The Peepal GIC Report for 2018 counted approximately 1,100 GICs in India employing more than 800,000 individuals and generating approximately $23 billion in revenue. According to Jochelle Mendonca in The Economic Times on April 14, 2020, over 75 global companies set up new centers or expanded their offices in India [in 2019] as they tapped local talent with skills in newer areas such as digital and analytics. GICs have been growing at a faster pace than the broader outsourcing industry for many years, but COVID-19 is forcing organizations to re-evaluate their sourcing strategies.

We reached out to Sachin Kulkarni1 and Vinayak Sastri2 at IBM to seek their insights into the near and long-term implications of the global pandemic on GICs. IBM provides a wide range of service offerings and engagement models for clients with GICs and is working with them to meet the challenges of COVID-19.3 As reflected in their responses below, Sachin and Vinayak view the global pandemic as a Black Swan event that will have a major impact on GICs.

1. What steps have GICs been taking to manage the impact of the pandemic?

Sachin and Vinayak have seen the following steps taken to ensure business continuity, data security and employee safety:

Infrastructure

Security

People

2. How will GICs reopen facilities as lockdown restrictions are lifted?

Sachin and Vinayak have identified the following:

3. How will GICs will change over time and will organizations prefer certain locations?

Sachin and Vinayak anticipate the following areas of focus:

4. Will the pandemic change perceptions about the desirability of GICs vs. outsourcing?

Sachin and Vinayak place organizations into one of three categories and anticipate that each will be revisiting its insourcing, co-sourcing and outsourcing strategy:

For each category of organization, final decisions will involve an evaluation of sourcing options to balance cost, risk, business continuity, security, agility and access to global talent and capabilities; established GICs may be evaluated differently than relatively new GICs.

5. How will the pandemic affect the ability of GICs to retain and attract top talent?

Sachin and Vinayak make the following observations:

6. What long-term impacts do you think the pandemic will have on GICs?

Sachin and Vinayak predict different impacts on different types of organizations:

First moversorganizations with a culture of working remotely and investing in collaboration tools and the Cloud, including seamless connectivity and 24 x 7 availability and help desk support, which have communicated proactively with their employees and customers

Middle-of-the-packersorganizations with an on-premises working culture (but with some experience with remote employees) and limited investments in collaboration tools and the cloud, which took longer to communicate with their employees and customers and required more help from partners

Late Adoptersorganizations with little (if any) experience with remote employees and negligible investments in collaboration tools and the cloud, which took much longer to address challenges and now depend heavily on vendors (and their infrastructure and capabilities)

Overall, organizations will re-evaluate sourcing options to balance risk, access to global capability, cost, continuity of business, security, and business agility.

According to Sachin and Vinayak, when the dust settles, agile and resilient GICs could be the transformation engine for the organization in digital, analytics and other critical areas.

Pillsbury Observations:

The setting up of GICs involves thoughtful execution and planning to address many legal and compliance considerations, including international trade, corporate, tax, commercial, HR, real estate and operational matters under the laws applicable to both the organization and the GIC.

These considerations will also be critical when GICs are divested or transformed through vendor partnerships as a result of the pandemic. Experienced in-house, international and local counsel will need to work closely together to avoid costly missteps and to implement a legal strategy that achieves the business objectives of the organization.

1 Sachin is a Managing Partner and Global Transformation Centers (Captives) Leader at IBM.

2 Vinayak is an Associate Partner and Shared Services Transformation Leader at IBM.

3 IBMs Global Transformation Center offerings include the following engagement models: Design-Build-Operate-Transfer and Virtual Captive (to accelerate clients time-to-value to build new GICs); and Evolve and Reinvent (to transform existing in-house centers into effective GICs). Please note that the responses from Sachin and Vinayak represent their individual views only.

More:

COVID-19: Transforming Offshore Captives/Global Innovation Centers | Pillsbury Winthrop Shaw Pittman LLP - JD Supra