Study Released in Collaboration with NASSCOM also Determines India’s Cost Competitiveness Likely to Remain Sustainable for 12-15 Years
DALLAS, April 4, 2012 ─ Global In-house Centers (GICs) or captives continue to provide significant cost savings to their parents in most offshore locations and this is likely to remain sustainable for medium-term duration, according to Everest Group, an advisory and research firm on global services.
NASSCOM and Everest Group recently conducted joint research to understand the extent of the cost savings achieved, levers for driving cost savings, and future sustainability of the same. This research relied heavily on inputs and perspectives from GICs and their parent organizations in onshore locations. Some of the key findings include:
- The GIC model is established and continues to grow across newer industries, functions and geographies. GICs have delivered 40-70 percent savings over source locations even from a total cost of ownership perspective that includes costs associated with set-up and management besides operating cost of delivery
- Contrary to popular perception, wage inflation is not likely to wipe out GIC cost savings in the near term, given that net cost inflation experienced by GICs (6-8 percent) is much lower than numbers (12-15 percent) commonly cited.
- Arbitrage-driven costs savings in India is likely to remain sustainable for 12-15 years from a U.S. perspective (similar estimates for other source geographies)
- GICs have several levers to improve their cost position and further prolong their cost advantage.
“Additionally, while direct cost savings will always be important, many mature GICs realize that they can leverage the platform they have built to deliver significant business value to the parent organizations. These organizations have started to make substantive investments in their engagement and delivery models to re-orient towards value impact beyond arbitrage-led savings,” states Eric Simonson, Managing Partners – Research, Everest Group.
The research findings were first presented at the NASSCOM GIC Conclave 2012 in New Delhi on March 20, 2012.
“While GICs have increased focus on generating impact on business outcomes, cost still remains a dominant focus for onshore stakeholders. This research with Everest Group reaffirms the fact that despite the maturity of India as an offshoring destination, it still offers significant long term cost advantage,” states Sangeeta Gupta, senior vice president, NASSCOM. Everest Group’s research has the reputation of consistently serving as a reality check on the topics of the day. This latest report on the cost competitiveness of GICs lives up to this reputation by shedding light on the true value that GICs deliver and the sustainability of the model.”
The full report titled Cost Competitiveness of Global In-house Centers (GICs): The Reality of Wage Inflation and the Sustainability of Cost Arbitrage is available for complimentary download at research.everestgrp.com.