Building operations in India
Outsourcing and Global Capability Centers (GCCs): Powerful Frameworks for Accessing Talent and Scaling Global Capabilities.
Outsourcing of Services and GCC Setup
Businesses expanding into India often evaluate different operational models to support their global operations. Two of the most common approaches are outsourcing services to third-party providers and establishing GCCs.
A GCC is a captive unit set up by a multinational company to perform strategic, operational, or support functions for the global organization. These centers often provide services such as technology development, product engineering, research and development, finance, analytics, human resources support, and other specialized functions.
Outsourcing and GCC Setup — Options
Outsourcing and GCC Setup
│
├── 1. Outsourcing of services
│
└── 2. GCC setup
│
├── 2(a) Without assistance of a GCC service provider
│
└── 2(b) With assistance of a GCC service provider
│
├── 2(b)(a) GCC setup via client’s Indian subsidiary
│
└── 2(b)(b) Build–Operate–Transfer (BOT) model
│
├── Model 1 (conventional transition model)
└── Model 2 (special purpose vehicle)
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Outsourcing and GCC Setup
- 1. Outsourcing of services
-
2. GCC setup
- 2(a) Without assistance of a GCC service provider
-
2(b) With assistance of a GCC service provider
- 2(b)(a) GCC setup via client’s Indian subsidiary
-
2(b)(b) Build–Operate–Transfer (BOT) model
- Model 1 (conventional transition model)
- Model 2 (special purpose vehicle)
Outsourcing of Services
Best suited for organisations seeking to quickly outsource specific functions in order to optimize costs and address talent constraints without setting up any entity in India.
How it works
- Pure contractual arrangement. The Foreign client and India service providers enter into a contract for provision of services.
- The foreign client outsources the work (either one-time or recurring) to the service provider.
- The service provider delivers the services in accordance with the client’s specifications and requirements.
- The service provider retains operational control over day-to-day execution, workforce management, and delivery of work.
- The client provides technical guidance, performance standards, and service specifications.
- The client makes payment against agreed service invoices.
Key Features
- Simple and straightforward contractual arrangement.
- Minimal capital investment and faster go-live timeline.
- No requirement to incorporate a local entity in India.
Key Considerations
- Limited operational and managerial control over the delivery team.
- Generally, more suitable for non-core or support functions.
- Intellectual property protection and data confidentiality can be areas of potential vulnerability.
For large volumes of work to be performed on a long-term or ongoing basis, such as back-office operations, clients should evaluate whether establishing a GCC would be more advantageous than outsourcing to a service provider.
GCC Setup Without Assistance of a GCC Service Provider
Best suited for organisations seeking full ownership, control, and long-term strategic integration from inception.
How it works
- The foreign company incorporates its own legal entity in India.
- The Indian entity hires key managerial and leadership personnel locally to drive the setup and operations.
- The Indian entity independently secures office space and establishes the required infrastructure.
- The Indian entity recruits and builds its team directly on its own payroll.
- All operational, administrative, and strategic functions are managed internally by the Indian entity.
- While the Indian entity does not appoint a dedicated GCC service provider, it engages local advisors and service providers, including legal and tax consultants, recruitment firms, real estate consultants, and facility management providers. In essence, the entity does not tie up with a single GCC service provider for a suite of services.
Key Features
- No dedicated GCC service provider; instead, the entity engages multiple service providers and consultants for GCC setup and ongoing operations.
- Flexibility to engage advisors and service providers as required.
- Direct management of employees, assets, and operational processes.
- Full ownership and operational control from day one.
Key Considerations
- Requires strong internal execution capability and local market understanding.
- Higher upfront investment in time and management bandwidth.
- Greater implementation responsibility.
- Ramp-up may be slower if the setup and execution are not managed effectively.
Assisted GCC setup via client’s Indian subsidiary
Best suited for organisations that seek full ownership from inception but want expert support to accelerate setup, navigate local market complexities, and scale efficiently.
How it works
- The client incorporates its own legal entity in India.
- The client appoints an experienced GCC service provider to support the setup and operations.
- The service provider works alongside the client to accelerate execution and mitigate local implementation challenges, including
- Strategic planning and operating model design
- Entity incorporation and regulatory compliance
- Identification and securing of office space and infrastructure setup
- Compensation structuring and workforce planning
- Talent acquisition and vendor identification
- Management of non-core operational activities
- All capital expenditure is undertaken directly by the client’s Indian entity
- Employees are hired directly onto the payroll of the client’s entity from day one.
The service provider typically supports operational stabilization and certain non-core functions enabling faster ramp-up and structured scaling.
Key Advantage
This model combines the benefits of direct ownership and control with the speed, local insight, and execution support of an experienced service partner, significantly reducing time-to-market and early-stage execution risk.
Build-Operate-Transfer (conventional transition model)
Best suited for companies that want to test the GCC model, including its setup and operational benefits in India, before committing to full ownership and long-term capital investment.
How it works
- The client enters into a structured contractual arrangement with an GCC service provider under a Build-Operate-Transfer (BOT) model.
- Pursuant to the agreement, the service provider builds and hires a dedicated team in India to deliver services exclusively to the client.
- The service provider typically uses a dedicated office space, infrastructure, and operational support during the operate phase.
- The team is employed and managed by the service provider for the duration of the contractual term.
- The client pays for services on either a cost-plus markup basis or a fixed fee per resource in accordance with agreed rate cards.
- Cost of assets are either built in the service fee or paid as additional.
- Upon completion of the agreed term (typically 3–5 years), the contractual arrangement provides the client with the option to transfer employees to its own Indian entity and acquire the related assets and infrastructure.
Key Challanges
- Limited direct control over the team during the operate phase.
- Intellectual property protection and data confidentiality can be areas of potential vulnerability.
- Potentially higher overall cost compared to a direct setup model.
- Complexity during the transfer and transition phase.
Transition Consideration
- Whether employees are newly hired or transferred with continuity of employment.
- Alignment of compensation structures, benefits, and service tenure.
- Applicability of transition or transfer fees.
- Regulatory, tax, and legal costs associated with implementing the transfer.
Build-Operate-Transfer (Special Purpose Vehicle-Based)
Certain GCC service providers now propose a modified BOT structure involving a Special Purpose Vehicle (SPV).
Before adopting such a structure, clients must undertake comprehensive legal, tax, and regulatory analysis across all relevant jurisdictions. Early-stage structuring decisions in this model can have long-term consequences that may not be readily reversible.
How it works
- The service provider establishes a Special Purpose Vehicle (SPV), often in a lower-tax or alternative jurisdiction.
- The SPV incorporates the local GCC operating entity in India.
- The GCC operating entity hires and builds the team delivering services to the client.
- The client receives services from the GCC operating entity under a structured service agreement.
- After an agreed period (typically 3–5 years), the client acquires the SPV and, indirectly, the GCC operating entity.
While this structure may appear streamlined and “transfer-ready,” offering an efficient pathway to future ownership, key structural complexities and challenges may arise and should be carefully analysed upfront.
Key Structural Complexities and Challenges
- Risk of acquiring an entity with embedded historical liabilities, including tax, regulatory, employment, and litigation exposures, due to limited visibility into or control over prior corporate governance decisions and legacy operational practices.
- Risk of potential tax claims for prior periods.
- Ongoing multi-jurisdictional compliance, reporting, and management costs.
- Branding or use of the client’s name during a period in which ownership remains with the service provider.
- Risk of structural lock-in that can trap clients in the arrangement, restricting operational flexibility and making exits complex, costly, or time-consuming.
Strategic Considerations
As a general principle, governance and ownership structures tend to function most effectively when they are transparent, proportionate, and operationally simple. Complexity introduced at inception can compound over time, both economically and administratively.
Careful evaluation, independent advisory input, and disciplined structuring are therefore essential before implementation.