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Why Set Up a Global Capability Center (GCC)?

Why Set Up a Global Capability Center (GCC)?

27 Mar, 2024

Imagine having the power to access a global talent pool, drive innovation, and scale your business efficiently. That’s precisely what globalization offers, and Global Capability Centers (GCCs), also known as Captive Centers, are the key to unlocking these benefits while you think of expanding your business globally.

Captive Centers are offshore units established by multinational corporations to perform a range of strategic functions. These centers leverage specialized talent, cost arbitrage, and operational efficiencies in various locations worldwide. By setting up GCCs, companies can maintain control over their operations, ensure quality, and align their offshore activities with their overall business objectives.

Yet leaders must also weigh the risks and complexities while planning the expansion globally. Without a good plan, expansion can lead to messy and disjointed systems and poor results.

But what is the cost of not globalizing?

  1. Limited Market Access: With limited market access, organizations miss expansive opportunities abroad. Reliance on a single geography also increases vulnerability to economic volatility.
  2. Talent Pool Constraints: Talent pool limitations pose another constraint. Companies need to access specialized skilled individuals, such as Data Scientists, Cloud Architects, Cybersecurity Experts, UX designers, and Artificial Intelligence (AI)/Machine Learning (ML) experts globally to stay competitive as innovation accelerates. Companies risk falling behind without bringing in diverse perspectives.
  3. Innovation Bottlenecks: Without exposure to diverse markets and cultures, there is a risk of innovation stagnation. Companies focusing only on local markets often adopt a single cultural viewpoint, leading to blindspots and groupthink. Ethnocentrism makes them resistant to change, and they fall behind as the rest of the world advances quickly. When they do not receive global customer feedback or insights from international markets, their product development mainly serves an increasingly outdated domestic preference.
  4. Economic Vulnerabilities: Companies that rely only on local or national markets face higher risks from local economic downturns. These companies depend entirely on the demand from one national economy. If GDP growth slows or becomes negative, people’s buying power decreases quickly, which lowers revenues. Without international demand to offset this, the negative impact is severe and inevitable. Companies then have to reduce costs, often by laying off employees at a time when local jobs are most scarce.

What is the best way to globalize?

Many forward-thinking companies including tech giants like Texas Instruments, IBM, Microsoft, and Google, recognize that to fuel rapid growth and stay competitive, they need to optimize costs, access global talent, and drive innovation. Some have established joint ventures, while others have turned to outsourcing or establishing operations in other countries. Yet, each of these approaches comes with its own set of challenges, underscoring the complexity of global expansion.

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Joint ventures can lead to conflicts in priorities and cultural differences, making it hard to stay focused and make decisions. Outsourcing might lead to losing control over important processes and could endanger the security of intellectual property. Additionally, running operations in different locations brings challenges in maintaining consistent management, handling data properly, and using insights throughout the company. These issues underline the importance of a unified and strategic plan for expanding globally.

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Global Capability Centers (GCCs): A Unified Solution

This is where GCCs, also known as Captive Centers, emerge as a compelling solution, offering a way to consolidate operations, safeguard intellectual property, and maintain control over offshore activities. Unlike outsourcing, a GCC is fully owned by the parent company, ensuring that strategic objectives remain aligned and cultural integration is managed more effectively. This model not only mitigates the risks associated with dispersed models but also capitalizes on the benefits of global expansion.

A US-based Digital Customer Engagement company, serving over 12,000 global brands and retailers, recognized the need to expand its capabilities through a Global Capability Center to leverage the global talent pool for product development while optimizing R&D talent costs. They partnered with Zinnov, who helped shortlist locations, provided end-to-end support, and delivered transformative results, including adding 80 new employees, achieving annual savings of USD 12 Mn in talent costs, and successfully developing multiple products from the new center, all within three months, showcasing the power of strategic collaboration in driving innovation and accessing global talent.

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But what makes setting up a GCC an advantageous strategy for organizations looking leverage the global opportunity?

Access to Cost-Efficient Global Talent

A key advantage of a GCC is the major cost savings achieved by strategically allocating resources worldwide. By placing centers in strategic talent hubs abroad, companies can significantly reduce labor costs without sacrificing quality.

GCCs provide access to a wide and diverse talent pool that organizations cannot reach by operating in just one location. For instance, by setting up GCCs in India, leading companies can tap into the country’s growing professional workforce and elite graduates from top engineering schools like the IITs.

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The sheer scale and quality of specialized resources in software development, quantitative analytics, and digital business concentrated in Indian talent hubs allows GCCs to achieve capabilities impossible within domestic limits alone. Financial giant Goldman Sachs has invested heavily in large India GCCs to enhance a wide range of functions, from algorithmic trading systems to predictive client data tools, surpassing the capabilities currently available through Wall Street resources.

The introduction of cultural diversity, regional insights, and fresh perspectives in Indian GCCs fosters an innovation ecosystem that is often missing in US-centric teams. This environment allows solutions to be developed with a deep understanding of the unique needs and technological limitations of developing markets, leading to disruptive products that are then exported globally. For example, Lowe’s Bangalore GCC is at the forefront of innovating with VR and AR to create enhanced customer design experiences, taking advantage of India’s leadership in immersive technologies.

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So, whether aiming for cost-effective scaling of specialized operational skills or seeking a boost in innovation through diversity, India’s talent pool presents transformative opportunities for GCCs.

Centralization of Operations

GCCs offer significant advantages by consolidating operations that were once scattered into a single, unified hub. This approach removes the inefficiencies and duplications common in fragmented operations.

GCCs ensure quality control across different locations by standardizing systems and streamlining processes. They gather expert talent into Centers of Excellence, avoiding the fragmentation and duplication of efforts. Corporate goals are effectively translated into coordinated initiatives across all markets with the whole capability center operating smoothly as a global extension of the headquarters.

Scalability and Flexibility

The ability to quickly scale operations and adjust strategies is crucial for competitiveness in today’s rapidly evolving global business landscape. Leading companies have found that GCCs provide a versatile structure that allows them to respond to changing market demands and seize growth opportunities around the world swiftly.

A Global Healthcare organization recently set up a GCC in India. Initially dependent on an outsourcing partner, the Healthcare giant faced uncertainty when the partner was acquired, risking a shift to more generic services. With Zinnov’s help, the company moved to an in-house model, enhancing innovation and personalization. This shift not only maintained operations but also opened growth avenues, showing GCCs’ importance for flexibility and scalability in the global market.

The real question shouldn’t be WHY but HOW to set up a GCC for success

As businesses navigate the strategic crossroads of globalization, Global Capability Centers (GCCs) emerge as not just an option but a critical component of a successful global strategy.

Next time your leaders discuss entering global markets, think about using a Global Capability Center (GCC). A well-managed GCC provides benefits like unified processes, more innovation, and better control, helping with faster worldwide growth beyond regional limits. For companies mainly operating domestically, considering a global excellence center could be the quickest way to speed up expansion.

If you are looking to set up a GCC and set it up for scale from day 1, we can help! Speak to our consultants today by filling the contact form below.

  • Captive Centers
  • Centers of Excellence
  • Cost optimization
  • gcc ecosystem
  • Global Capability Centers
  • Global talent
  • Setting up Global Capability Centers
Nitika Goel, Chief Marketing Officer, Zinnov
Sachit Bhat, Associate, Zinnov

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