India’s back-office boom sparks ‘war’ for IT service workers

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International companies are rushing to set up their own back offices in India as they seek to develop technology in house, sparking a “huge war for talent” with traditional IT service providers such as Infosys and TCS, said industry experts.

Companies offering data, cloud and analytics support have made India a software services export powerhouse. But multinationals are opening a growing number of their own back offices, called global capability centres, to develop in-house technology, including cyber security systems and artificial intelligence.

These centres, which can also handle accounting and human resources work, are cheaper to operate in India, where labour costs are lower. Unlike outsourced IT consultants, GCCs are managed by the parent company.

Work that “was core, which was never outsourced before, is getting offshored to GCCs in India”, said K S Viswanathan, vice-president for industry initiatives at Nasscom, India’s IT industry trade body.

The rise of GCCs has caused a “huge war for talent”, said Viswanathan.

Global capability centres have proliferated and expanded at a rate of 11 per cent a year since 2015 to become a $46bn industry employing 1.7mn people in India, according to Nasscom. Real estate group Colliers estimates the number of GCCs in India will double from 1,026 in 2015 to 2,000 by 2026.

Global banks are rapidly expanding their Indian offices, with about a third of their back offices located in the southern tech hub of Bengaluru. JPMorgan Chase opened its first Indian global capability centre in 2002 with 75 people. It now employs more than 50,000 staff across facilities in five cities. Goldman Sachs and Wells Fargo have also been expanding their operations.

A study of 80 global capability centres by Xpheno, an Indian specialist staffing company, this year found that a third of the workers were hired from IT service providers. Using “higher compensation packages, GCCs have been wooing talent from the IT services cohort”, said Kamal Karanth, Xpheno co-founder.

TCS and Infosys did not respond to a request for comment.

Kumar Rakesh, a technology analyst at BNP Paribas, said technological innovation and economic pressure were creating demand for global capability centres.

“One of the drivers for this has been any major tech stack upgrade — like the transition to cloud computing — and the companies wanting to keep some of the core work in house,” he said. That core work includes sensitive projects related to intellectual property and customer data.

The other source of demand is “cost-cutting pressure in projects that cannot be outsourced, like core product engineering”, Rakesh said, adding “both of these drivers appear to be in play currently”.

Rakesh said he did not see the growth of global capability centres as a “structural risk” to the outsourcers. “The value add of GCCs and outsourcing companies are very different, and they have coexisted for the past two decades.”

Companies “cannot hire the right talent in their own countries, therefore India becomes an attractive destination”, said Lalit Ahuja, founder and chief executive officer of ANSR, a company that sets up global capability centres, including a 30,000-person unit for American bank Wells Fargo.

Ahuja said employees at the back offices earn average annual salaries ranging from $15,000 for fulfilling corporate functions such as human resources to up to $45,000 for data scientists.

ANSR, which Ahuja plans to list on Nasdaq next year, has developed a back-office subscription model for multinational companies, costing them roughly $1,300 a month per employee. The employees work for the company, while the physical office and amenities are provided through the subscription.