Sustained interest in global capability centers (GCCs), both new and existing, is expected to shape the IT and business services industry in 2024, according to a report by ISG.
The report indicated enterprises are not only keen on establishing and expanding GCCs, but also transforming them to better align with their parent organizations and the broader economic environment.
A GCC is an in-house unit or subsidiary that handles designated business operations, typically in IT and business services, for a parent company.
“We see talent, cost savings and innovation driving the growth in GCCs this year,” said Stanton Jones, distinguished analyst with ISG’s Index research team. “Most often, GCCs are contributing to technology, product or process.”
He explained the primary purpose is that a GCC enables a firm to innovate cost-effectively, given the depth of talent in a location.
“The biggest challenges are typically related to cost or the inability to attract and retain talent,” Jones added.
Around 70% of GCCs are managed and staffed internally, while the remaining 30% are handled by external providers.
According to ISG, 80% of enterprises use captive centers for corporate functions like procurement, payroll or sales and marketing, 18% for IT operations, and 63% for industry-specific operations.
The study found IT captive centers are predominantly found in India, Brazil, Mexico and China, handling a broad scope of IT operations, including infrastructure, applications and networks. Jones explained companies typically use multiple locations for their captive centers, rather than a single site.
The report found approximately a third of companies use captive centers for procurement and payroll, while more than 60% retain the wider finance and accounting operations in-house.
Customer experience and sales and marketing operations are more commonly managed through GCCs, with India and the Philippines being the most frequent locations.
Industry-specific functions span various activities across multiple locations, averaging three countries per enterprise, with India and the Philippines being the most common.
Additional key findings from the report highlighted the three main benefits realized by GCC leaders, with access to strategic talent as the primary benefit for a third of enterprises.
Twenty percent cited strategic innovation, and nearly half indicated value, which includes cost optimization, improved productivity or streamlined operations. The report also reveals that the perceived primary benefit of a GCC depends on the respondent’s role within the organization.
IT functions most often cite access to talent, corporate functions prioritize value, and leaders of industry-specific functions focus on innovation.
“Typically, IT is focused on skills they need or lack, while corporate functions are more focused on value – either cost or productivity – and industry-specific GCCs typically value industry or domain-specific knowledge or skills,” Jones said.
Looking at GCCs established in the last two years, the report found nearly half of the leaders plan to expand staff in the next 24 months, while a similar number plan to scale back or exit their GCC.
GCCs have proven to be a viable operating model, especially in India, due to the talent pool, specialized skills and cost advantages.
“India has the technology talent at a scale and a price that no other country can match, alongside strong government support for the technology sector,” Jones explained.
The report concluded GCC activity is likely to remain high as enterprises assess the merits of this model as an alternative to outsourcing, and predicted strong market activity from service providers interested in acquiring GCCs that are not meeting enterprise objectives.
“We predict there will be increased collaboration,” Jones said. “Our view is that mid-size GCCs – between 100 and 1,000 employees – will start to lean on the IT services sector more over the next 24 months.”
He explained that it could be the provider subcontracting to the GCC, the GCC hiring the provider as an MSP, or even having the GCC exit via a sale to an IT services provider.
“We also believe more GCCs will be set up in the next 24 months using the build-operate-transfer model, where the provider stands up the capability with a plan to transfer it back to the parent company over a certain time frame,” Jones said.
