In the 1950s, William Shockley, a renowned scientist and co-inventor of the silicon transistor, founded the Shockley Semiconductor Laboratory in Santa Clara Valley, California, marking the entry of ‘silicon’ into Silicon Valley. In 1957, eight of Shockley’s researchers left to establish Fairchild Semiconductor, and what happened next is history. Employees of Fairchild went on to create numerous companies, including Intel, National Semiconductor Corporation, AMD, and LSI Logic Corporation.
The growing technology ecosystem of Silicon Valley and its proximity to world-class talent at Stanford University acted as an incubator for new start-ups, fostering innovation and technological advancement.
Today, this chapter in history serves as a reminder that a company’s location and ecosystem plays a vital role in its success. With globalization in the mix, every enterprise is expanding its global footprint for talent, or cost, or both. But where do they start? How can they scout the right location for setting up their Global Capability Center (GCC), or Center of Excellence (COE)?
In this blog, we break down the key considerations to keep in mind when selecting the right location for your center.
In today’s globalized world, companies are no longer bound by national borders and can ‘follow the talent’ across the globe. However, choosing the right location is crucial to finding the right talent. Here are a few parameters to look at when selecting a talent hotspot to set up your center and achieve your business goals.
Scouting for talent requires a strategic approach. The first step is to understand your business priorities and decide on a team structure that aligns with them. Are you seeking a bottom-heavy or top-heavy approach?
The next step is deciding on how many individuals you plan to hire for each role. At Zinnov, we look at it in the simple format of a talent pyramid. For example, consider a 100-person team for this exercise and construct a talent pyramid that outlines the roles your company intends to fill. What percentage of leaders, principals, senior engineers, and junior engineers would you need? Once you have a brief idea of the roles you are hiring for, you move on to looking at locations that align with your needs and can offer talent for these roles/skills.
Once you have the team structure, you will need to look at locations that have relevant talent availability. Based on our experience of working with clients in talent acquisition, we have observed that from a total addressable market, the accessible talent pool typically consists of around 10% applicants, considering competition and the percentage of candidates interested in the specific role. Now, if you as an employer shortlist even 3% of these applicants and roll out an offer to one of them, then you have a conversion of less than 1%.
Attracting top talent is not enough; scalability is equally important. Leaders must consider building a talent pipeline to ensure a steady supply of skilled professionals. Key factors that influence this include institutional support (mentorship programs, employee training), partnerships with academic institutions and universities, and government support (tax support, grants, and financial assistance).
For example, Costa Rica, an emerging hotspot, has targeted government initiatives to encourage students to take up software engineering courses and eventually pursue job opportunities in global companies. This brings the promise of a sustainable talent pipeline.
Offshore centers today have evolved from being cost arbitrage centers to capability arbitrage centers. To effectively leverage this capability, organizations must access top-tier talent while managing costs effectively. Approaching cost optimization through a talent-focused lens has proven to be a reliable method for sustainable returns on investment in the long run. However, cost isn’t the only value metric when selecting a hotspot. You should also consider the ease of doing business, government initiatives, ecosystem maturity, and market conditions as add-ons to cost.
While specialist roles have parity across the globe, generalist roles can be hired for lesser cost in certain talent hotspots. According to our research, India is the prime real estate for cost optimization. We have found that the cost of setting up a large engineering team in India, in comparison to the US, provides over 67% cost savings for global companies. This is the highest cost-saving amongst the top five locations to set up a center of excellence – India, China, Canada, Poland, and Mexico.
Ecosystem maturity is a critical factor for companies considering to set up an offshore center. To select the right ecosystem, you should consider the following parameters based on business priorities: presence of peers/competitors, HQs of major outsourcing partners, proximity to existing partners, vendor ecosystems, proximity to universities, and start-ups.
For example, the LATAM and India boast vibrant start-up ecosystems. Poland, on the other hand, stands out with its thriving partner network, while Silicon Valley’s strength lies in its abundance of Independent Software Vendors (ISVs). These unique characteristics make these locations particularly appealing for establishing centers of excellence.
Driving long-term growth include
Proximity to your competition, peers, customers, and partners is a crucial factor to consider when selecting a location. Bazaarvoice, an Austin-based company prioritized proximity to their customers and partners while expanding their global software engineering operations to accelerate innovation from the center. They evaluated various locations and ultimately selected the Silicon Valley of India, Bangalore. This location aligned with the presence of many of their clients. Today, their India center plays a pivotal role in fueling innovation and product development.
Geopolitical stability has become a top priority for leaders in today’s political climate and global economic tensions. A politically stable environment serves as the cornerstone for long-term business operations and investments. This stability helps the economy grow, making it easier for companies to make long-term plans, establish lasting partnerships, and gain trust from local partners. Additionally, talent and partners are more likely to stay in a location with steady political conditions, ensuring smooth and successful business operations.
Government initiatives and schemes are a valuable resource for sustainable growth and success. Some countries have schemes in place that boost the growth of centers. For instance, the Indian government provides a 100% deduction for investment in R&D after three financial years with a minimum area of 1000 sq. ft. allocated for R&D activities. Brazil’s government gives excise and sales tax exemptions to exporters and manufactured goods.
A lot of talent hotspots offer amicable tax policies to attract global companies. In Costa Rica, the corporate tax rate is reduced by 50% for zero-emission technology manufacturing companies.
By leveraging these schemes, businesses can expand their operations and achieve their goals more efficiently.
A good location can be the make-or-break factor for a global organization looking to leverage offshore resources and capabilities. It provides access to diverse talent and innovation ecosystems and serves as a buffer against potential disruptions like economic downturns, global tensions, talent challenges like attrition, and more.
A reliable partner can be a game-changer for your globalization strategy. At Zinnov, we have over two decades of experience in helping companies successfully set up a center. Our proprietary frameworks and insights, our deep understanding of the GCC ecosystem, and our award-winning teams of subject matter experts give us a pulse of the industry like no one else.