Investment in technology and automation of processes are the top priorities for CFOs in Indian GICs
Bangalore continues to be a more expensive city for R&D compared to Pune and Hyderabad
Leading Management Consulting firm, Zinnov, today released its annual study evaluating the Operations Costs at India Global In-house centres (GICs), titled the “India Global In-house Center (GIC) Operations Cost Study 2016”.
The objective of this study, exclusively for R&D GICs in India, is to benchmark their operations costs relative to their peers and understand operations trends as well as cost optimization best practices in GICs. In 2016, 45+ GICs participated from Software, Semiconductor and Engineering Services Industries. Operations costs is measured per full-time employee (FTE) across five key cost dimensions – People, Infrastructure, Travel, Vendor and Regulatory Cost.
An analysis of the Global Engineering and R&D footprint of top 10 companies across 13 industry verticals, indicates clearly that the value proposition is moving eastwards with India and China becoming top destinations for R&D in addition to the West Coast. And this trend is likely to only continue in the near term. With an overall GIC Globalization market of USD 34 Billion in Emerging Economies in 2016, India currently accounts for ~40% (USD 13.4 Billion) of the Market, while China stands at USD 10.2 Billion.
Speaking about the findings of the study, Anand Subramaniam, Engagement Manager & Delivery Head (G.A.P), Zinnov, said, “With currently 940+ MNCs operating in India, employing an R&D workforce of 363,000; India’s GIC Globalization Market will be more than USD 22Billion by 2020. GICs in India have undergone a radical transformation in the last few years, thereby breaking away from traditional shackles of being a ‘low cost centre’ to being ‘strategically relevant’ to the parent while keeping cost range-bound”.
The study brought to light that the Annual Average GIC Operations Cost/FTE has increased in INR Terms by 4.1%, however India GICs continue to showcase cost arbitrage to HQ in dollar value due to the depreciating INR value compared to USD. In India, Bangalore, Pune and Hyderabad are the most preferred destinations for GIC operations. Bangalore continues to be a more expensive city for R&D compared to Pune and Hyderabad, with the average overall cost per FTE growing by 5% compared to the previous year.
Investment in technology and automation of processes are the top priorities for CFOs in Indian GICs. GICs are standardizing data sources & processes to ensure high quality insights and “single source of truth” across the enterprise. In addition, GICs are automating transactional processes such as e-invoicing, payroll & vendor payments by leveraging digital technologies.
People cost continues to be a major cost component for GICs with costs increasing at a CAGR of ~9%. It also contributes over 65% to the overall cost due to increasing focus of GICs on employee retention and competency building initiatives. The Semiconductor vertical has the highest annual average people cost per FTE, a 40% differential compared to the Software vertical. GICs are undertaking significant investments on infrastructure and global project travel to increase capability and center maturity while leveraging vendors for non-core activities. Close to 80% of the Infrastructure Cost in GICs is spent on Facilities and IT & Networking. Tech parks have a significant cost advantage over private campuses with costs being lower by ~16%. Transfer pricing will continue to be a point of contention for most GICs. New regulatory changes such as GST & BEPS can lead to a surge in regulatory pricing.
The next wave of transformation for CFOs in GICs will be to funnel innovation while enabling a larger contribution to the top-line and bottom-line from India. CFOs will play a larger role in M&A and capitalize on the Start-up ecosystem in India. CFOs in GICs will also front-end business intelligence in the enterprise through new age technologies like ML, Big Data & analytics and Cloud Computing.