Multinational back offices squeeze India’s IT services industry
NEW DELHI, INDIA — The captive technology and back-office arms of multinational corporations operating in India — known as Global Capability Centers (GCCs) — are on track to generate nearly $100 billion in revenue this year, posing an existential challenge to the country’s traditional IT services giants like TCS, Infosys, and Wipro.
According to a report from Financial Times, a new report by industry body Nasscom and global consulting firm Zinnov reveals that more than 2,100 captive centers now employ roughly 2.36 million people across India, transforming what was once a sideshow to the country’s outsourcing industry into its main event.
The shift carries direct implications for U.S. enterprise buyers, outsourcing executives, and investors tracking the evolution of one of the world’s most important tech labor markets.
The cost-arbitrage model built India’s IT boom
For decades, India’s IT champions thrived on a simple proposition: multinationals could outsource technology and business processes to Indian vendors more cheaply than they could manage in-house. Cost arbitrage was the industry’s defining advantage.
AI is now automating the routine, process-heavy work that once underpinned that boom — eroding the foundation on which India’s outsourcing giants built their global dominance.
“The routine, process-heavy work that once underpinned India’s outsourcing boom is increasingly being automated. At the same time, companies are becoming reluctant to outsource the higher-value layers of technological development — particularly in AI, data and research,” the report stated.
Multinationals are choosing captive operations because they offer tighter control over proprietary systems, intellectual property, and sensitive data — areas where strategic risk is too high to delegate to external vendors.
GCCs are no longer back offices — they’re innovation hubs
The strategic shift is reflected in the work GCCs now perform. These centers are no longer simple support hubs handling back-office functions — they are integral to product development, engineering, and AI deployment for some of the world’s largest corporations.
Nearly half of India’s captive centers are engaged in research and development activities, according to industry estimates.
“This is a double whammy for India’s IT services, which are losing both business and people to GCCs. Engineers and developers are drawn to the higher salaries, perceived stability and prestige associated with working directly for global corporations,” the report noted.
Unlike traditional outsourcing firms, captive units also spare employees the uncertainty of being “benched” between client projects — a longstanding pain point in India’s IT services labor market.
The pressure on India’s IT services giants reflects a broader recalibration unfolding across the global outsourcing industry, where the labor-arbitrage model that built today’s leading providers is being overtaken by automation arbitrage and strategic insourcing.
As AI redefines what companies consider strategically core, providers that evolve beyond headcount-driven services and deliver specialized capabilities — engineering depth, AI integration, and industry-specific expertise — are positioned to compete with captive operations.
Those still selling labor capacity at scale face mounting pressure to reinvent their business models or risk being squeezed out of the higher-value enterprise work that defines the next phase of global IT services.
