Captive Third Wave in India

After the dangerous second wave of corona, which impacted almost all families in India, none wants the third wave of corona. But there is another third wave coming. We are not talking about corona third wave. It is captive or GIC third wave which most people in India will welcome.

 To anticipate the future, let’s analyze the past by looking at earlier captive waves. There were two captive waves in India.

• First Wave (1995 onwards)- The first wave of captives involved setting and scaling up global delivery centers in Indian cities for labor arbitrage. American Express, GE, and others started this in the 1990s. Seeing the success of this model, global service providers also augmented their delivery presence in offshore locations. Here, the driving factor was cost along with resource availability.
•  Second Wave (2015 onwards) – The second wave of outsourcing was digital. Advancement in technology and a decline in the price of computing power, connectivity, and storage disrupted many businesses. Each business became or tried to become a technology business, with the consumer at the center. There was a need for design, mobility, cloud, analytics, cybersecurity, IoT, artificial intelligence, and automation, among others. Also, with years of outsourcing, many enterprises realize their need to keep the technology stack in-house. When most of the tech work is outsourced and tied down with contracts, it leaves little room for agility and experiment. Also, enterprises want to give interesting, new, or digital work to their employees to enhance their interests, skills, motivation, and career path. If enterprises don’t do it, they will lose their talent to startups who are doing interesting work in many domains. The driving factor here was new capability, technology stack, and employee career prospects.

 Now it’s the time for the captive third wave. What is driving this third wave?

•  Third Wave (2020 onwards):  Pandemic made many enterprises realize and revisit their assumptions that work can be performed outside their office premise and, in fact, virtually from anywhere as long as they have tools to collaborate, processes to manage, and safeguards for security. If work can be done from anywhere, then the country or location that will win is which has talent at scale and also is cost-effective. India, with over two decades of success in captives, has proven itself on both of these parameters. There is no country that has a better value proposition than India in these two parameters.
• Add to this attractiveness of the Indian market for many global firms. The captives in India also act as a catalyst in scaling the business in India by developing India-specific products and services and also working on India-specific processes.

 Impact 

• Enterprise. Enterprises that already have scaled captives in India will further build on this scale. In fact, few enterprises are closing down their subscale centers in other countries and scaling up further in India. The more headcount enterprises have in GICs, the more efficient the operation becomes as the economics of scale kick in. New entrants will also look for scaled captives.
• Employees. Good news for job creation for Indian IT talent. There will be additional new jobs created, which will create choices for people.
• Cities. Initially the focus of captives is tier-1 cities, but as they scale, eventually many will move to tier-2 and tier-3 cities similar to what service providers are doing for attracting local talent. Though the attractiveness premise is work from anywhere, for long-term success and scenarios where office presence might be required, employees will be attached to one or another office. Many satellite offices may come up in different small cities.
• Service Providers. Competition for talent between captives and IT service providers. Captives pay higher salaries, but despite that, most people prefer service providers as the gateway to global career and mobility. Now onsite opportunities are diminishing due to visa, local hiring, and virtualization. This will increase attractiveness and preference for captives for IT talent.

Bottom Line: Captive third wave is good news for job creation for employees though it will create attrition and talent-related challenges for service providers. But overall, it is a positive for the Indian IT industry as it will further increase the importance of Indian IT and Indian talent in global firms