How Tier-II and III Cities Are Driving GCC Expansion in India

Read about how Tier-II & III cities are driving GCC growth in India through cost advantages, government support, and the Hub-and-One model, reshaping economic landscapes.

The Global Capacity Centres in India have gone through a drastic growth spurt and are no longer just a part of Tier-I cities like Mumbai, Bengaluru, Delhi and Hyderabad. They are rapidly looking towards Tier-II and III cities, and the shift is propelled by a combination of economic, social, and technological factors that make smaller cities viable and attractive for multinational companies looking to base their GCCs here.

Read on to know all about the reasons behind the GCC growth in Tier 2 and 3 cities and its impact on the country’s overall economic and technological landscape.

The rise of GCCs in up-and-coming cities

According to an EY study, the GCC market in India is projected to reach $100-110 billion by 2030, with employment potentially increasing to 2.8 million.

Global Capability Centres are mainly extended operating centres of multinational organisations. These centres are responsible for taking care of different functions of an organisation, such as finance, IT services, analytics, research and development, etc. Initially, the GCCs started strong at all the tech hubs in India, like Mumbai, Bengaluru, Hyderabad, etc. But what happens when all these cities reach their saturation point?

This is where the need for focusing on the GCC growth in small cities came into the picture. The big cities saw a level of saturation in the infrastructure and talent force. Professionals from other cities started migrating to these major urban centres for job opportunities, which resulted in higher unemployment and an increased rate of competition for the same job position. This is when organisations realised that they needed to tap into the potential of tier II and III cities and open GCCs there.

Also read: Why Global Capability Centres Are Thriving in India

This initiative drove businesses to seek locations where talent of comparable quality was available at costs by almost 40-60% lower, and the employee retention was noted to be higher. These cities also proved to be untapped gold mines of real estate and infrastructure development, which decreased the possibility of migration and therefore increased the quality of life of people living in the city.

According to Nasscom’s India GCC Landscape Report, the total number of Global Capability Centres (GCCs) has increased to over 1,700 in FY2024, and Indian GCCs are estimated to generate $64.6 billion in revenue and employ more than 1.9 million individuals as of FY2024.

Government support for these initiatives

The Indian government actively fosters such ambitious projects because such initiatives drive the economic growth of these small cities and strengthen the overall position of the country in the global economy. They offer subsidies and schemes for conglomerates that want to open GCCs in these cities, along with lucrative incentive programs that offer companies tax breaks and streamlined regulatory processes to fast-track everything.

Also Read: How GCCs in India Are Revolutionising Innovation Across Industries

The GCC expansion with the help of the hub-and-one model

Many Global Capability Centres (GCCs) are adopting the Hub-and-One model to effectively decentralise and leverage the strengths of different locations. This involves establishing a primary hub in a Tier-I city, which serves as the strategic and managerial core, focusing on innovation, strategic planning, and complex problem-solving tasks. The operational units are then opened in Tier II and III cities where the workforce manages functions like customer service, analytics and human resource tasks.

This model enables GCCs to balance the strategic advantages of Tier-I cities with the cost and talent advantages of smaller cities. Strategically, it offers several benefits: it mitigates risks by diversifying locations, thus allowing companies to handle regional risks like political instability or localised economic downturns. It also provides scalability, offering flexibility to expand operations quickly and efficiently across a broader geographic area while optimising resource allocation.

GCCs and coworking spaces

The presence of GCCs has a huge impact on the opening of coworking spaces in these regions. With the expansion of companies in small cities, there is also an increasing demand for flexible, dynamic work environments that cater to a diverse workforce. It also drives more businesses and startups to these areas, enhancing the ecosystem for coworking spaces.

Also Read: Top 10 GCC Companies Transforming India’s Business Landscape

FAQs

1. What are GCCs, and why are they expanding in Tier-II and III cities?

GCCs or Global Capability Centres are operational units set up by multinational companies to focus on specific business functions. They are expanding in Tier-II and III cities to leverage lower operational costs, abundant talent, government incentives, and improved quality of life in these regions.

2. How do government initiatives support GCC growth in smaller cities?

Government initiatives support GCC expansion through infrastructure development under the Smart Cities Mission, offering financial incentives and providing an easier regulatory environment aimed at making these cities attractive for business investments.

3. How does the Hub-and-One model benefit GCC operations?

The model allows strategic operations to remain in Tier-I cities while establishing support functions in Tier-II and III cities, optimising for cost and efficiency. It aids in risk mitigation, scalability, and specialised operations.

4. What challenges might GCCs face in these emerging cities?

Challenges include infrastructural limitations, initial setup hurdles, and potential skill gaps for specialised roles. However, continuous government and educational initiatives are addressing these issues effectively.