The Rise of Local Capability Centers (LCCs) in India

As businesses evolve, so do their operational models. Over the years, Global Capability Centers (GCCs) have become critical to the functioning of multinational corporations (MNCs), allowing them to centralize essential business functions like IT, R&D, analytics, and more, turning them from back-office operation centers to the hubs of innovation and growth. India has emerged as a global leader in hosting GCCs, supporting both operational efficiency and innovation, with its talented STEM graduates, R&D infrastructure and favorable government policies.

However, a new trend has started to gain momentum—the rise of Local Capability Centers (LCCs). These are Indian companies replicating the GCC model for their own centralized operations within the country. This blog explores the GCC ecosystem, the emergence of LCCs, their benefits, and the challenges organizations face, offering actionable insights for businesses considering this model.

GCCs are centralized hubs where companies consolidate various critical operations to improve efficiency, reduce costs, and foster innovation. Initially designed for cost-saving functions, these centers have matured into strategic arms of businesses.

Scope of Operations in GCCs:

• • IT Services and Infrastructure: Managing software development, cloud solutions, and cybersecurity.
  • R&D: Innovating products and solutions in industries like healthcare, finance, and manufacturing.
  • Data Analytics: Leveraging AI and machine learning for business insights.
  • Back-office Functions: Handling finance, HR, and customer support services.

Why India is a Hub for GCCs:

• • Cost Efficiency: Lower operational costs compared to developed nations.
  • Skilled Talent Pool: Availability of highly skilled professionals in engineering, technology, and analytics.
  • Time Zone Advantage: India’s geographical location allows businesses to provide 24/7 services globally.
  • Proven Track Record: Over two decades of successful operations for Fortune 500 companies like Microsoft, GE, and HSBC​.

Inspired by the success of GCCs, Indian companies are now establishing LCCs to centralize their domestic and international operations. These centers cater to various industries, including pharmaceuticals, manufacturing, IT, and banking.

Examples of Indian Firms with LCCs:

1. 1. Adani Group: Adani GCC Pvt Ltd in Ahmedabad provides business transformation, IT services, and back-office support.
   2. Reliance Industries: Focuses on research and innovation in areas like renewable energy and digital transformation.
   3. Dr. Reddy’s Laboratories: Operates a biologics-focused center in Hyderabad, enhancing its pharmaceutical innovation pipeline.

Bank of Baroda: Baroda Sun Technologies drives the bank’s digital and technological transformation​.

For decision-makers considering an LCC model, the benefits are substantial and multifaceted:

1. Strategic Cost Management

Operating costs in Tier-II and Tier-III cities are significantly lower compared to metros, reducing overhead expenses. For instance, locations like Gujarat’s GIFT City offer favorable government policies and tax incentives.

2. Access to Untapped Talent

While metros face high attrition rates and fierce competition, smaller cities provide access to skilled professionals who are more likely to stay, ensuring stability.

3. Operational Efficiency and Scalability

Centralizing operations in an LCC minimizes duplication of processes across business units, fostering greater efficiency and scalability. Decision-makers can streamline workflows, integrate technologies, and ensure consistency across functions.

4. Fostering Innovation

LCCs can focus on advanced R&D, enabling companies to stay competitive in the global market. Areas like artificial intelligence, machine learning, and blockchain benefit from dedicated talent and infrastructure.

5. Strengthening Data Security

For industries like banking and healthcare, where compliance and security are paramount, LCCs allow companies to build tailored data security frameworks, reducing dependency on third-party vendors.

6. Aligning with ESG Goals

Centralizing operations in smaller cities contributes to local economic growth, reducing urban congestion and aligning with sustainability goals.

For decision-makers considering an LCC model, the benefits are substantial and multifaceted:

1. Strategic Cost Management

Operating costs in Tier-II and Tier-III cities are significantly lower compared to metros, reducing overhead expenses. For instance, locations like Gujarat’s GIFT City offer favorable government policies and tax incentives.

2. Access to Untapped Talent

While metros face high attrition rates and fierce competition, smaller cities provide access to skilled professionals who are more likely to stay, ensuring stability.

3. Operational Efficiency and Scalability

Centralizing operations in an LCC minimizes duplication of processes across business units, fostering greater efficiency and scalability. Decision-makers can streamline workflows, integrate technologies, and ensure consistency across functions.

4. Fostering Innovation

LCCs can focus on advanced R&D, enabling companies to stay competitive in the global market. Areas like artificial intelligence, machine learning, and blockchain benefit from dedicated talent and infrastructure.

5. Strengthening Data Security

For industries like banking and healthcare, where compliance and security are paramount, LCCs allow companies to build tailored data security frameworks, reducing dependency on third-party vendors.

6. Aligning with ESG Goals

Centralizing operations in smaller cities contributes to local economic growth, reducing urban congestion and aligning with sustainability goals.

To maximize the potential of LCCs, business leaders should:

1. 1. Conduct Feasibility Studies: Assess costs, benefits, and risks for different locations.
   2. Collaborate with Local Governments: Leverage tax incentives, infrastructure grants, and other benefits offered by state governments.
   3. Invest in Technology: Equip LCCs with the latest tools for collaboration, cybersecurity, and automation.
   4. Develop a Talent Strategy: Partner with local universities for talent development, ensuring a steady pipeline of skilled professionals.
   5. Focus on Sustainability: Incorporate green practices into the center’s design and operations to align with long-term ESG goals.

As industries become more technology-driven, the demand for centralized operations that balance cost, efficiency, and innovation will grow. LCCs allow Indian companies to build strategic hubs for domestic and international growth, transforming them into global leaders.

For decision-makers, the choice to establish an LCC is no longer just about cost—it’s about creating a competitive advantage, fostering innovation, and positioning the company for long-term success.

If you’re considering setting up an LCC, now is the time to act. With the right strategy and vision, your organization can unlock unprecedented growth opportunities.

Contact Us to get expert guidance in setting up your operations.