Captive concerns: Why Cognizant has called out the risk from GCCs

Though a Cognizant spokesperson said the New Jersey-based company’s position has since “evolved”, the development raises the question of whether more IT services firms would acknowledge the rising competition from these in-house technology centres. Technology analysts have previously pointed to the risk from GCCs, though IT companies themselves have dismissed it so far.

“Additionally, we face competition from clients’ in-house technology resources, such as GCCs, which may provide a lower cost alternative to our services,” said Cognizant’s annual report released on Friday. “We compete for employees not only with other companies in our industry, but also with companies in other industries, such as software services, engineering services and financial services companies, as well as our clients’ GCCs,” the report said. Cognizant has three-fourths of its employees in India.

Cognizant and homegrown IT services firms provide services, including application development and maintenance, to some of the world’s largest companies, including Apple and Walmart. However, as technology becomes central to companies, most Fortune 500 companies have moved to set up their technology centres in the country. Put simply, IT services no longer compete among themselves, but also with their clients for business.

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When contacted, a Cognizant spokesperson said, “We evolved in our GCC position from when this specific proxy language was initially drafted… GCCs have been identified as a growth priority.” This refers to Cognizant’s March investor meet where top executives led by CEO S. Ravi Kumar outlined a four-point strategy to improve profitability, gain market share, focus on large deals, and ensure revenue growth in line with the world’s four largest IT services companies by March 2027. 

The rising tide of GCCs

Operating as strategic hubs in India, GCCs of top foreign companies like Microsoft, Amazon, and JP Morgan Chase drive innovation and provide crucial support to their global operations. India is estimated to home to about 1,700 GCCs. 

“GCCs have become a vital strategic tool for companies aiming to accelerate their business transformation and maximize long-term value in a rapidly evolving tech landscape, driven by advancements in AI….Over the past two years, GCCs have also emerged as key drivers for enterprises struggling to find the right talent to navigate fast-advancing technology ecosystems,” said the spokesperson, adding Cognizant has signed about 10 deals with GCCs. “These partnerships reinforce our position as a trusted transformation partner and mark significant milestones in our growth.”

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GCCs have been increasingly considered by analysts and executives as a growing threat to domestic IT services firms such as Tata Consultancy Services Ltd, Infosys Ltd and HCL Technologies Ltd. Companies dismiss this view, arguing that outsourcing firms and GCCs can compete and co-exist.

“The fact that Cognizant has called out GCCs as a risk factor and has mitigated this risk with their GCC strategy now implies that IT service providers have included GCCs as part of their ecosystem,” said Viswanathan K.S., independent technology advisor and former vice-president at Nasscom.

“With more global enterprises building their digital transformation capabilities, one will increasingly find that other IT service providers will follow suit. GCC models are increasingly leveraged by enterprises, including mid-market companies, leading to growth in GCC operations, which is adding risk to IT service providers’ revenue,” he added.

According to industry body Nasscom, GCCs accounted for close to a fourth of India’s $282.6 billion IT industry in 2024.

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The GCC challenge

“Increased competition from companies aspiring for a turnaround (Wipro, CTSH, TechM, etc.), mid-tier (Coforge-Sabre deal is an example) and GCCs poses headwinds for the incumbents,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S., and Vamshi Krishna, in a note dated 4 April.

Cognizant’s commentary comes in the wake of some overseas clients recently exiting engagements with IT outsourcers to do much of their tech work in-house.

Transamerica, the American arm of Dutch insurer Aegon NV, terminated its 10-year engagement with Tata Consultancy Services Ltd. midway through the contract. Transamerica had inked a $2 billion deal with the country’s largest IT services company in 2018 to digitize its insurance operations. The deal was cut short five-and-a-half years later in June 2023, when Transamerica decided to execute the task itself.

A more recent example is that of third-largest HCL Technologies Ltd and Boston-headquartered bank, State Street. The latter formed a joint venture with HCLTech in 2012 to provide business operations services to clients. A dozen years later, State Street took full ownership of the joint venture as its focus shifted on insourcing talent for much of its tech work.

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“The offshore platform mix is changing,” said Aveek Mukherjee, managing director of Gloplax Solutions, a consulting company that sets up GCCs. “Customers are looking for certain characteristics from their offshore platform that is easier for the typical GCC construct to fulfil. However, there exists an opportunity for service providers to re-evaluate their offerings to the customer so that they too may fulfil the required characteristics outside the typical GCC construct. So, the competition for the service providers is more the typical GCC construct rather than the GCC itself,” Mukherjee added. 

According to Nasscom, more than 875, or half of the country’s 1,700 GCCs, are based in Bengaluru, while Hyderabad has 355. The rest are located in cities such as Delhi NCR, Pune and Chennai. Nasscom estimates the number of Indian GCCs to touch 2,200 by March 2030, with a market size of $105 billion.

As GCCs gather steam, IT outsourcers are setting up units to establish and run GCCs under the build-operate-transfer (BOT) model, wherein they supply manpower to the parent company, find land and run the captive, and after a fixed period of time, transfer the operations to the parent company.

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Infosys Ltd, Wipro Ltd and Tech Mahindra Ltd have each set up separate business units to partner with GCCs. Accenture Plc, the world’s largest IT outsourcer, also made an equity investment in ANSR last July. As part of this investment, Accenture gets a seat at the consulting company’s board of directors. ANSR, which sets up and runs GCCs for multinational companies, is India’s biggest and oldest business of its kind.

Cognizant ended 2025 with $19.7 billion in revenue, up 4% on a yearly basis. For CEO Ravi Kumar, who has now completed two years in office, turning the risk from GCCs into an opportunity is one of the key tasks at hand, especially at a time when questions are raised on its abilities to grow organically, or without relying on acquisitions.