Can a Mid-Size Company Benefit from Setting Up a Global Capability Center, or Does It Only Work for Enterprises?

Mid-sized organizations do not have to establish a wholly owned business enterprise in the new country. Many organizational structures today give organizations the opportunity to conduct their Global Capability Center operations without bearing the expenses of setting up a typical business organization.

Each function transitioned to the Global Capability Center should have a clearly defined owner within the parent organization. This would include the owner from functions like technology, finance, customer service, data, and compliance. The clear assignment of owners will enhance performance and coordination for the onshore-offshore teams.

It has been argued that mid-sized companies have the ability to establish a global capability center in a manner more efficient compared to big organizations in certain aspects. The explanation for this is that big organizations will introduce a lot of bureaucracy to the process of setting up their off-shore centers. This results in long decision-making processes and complicated change management programs.

Organizational structure in a mid-sized firm is relatively simple. There are fewer functions of the center, the management takes a more active role, and decision-making is quicker. As a consequence, there will be a closer working association between the head office and the center, thereby ensuring higher quality output and quick turnaround.

A number of mid-sized organizations that have set up their own global service centers in countries such as India, Poland, and the Philippines claim that they integrated their centers into their business processes and started providing services to their customers within 18 months of setting up the centers.

These two terms are sometimes used interchangeably, but they describe different things in practice. “Shared Services Center” usually refers to the centralization of back-office activities, like accounting, HR management, and purchasing. Its main purpose is cost reduction and process standardization.

A Global Capability Center takes it even further by developing true capabilities for the offshoring site in areas such as product development, analytics, engineering, and domain expertise. When it comes to a mid-size firm, this difference is significant since both strategies necessitate distinct managerial skills and yield different results.

A mid-size company that needs to reduce the cost of transactional work is better served by a shared services center model. A company that needs to build a function it cannot hire for at home, or that wants to scale a capability faster than the local talent market allows, is better served by the Global Capability Center approach.

Both are accessible at a mid-market scale. The choice depends on what the company is trying to achieve.

In cases where medium-sized organizations feel that they have too much to lose by trying out the GCC structure compared to a big organization, they might shy away from such a venture. In truth, both ventures face risks, but they are different rather than greater.

A big organization can cope better with the loss resulting from the failure of GCC structure implementation. A medium-sized company is vulnerable to bad GCC structures. This explains why medium-sized companies should take time to choose an appropriate structure.

Big companies generally have the capacity to tolerate high investments in the beginning and some level of variability in operations. Google, Microsoft, JPMorgan Chase, and HSBC have created Global Capability Centers that require substantial capital expenditures, usually costing around USD 10 to 20 million or even more. These companies can absorb performance fluctuations, reallocate budgets, and modify operating scope without compromising overall business stability because their annual revenue sizes range from tens of billions to over USD 500 billion.

Most mid-sized firms follow a phased approach to minimize this risk. Organizations like Freshworks and Chargebee have established offshore units in countries like India, which have a specific scope in terms of product development, customer management, and support services. The expansion of such arrangements takes place progressively depending on the performance.

Those organizations adopting the above process, applying the model in real terms, defining the scope of their center properly, and managing their relationship properly all report success with the model. Firms that apply it on the basis of its being a cost consideration without the appropriate governance structures always experience problems.

The first step for a mid-size business looking to establish a GCC will be to identify which internal functions need analysis, including the scope of work involved, skill sets required, and availability of offshore resources at competitive costs. The analysis should yield two or three functional areas that can benefit from GCC implementation.

By focusing on those areas initially, adopting a lower-risk approach like the captive lite model or build-operate-transfer strategy, and scaling up after successful deployment of the GCC, mid-size businesses will have a framework for implementing their GCC initiatives without having to assume full enterprise risks upfront.

The model works at a mid-market scale. The conditions for success are the same as at enterprise scale. What is different is the entry point.