Currently, the Global In-house Center (GIC) model accounts for 25% (US$ 38-42 billion) of the offshore services market.
Initially, GICs were established to access a wider talent pool, but over decades GICs have brought value-added benefits to the ecosystem. Therefore, it is no surprise that global businesses are now investing in building strong, well-positioned GICs in regions best served for massive growth.
In this blog post, I will highlight the top five reasons why the GIC movement is gaining impetus and becoming an integral part of an organization’s overall value chain.
- Lower Roadblocks to Entry
Historically, building a Global In-house Center or captive has been daunting due to the substantial hurdles to entry. It involves considerable risks to move into a new country where you lack presence, particularly in a developing nation such as India, Eastern Europe, or South America. It was difficult for organizations to master the many complexities related to local real estate regulations, business licensing, hiring laws, identifying quality leadership, and hiring top talent.
As the services market matured in developing countries, the roadblocks to setting up a GIC vastly diminished. The real estate market is now large and fluid, so accommodations are widely available. The rules and regulations have become codified. Hence, it has become easier for organizations to set up governance structures and maintain regulatory compliance. There is a reserve of good leadership talent to hire with an experienced set of managers to take charge. There are talent acquisition processes that make hiring a large, trained workforce simple. So, the hurdles to GIC entry have dropped dramatically.
- Employee Talent Hub
Developing countries have a large pool of highly qualified talent. GICs are attracting superior talent by combining lucrative compensation packages and the perks of working for well-established US or European organizations. By providing the talented workforce with the prospect of developing deep industry and company-specific knowledge, Global In-house Centers are engaging in more challenging and innovative work, adding to an organization’s value proposition.
- Cost Savings
Another aspect now leading to the massive growth of Global In-house Centers (GIC) is the cost savings of managing these service entities.
The favorable cost arbitration between labor rates in the USA or Europe and labor rates for similarly qualified talent in developing countries can provide considerable multi-year cost savings to large enterprises. Moreover, GICs also compare favourably to outsourcing from a cost standpoint. Clients often face a situation known as outsourcing bloat, and they are blissfully unaware of it. They not only pay for too many FTEs, or too much per FTE, but the cost associated with managing offshore outsourcing relationships is much higher than anticipated.
However, now that entry roadblocks for Global In-house Centers have dropped with the best practices for their setup widely available, the costs of operating a GIC have become considerably lower than third-party vendor services. Before, buying services was cost-effective. Now, it’s cheaper to own a GIC. So, the economics have tilted, favoring the rapid growth of GICs in the services market.
- Growth of Established GICs
The businesses that established captives or Global-in house Centers in the past have matured over the decades. These GICs are now building capabilities around more business processes. Managed by highly-capable talent and leadership teams in place, many existing captives have started bringing work over third-party vendors.
- Digital Revolution
The final reason is the digital revolution. Captives or Global In-house Centers have been around for a long time, even when they were more expensive than using third-party vendor services. However, companies have always felt uncomfortable having an outside party work for them.
With the digital revolution as a motivating factor, companies are establishing GICs for digital projects as they believe third-party services do not align with clients’ digital objectives. Besides, due to payment on an FTE basis, it is not favorable for third-party vendors to rotate to upcoming technologies, automate and reduce their revenue. Moreover, clients often become frustrated with the slowness of third-party service providers while incorporating digital technologies into operation. Thus, the GIC movement is gaining rapid momentum as more and more clients believe they can transition into the digital world faster by themselves and manage digital platforms in-house or through a GIC more efficiently than third parties.
The Ground is Ripe for Global In-house Centers (GICs)
Lower roadblocks to entry, a global talent hub, the expansion of established GICs, sustained cost excellence, and rotating to digital platforms for meeting client objectives are accelerating the rapid growth of Global In-house Centers (GICs) in the services market.
With so many global players getting into the GIC game, organizations are searching for the perfect formula to set up a successful GIC. At ANSR, we address unique challenges related to initial GIC setup and continuing operations to help global leaders beat the competition by expanding their GIC scope. Together, we provide a fertile ground motivating organizations to shift work from third-party services providers into their existing GICs or establish a new one.