GCCs are increasingly establishing a presence in Tier 2 and Tier 3 cities, leveraging heightened cost-efficiency with no compromise on quality

Key Takeaways:

• GCCs have found a new spot in India apart from metropolitan cities – Tier 2 and Tier 3 cities, mainly due to the economic benefits, government support, and access to untapped skilled talent pools. 
• No compromise on quality whatsoever even if GCCs are set up in Tier 2 and Tier 3 cities.
• An innovation-focused plan and ensuring the connectedness in today’s modern technology ecosystem has played a significant role in the growth of GCCs in Tier 2 and Tier 3 cities.
• Indore,  Coimbatore, Jaipur, Bhubaneswar, and Ahmedabad are making great inroads in the GCC industry.
•  Companies have to develop a fool-proof plan to set up their GCCs into non-metropolitan cities to gain a number of competitive benefits. 

Introduction

After having been established in metropolitan or Tier 1 cities, GCCs have recently been establishing its presence in Tier 2 and Tier 3 cities of India. This evolution has offered MNCs enviable benefits including heightened cost-efficiency, access to untapped talent pools, all with no compromise on quality. 

With reportedly 1500+ Global Capability Centers already established in India and the number expected to grow all the more in the future, there is a good probability that at least a huge chunk of them would be established in Tier 2 and Tier 3 cities considering the rising costs of metropolitan cities, besides other factors. This article will assess how Tier 2 and Tier 3 are becoming the new hotspots for GCCs in India. 

The Tier 2 and Tier 3 City Expansion Strategy

Driven by competitive economic and operational benefits, there has been an expansion of the GCCs into Tier 2 and Tier 3 cities. Such cities include Indore, Coimbatore, Jaipur, and Bhubaneswar. All these cities possess a host of competitive benefits that include lower operational costs, an untapped skilled workforce, growing IT ecosystem, and strong government incentives. 

If one is to study the economic side of the expansion of GCCs into Tier 2 cities, then one would find the operating costs to be 20-30% lower than in Tier 1 cities, while attrition rates are often 10-15% lower than the usual rate in Tier 1 cities. Besides, foreign companies also take into account the availability of real estate, something which is found on a larger scale compared to a city like that of Delhi or Mumbai. An interesting stat that displays the significant impact of real estate in GCCs expansion would be that nearly 25 million square feet of space was leased to set up GCCs in 2024, which was almost  28 percent of the total leasing that year. 

Additionally, proximity to academic institutions and local government incentives specific to different cities are also key factors to place their GCCs in a Tier 2 or Tier 3 city. All these benefits ensure they are right on the money for GCC setup and expansion. 

Moreover, one is to note that this setup in Tier 2 and Tier 3 cities doesn’t come with any compromise on quality. Rather the centers typically follow the same robust infrastructure, seamless connectivity, and a conducive environment as that of a center in a Tier 1 city. It more or less mirrors the standards of a Bangalore or a Chennai-based GCC. 

Government Plan & Policy Support

Realising the strategic importance of GCCs, the Indian government has ensured to actively foster GCCs growth through comprehensive policy initiatives. In fact, the Ministry of Electronics and IT has brought together an industry-led panel to develop plans and policies to contribute to a booming growth of global capability centres in India. This panel committee includes industry body Nasscom, GCC-enablers Zinnov Consulting and ANSR, audit and advisory firm KPMG, and investment promotion agency Invest India.

The Indian government had announced in the February budget that it would develop a plan which would serve as a guide for promoting Global Capability Centres in emerging Tier 2 cities. This plan or framework would ideally convey measures to enhance the availability of talent, reforms in building construction law, and mechanisms for collaboration with different industries. One is to note that this initiative depicts a transition from an incentive-based framework to an innovation-based framework, considering the fact that GCCs have gone mainstream.

Besides, the plan also ensures to connect multiple standalone policies on IT, hardware, GCCs, startups, deeptech, education and skilling, data security and intellectual policy, thereby creating a comprehensive approach to technology-enabled opportunities. Being the holistic policy it is, this approach recognises the inter-connected nature of the modern technology ecosystem and the growing necessity for coordinated support across multiple domains.

Leading Examples of Tier 2 cities for GCC expansion

• Indore: Possessing a good talent pool, cost-effective operations and well-built infrastructure, this place specialises in the IT, BPO, and software services.
• Coimbatore: Housing IT parks, a skilled workforce, and leveraging efficient operational costs, their main strengths are found in the IT, manufacturing, and finance sectors. 
• Jaipur: With close proximity to Delhi coupled with it being a IT Special Economic Zone (SEZ) and strong talent base, they play a huge role in the IT, BPO, and E-commerce sectors.
• Bhubaneswar: Having a growing IT sector with government incentives and business-friendly policies, they command a strong dominance in the IT and Engineering services of the spectrum. 
• Ahmedabad: Being home to the Gujarat International Finance Tech-City (GIFT City), robust infrastructure, and a strong business atmosphere, their strengths lie in Fintech, IT, and Finance.  

Conclusion 

To conclude, the expansion of GCCs into India’s Tier 2 and Tier 3 cities showcases a major shift in how multinational corporations approach global operations and talent strategies. This evolution is mainly driven by promising economic benefits, government support, and access to untapped skilled talent pools. 

It becomes very imperative for organisations who are considering establishing a GCC, to concentrate and prioritise on critically evaluating talent availability, infrastructure, and cost advantages before making an expansion decision into a Tier 2 city. Besides, companies are to develop partnerships with local educational institutions to ensure a sustainable talent pipeline along with the need to implement robust change management processes to ensure smooth transition and integration of Tier 2 and Tier 3 operations with existing global capabilities.