India GCC Growth Shifts Toward Tier 2 Cities

The global outsourcing ecosystem in India has undergone a fundamental shift thanks to GCCs. They are now essential engines of innovation and digital transformation, no longer limited to back office support roles. Furthermore, Indian global capability centres are now future-proof to handle economic uncertainty because they have shown remarkable strength and resilience in the face of changing US policies.

These centres of excellence flourished for many years in major Indian cities, including Bengaluru, Hyderabad, Chennai, Mumbai, and Delhi NCR. Due to the substantial cost advantage and readily available talent, tier-2 cities are currently the focus of a strategic change. The growth of tier-2 cities would be a decisive factor as India solidifies its position as the world's top location for the establishment of global capability centres. According to studies, there are now about 150 GCCs in tier-2 cities. In the near future, a 30% to 40% GCC demand is anticipated in these regions. Therefore, businesses, particularly startups and mid-sized enterprises, need to start looking beyond the conventional tier-1 cities and take advantage of unexplored prospects for scalable and sustainable solutions that exist elsewhere. 

The Major Driving Forces

In order to provide an unparalleled value offering across all industries, GCCs in Tier-2 cities are currently in a mature phase of market exploration. They are providing a combination of economic, technological, and infrastructure developments that are very appealing to multinational corporations. Here's a thorough examination of the reasons behind their success.

Cost Efficiency

Tier 2 cities are unquestionably comparable to cost effectiveness. When compared to high-tech metros, they provide 35% reduced operating costs without sacrificing the caliber and effectiveness of corporate operations. However, why are some cities more affordable?

This is usually because of the straightforward way of life, reasonably cheap utilities, and reasonably priced infrastructure, all of which lessen the burden of salaries. Food, lodging, transportation, and everyday necessities are generally less expensive for residents of Tier-2 cities. The desire for large compensation packages has significantly decreased as a result. 

Together, these have enabled global captive centres to save significant savings and make investments in R&D, innovation, and staff training and upskilling. Additionally, they might anticipate increased profit margins, which will eventually motivate the parent firm to expand its activities.

Availability of Talented Individuals

According to studies, tier 2 cities account for 11–15% of India's tech talent. One advantage is that, in addition to being hardworking and committed, they are very reasonably priced because non-metros have minimal living expenses. These consistent streams of data scientists, IT experts, and engineers with enormous creative and disruptive potential are progressively being recognized by businesses. Additionally, the ability to work while remaining in one's hometown lowers attrition rates in GCCs. Overall, it is a profitable strategy to reach out to tier-2 cities like Chandigarh and Jaipur, which are brimming with talent, and maximize their knowledge to spur the expansion of parent headquarters.

Policies

A number of organizations are being encouraged by state governments to set up their GCCs in Tier-2 cities with business-friendly programs and regulations. For example, the Karnataka Global Capability Centre (GCC) Policy 2024 seeks to establish 500 new GCCs in order to generate $50 billion in economic production. In order to promote a tech ecosystem, the "Beyond Bengaluru" division seeks to disperse growth and innovation throughout tier 2 cities like Mangaluru and Mysuru. Along with a single process clearance for foreign investment clearances, the Indian government is also actively creating tax advantages in tier-2 and tier-3 cities. Additionally, GIFT City (Gujarat International Finance Tec-City), India's first international financial services hub, offers tax incentives and GST exemptions, making it an attractive location for the establishment of a global competence centre.

Mr. Alouk Kumar, CEO & MD Inductus Group stated, “The next phase of India’s GCC growth will be shaped by Tier II cities. As states strengthen digital infrastructure, talent pipelines, and ease of doing business, these cities are evolving into globally relevant capability hubs delivering high-quality employment while enabling more balanced and sustainable regional development.”

In terms of GCC growth, cities like Jaipur, Chandigarh, Coimbatore, Vadodara, GIFT City, Indore, and Nagpur are becoming rising stars thanks to a pool of highly qualified workers and infrastructure assistance. Due to their recognition of the enormous potential of these non-metropolitan areas, major corporations such as Genpact, TCS, Wipro, Bosch, Impetus, Deloitte, Cognizant, and HSBC have a significant presence here. Strong government drive for IT development, enhanced connectivity with airports and highways, great education landscape, AI initiatives fostering GCCs from numerous sectors across multiple industries.

According to a report by Inductus, around 60% of the world's top 500 corporations have established their GCCs in India. In the upcoming years, Tier-2 cities are poised to become significant growth centres for GCCs thanks to ongoing investments in technology, business-friendly laws, and attractive connection with capital city Delhi and other metropolises like Mumbai, Chennai, and Pune. Tier-3 cities are also catching up quickly, and all we can do is wait and observe the important development.