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Tesco to Victoria's Secret India's booming back-offices worry about rising trade barriers.txt
Tesco to Victoria's Secret: India's booming back-offices worry about rising trade barriers1 day agoShareSaveNikhil InamdarBBC News,loteria federal 19/06/19 Mumbai andDevina GuptaBBC News, DelhiShareSaveGetty ImagesIndia's GCCs employ two million people and bring in $65bn in annual revenueTwenty years ago when British retail giant Tesco entered India with a back-office, its team largely performed IT and finance functions to support the firm's operations in the UK.Two decades later, the retailer's sprawling campus in Bengaluru city - often called India's Silicon Valley - has almost entirely transformed in both scale and scope.It is a "strategic engine" that delivers some of the most complex tasks - from due diligence of vendors to data analytics that predict demand, better inventory planning and forecasting customer behaviour, says Sumit Mitra, CEO of Tesco Business Solutions Even the store design of a neighbourhood Tesco Express or super store in the UK now happens thousands of miles away in India.Tesco's expansion reflects the spectacular boom in India's Global Capability Centres (GCCs) - offshore back-office units of global multinational companies that started as captive call centres or help desk outposts, but now perform a plethora of strategic tasks from IT to finance, design, research and development, and even AI-led automation. While global trade protectionism could derail some of this growth, the GCCs have become a major force to reckon with. They provide not just "labour arbitrage" but also "intellectual arbitrage", Mr Mitra told the BBC in an email interview, when asked why Tesco is expanding its footprint. To put it simply, it's the abundance of talent available across domains and not just cost savings that is driving this boom.Getty ImagesTesco's GCC in India even designs the store layout of its supermarketsDhruva Advisors, which helps GCCs navigate the complex task of global tax compliance, calls these outposts "digital twins" of parent companies, situated across the oceans.Everyone from Google to Goldman Sachs and the lingerie brand Victoria's Secret now has a GCC in India. The number of multinationals that operate these centres has ballooned from 700 in 2010 to more than 1,700 as of last year. They employ two million people and bring in $65bn in annual revenue.While challenges loom - with trade barriers going up globally and a strong backlash against outsourcing to countries like India - the future appears heady: consulting firm EY expects the market for GCCs to top $100bn by 2030 as the sector grows at a compounded rate of 14%.So what's powering this growth?Besides its growing base of engineers, designers and digitally skilled workers, India is now among the fastest-growing artificial intelligence (AI) talent hubs in the world. The depth of digital, data, AI, and engineering expertise all coalescing at one location makes India highly sought after, say industry leaders."You could hire these people in the US. But the availability of talent in one location made Bengaluru very attractive for us and we could build a big footprint quickly," said Dan Schiappa of Arctic Wolf, an American cybersecurity company which opened its first GCC in Bengaluru and in Noida - a suburb of Delhi - last year.Couple the availability of a tech-savvy workforce with supportive government policies, including individual state-level support - and new GCCs are springing up beyond the metro cities in tier-II towns as well.Smaller towns offer cheaper talent, and also cheaper real estate, prompting several firms like French spirits maker Pernod Ricard to look beyond the metros. It has opened a GCC in Nashik, a city in Maharashtra state.The trend has sparked a property boom."Around 31% of overall office leasing space demand in India last year came from GCCs, and it is growing," Anuj Puri of ANAROCK, a property consultancy, told the BBC.Getty ImagesFrom Goldman Sachs to the lingerie brand Victoria's Secret, there are 1,700 multinationals operating GCCs in IndiaSo what's next for the industry?The already fast-growing sector could now be at an inflection point, says Lalit Ahuja whose company ANSR has set up one out of every 10 GCCs in India.For many companies - like the US supermarket chain Target - their India centres are now "almost second headquarters" with their top bosses working from there, driving business outcomes, creating additional revenue streams and turning the operation from a "cost" to a "profit" centre, Mr Ahuja said.It wouldn't be entirely outlandish to imagine a future, Mr Ahuja says, where companies "re-domicile" and move their headquarters to India, given how central digital adoption has become for enterprises that have not traditionally engaged with technology.But the next leap will not be easy. India will need to resolve a range of trade barriers - from ease of doing business, to onerous compliance, complex taxation laws and data protection issues.Breakneck GCC expansion has also outpaced infrastructure growth in cities - which needs an urgent fix. As a latest Financial Times report found, most GCCs in Bengaluru were operating without piped water - buying tankers to keep their office taps running.A bigger factor that could put future potential to test is also the current geopolitical environment. There's growing anxiety about what would happen if the US extends its tariffs to areas such as IT and outsourcing. US lawmakers have even proposed a bill to slap taxes on companies outsourcing jobs overseas to countries like India. While India's federal IT minister has said the country is constantly engaging with governments in the US, Europe and elsewhere to safeguard the industry, "disruptive nationalist trends could come in the way" of future growth, Mr Ahuja says, alluding to the growing backlash against off-shoring of jobs and immigration.Unlike outsourcing which was essentially a story of support functions being contracted to India, GCCs also have an "implied sovereignty angle", says Mr Ahuja.These centres are redefining the narrative of who is in control and "where future products and services are being delivered from"."That can be a threatening story to some in the current environment".Follow BBC News India on Instagram, YouTube, X and Facebook.OutsourcingTescoIndiaInformation technologyTechnology
