Setups of Global Business Services centers outpaced outsourcing growth in 2019 as enterprises looked in-house for high-value contributions beyond arbitrage
Everest Group reports that the Global Business Services (GBS) market1 commanded a 27% share of the US$210 – $212 billion global services market in 2019, outpacing the growth of outsourced services and continuing the segment’s gradual increase in share of market over the last decade.
Enterprises are extensively leveraging the GBS model to accelerate enterprise-wide digital transformation initiatives, with approximately 54% of new GBS centers focusing on digital services. In particular, GBS centers in the engineering services and research and development (R&D) space have gained traction during the last couple of years, with focus on building deep capabilities in areas such as machine learning (ML), artificial intelligence (AI), internet of things (IoT), mobility, analytics, cloud, and cybersecurity.
GBS organizations are also undergoing changes in their operating and governance models, driven by three key needs: building greater alignment with business teams, building agile organizations, and improving performance reporting mechanisms. As a result, GBS organizations are increasingly:
- moving from a horizontal to a vertical reporting model.
- shifting to dual-responsibility leadership roles where the site-head’s responsibilities are entrusted (or co-trusted) to other functional leaders.
- collapsing IT and operations silos into integrated teams focused on business objectives.
- taking global ownership roles across various domain or functional areas.
- deploying a wide array of metrics to measure value beyond costs.
“GBS organizations are evolving to become strategic partners to enterprises, playing a significant role in enterprise digital transformation journey as they continue the move from an ‘arbitrage-based model’ toward a ‘value-based model,’” said Rohitashwa Aggarwal, practice director at Everest Group. “We see GBS organizations building deep domain capabilities and shifting to operating models that allow them to build “agile” into their core philosophy and to work closely and freely with key global business leaders. Another major shift is in evaluation—GBS organizations are linking their goals to business- or domain-specific targets and shifting beyond cost-arbitrage as the key metric of performance to a wide array of operational, financial and innovation-related indicators.”
Everest Group shares these findings in its recently published report, GBS State of the Market Report: Evolving Operating and Governance Models to Build GBS of the Future. This report analyzes the GBS landscape, sharing key insights on the GBS market across locations, verticals, and functions.
- The GBS market continues to experience strong growth, with 3,300 offshore and nearshore GBSs established until 2019.
- The GBS model continues to attract new adopters. Around two-thirds of the companies that established GBS centers in 2019 were new entrants with no existing offshore or nearshore GBS facility. At the same time, there are several global companies that have divested their GBS operations, mainly due to talent-related challenges, especially for IT services.
- India dominates delivery, with a 35-40% share of the overall GBS market. U.S.-based companies are especially inclined towards leveraging India; approximately 58% of the total GBS centers in India are set up by U.S.-based companies.
- European firms prefer the Central and Eastern European (CEE) region (39% of GBS centers in CEE belong to European firms) due to geographical and time-zone proximity. However, in 2019, the share of U.S.-based companies in the mix of GBS setup in CEE increased considerably.
- APAC-based firms experienced an increase in overall GBS activity, driven by an uptick of 80% in R&D GBS centers set up by enterprises in China.
- GBS setups by small companies (annual revenue less than US$1billion) have increased on the back of higher demand for R&D and innovation. In 2019, small companies’ GBS setups increased by 22% over 2018.
- A majority of GBS centers focus on delivering a single function, such as information technology (IT) or voice-based business process services (BPS), but many (44%) have multi-functional capabilities such as a combination of R&D and IT capabilities.
- Technology and communication firms lead GBS activity in terms of the number of GBS centers (38%); but the banking, financial services and insurance (BFSI) sector dominates in terms of scale (34%).
About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global enterprises, service providers, and investors. Through our research-informed insights and deep experience, we guide clients in their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com.
1Everest Group uses GBS as the preferred term for in-house Global Business Services setups, which are also referred to as Global In-house Centers (GICs), shared services, global capability centers, or captives. The scope of this research does not include GBS centers serving the domestic market.