innovation hub".

Ankur Mittal, Lowe’s India’s managing director, said covid-19 accelerated the pace of innovation. “Today, our teams are doing work on data engineering, data science, AI/ML, robotics process automation (RPA) and cloud engineering to build platforms for complex business problems," he said.

Likewise, Siva Padmanabhan, managing director of AstraZeneca India Pvt. Ltd (AZIPL), which runs the bio-pharmaceutical company’s GCC that was rebranded in April as a global innovation and technology centre (GITC), said in an interview published on 6 September that, “Prior to 2014, AstraZeneca was dependent on external partners to deliver its IT commitments, but there was an evolving need to uplift the quality of service to the business. This was when the importance of insourcing our IT capability became clear."

Kamal Karanth, co-founder, Xpheno, a specialist staffing company, believes that the GCCs have emerged as a serious competition for talent as they vie for the same talent pool as IT services firms.

GCCs have emerged a serious influencer of tech talent supply as they control over a quarter of the total tech workforce in India, he said.

“Deep-pocketed GCCs have the advantage of buying talent at a higher price tag as they are comparatively lower volume talent consumers. GCCs are hence known to trigger wage wars against IT service players and other cohorts of tech, especially on hot and niche skill sets. GCCs have hence not just constricted talent supply funnels but also made it pricier for the IT services sector," said Karanth.

Wage hikes apart, GCCs also offer a huge brand pull by allowing fresh hires to directly engage with top global brands. Such talent used to earlier engage with some of these brands as employees of IT services firms on project deployments.

According to data shared by Xpheno, 23% of talent from the IT services sector has had one or more career movements over a 12-month period through July.

With the tech sector recording high attrition rates, ranging from 8% to 37%, the talent movement rate of 23% is in line with the average attrition rates seen in the industry during the period. It further said that 83% of movements were towards other employers within the IT sector. Of the remaining 17%, 6% of the talent was absorbed by GCCs.

Karanth pointed out that the competition created by GCCs was visible from a sharp drop in offer acceptance rates that IT services employers dealt with last year. IT services firms were, for the first time, seen making counter offers and retention offers to talent that was being wooed away by GCCs, he said.

Further, Sangeeta Gupta, senior vice president and chief strategy officer, Nasscom, said GCCs have anchored India’s growth as a destination of choice for engineering, research and development. “The sector is mirroring the growth of the Indian IT Industry by embracing a comprehensive digital transformation strategy, making them fit and a more preferred choice to meet the future technological needs of organizations while expanding its scope of operations," she added.

Some, however, don’t agree that the Indian IT services sector is facing an imminent threat.

Arjun Ramaraju, CEO, Conneqt Business Solutions, a digital IT services firm owned by Quess Corp., said GCCs may be putting up a tighter fight for talent against the IT services sector, yet they have to work in collaboration in various areas to achieve the desired business outcome.

Anurag Dua, partner at EY noted that while the IT services sector faces a challenge from both GCCs and startups in terms of hiring talent, “there is no lack of talent in India". He noted that GCCs are a “niche segment" that require “specific skills".

Xpheno’s Karanth, too, said that while the brand attraction of GCCs will remain a force to reckon with, “IT services players are also set to revise their compensation models on par with the GCCs as competition heats up further."