How Much is the Cost of Setting Up a GCC in India?

India has emerged as the preferred destination for setting up Global Capability Centers (GCCs) that perform strategic functions, like research and development (R&D), finance, machine learning, product engineering, etc.

Hence, senior management teams of global companies worldwide are debating the cost of setting up and operating a GCC in India.

Therefore, we will discuss these costs in detail in this blog.

What Factors Determine the Cost of Setting Up a GCC in India?

Here are the factors that impact the cost of setting up a GCC in India:

Legal Structure

The cost of setting up a global capability center (GCC) in India depends on the legal structure. You can choose a private limited company, a branch office, a limited liability partnership, or a liaison office to build a GCC in India.

A private limited company allows foreign companies to build a subsidiary with limited liability protection. You need to register it with the Ministry of Corporate Affairs (MCA) and follow the relevant Indian corporate laws. 

A limited liability partnership offers operational flexibility while maintaining limited liability. It is meant for smaller setups.

A branch office allows foreign enterprises to have their operations. But this model permits a limited operational scope vis-à-vis a fully incorporated entity.

Global companies set up liaison offices in India to establish a presence. They use their Indian presence to research the market, explore the scope for expansion, etc.

Choice of Location

Location is one of the most important factors that impact the cost of setting up a GCC in India. Tier-1 cities like Delhi-NCR, Bengaluru, Hyderabad, Mumbai, & Chennai have good infrastructure and many talented professionals.

But, Tier-1 cities are also more expensive than Tier-2 cities like Ahmedabad, Coimbatore, Indore, Vizag, etc.

You need to consider many factors when selecting a location, including real estate costs, talent requirements, and long-term growth plans.

Office Setup

This is another key factor that impacts the cost of setting up a GCC in India. Your GCC costs depend on the kind of office you lease and the workspace you design. Apart from that, you also have to spend on furniture, IT systems, laptops, servers, data security, etc.

The cost of leasing office space can be significantly higher in Tier-1 cities than in Tier-2 cities. Within a Tier-1 city, office leasing can be more expensive in certain business hubs with more demand than in other areas.

Hiring and Employee Costs

Foreign companies spend a lot of money on finding talented professionals and on their salaries, bonuses, etc.

When recruiting employees, they may have to spend money on recruitment agencies and advertisements inviting candidates to apply for selection.

After recruiting employees, they have to spend on their salaries, which are a function of their skills and experience.

Entry-level employees are cost-efficient. But mid and senior-level employees can demand high salaries. Besides, salaries are also a function of roles.

Companies have to pay a premium for roles like product leaders, data scientists, & cybersecurity specialists because they carry a high degree of accountability.

Compliance-related Costs

Foreign companies have to follow all the laws and regulations when they setup a GCC in India. To ensure total compliance, they need to pay advisory fees. They also have to pay registration expenses.

How Much Does It Cost for the Initial Setup and Operation Of A GCC in India?

The cost of setting up a GCC in India depends on many factors, like a center’s size, number of employees, function performed (finance, engineering, analytics, IT, etc.), and location (Tier-1 or Tier-2 city).

Since many factors are involved, there’s no universally accepted number for such a cost. However, the following points are important to calculate the cost of setting up a GCC in India.

1. 1. Foreign companies have to calculate both the one-time expenditure and the recurring operational cost of setting up a GCC in India.
   2. The one-time expenditure of setting up a GCC usually includes costs related to company incorporation, legal requirements, office leasing deposits, workspace design, IT infrastructure, cybersecurity systems, etc.
   3. Companies that build engineering, product development, or AI centres tend to have higher setup costs than centres dedicated to accounting or customer support operations.
   4. After a GCC becomes operational, companies have to spend a lot on the salaries of their employees. Hence, employee salaries and benefits account for a large part of GCCs’ recurring expenditure.
   5. Besides, GCCs demand a lot of mid-to-senior-level employees. As per a report published in the Economic Times, GCCs are focusing on specialised mid-level talent. Such talent is more expensive than freshers.
   6. Office rentals are another important component of the operational costs of a GCC’s business model. India’s mature GCC hubs in Tier-1 cities like Bengaluru, Hyderabad, Delhi-NCR, Mumbai, & Chennai offer huge talent pools, but rentals are also higher there than in Tier-2 cities like Jaipur, Chandigarh, Coimbatore, Indore, Bhubaneswar, Kochi, etc.
   7. There’s no denying that Tier-2 cities offer lower rentals and overhead costs than Tier-1 cities; still, companies need to assess talent availability and quality of infrastructure before setting up GCCs in Tier-2 cities.
   8. To fully capitalize on the shift to Tier-2 cities, GCCs should concentrate on industry-academia collaboration and skill development, as that will ensure sustainable availability of workforce.
   9. Apart from rentals and salaries, GCCs have many other recurring operating expenses related to technology infrastructure, cybersecurity, facility management, employee training, travel, etc.
   10. Besides, companies need to consider wage inflation in India, particularly in fields like AI, machine learning, and data engineering, where the demand for talent is extremely high.

As we already said, there’s no universally acceptable number for GCC setup costs. That said, based on various industry estimates, we provide you with a broad range for such a cost in the following table:

Conclusion

If you’re thinking of starting a GCC in India, you should be mindful of the factors that impact the cost of such a center.

You can also get in touch with Remunance, which can help you establish a GCC in India through its employer of record (EOR) services.

Since Remunance is an EOR, it can help you hire employees quickly in India without setting up a local office.

Remunance can help you comply with all Indian labor laws and regulations. It can also handle employee benefits and statutory deductions related to the provident fund (PF) and the employee state insurance (ESI).

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