Setting up a GCC: Scaling up and staffing models

Once the initial seed team is in place, there are the standard three ways of scaling up the team:

• Organically grow the team
• Hire a contracting company
• Acquire a company

We will focus on the first two here. Organically growing the team helps to create a strong team which identifies itself with the parent company and take pride in the products. However, this calls for a fair amount of time investment. Moreover, in the event of major changes w.r.t the technology/platform, we will have to painfully retrain the people (laying off decreases the morale and should be done only as a last resort). 

 

One of the best-practices is to simultaneously engage with a contracting vendor while the India team is being hired and onboarded. Cost per engineer from the contracting company would be higher, but it helps in quickly getting a critical mass and have the center productive. As and when the India team ramps-up, the contacting engineers can be ramped-down completely.

 

Another model is to always have some percentage (say 10-25%) of the total India staff as contractors. This helps if there is a spike in headcount seasonally or if we want differently skilled people at different times in the year. With a large pool of trained engineers, contracting companies can absorb ups and downs of the headcount monthly. Finally, we could let go of the contractors during business downturns and use layoffs as last resort.

 

Key decisions for this part include:

• Whether or not to engage with contracting firms. If so, how many engineers and at what levels and skill sets. 
• The nature of engagement – whether it should be done as resource augmentation or as outsourced product development (both have their pros and cons). Best practice is to go with resource augmentation mode and then possibly move to outsourced model. 
• Type of privacy , confidentiality and security protocols that need to be put in place while engaging contracting companies

Good to know:

• There are several classes/tiers of contracting companies. At the very top are companies like Infosys, Wipro etc.,  who typically do multi-million dollar accounts and may be too big for start-ups to get management attention and good engineers. At the next level are small to medium sized boutique firms specializing in niche areas. Finally, there are several “me-too” type companies whose only business mode would be to “supply” engineers. Boutique companies charge the highest.
• There is also a possibility of entering into an agreement with the contacting companies to periodically transfer X engineers to the India entity. While this comes with a cost, the India entity will get trained engineers at a regular cadence and with certainty.

Related posts on "Setting up a GCC":

• Introduction
• Location within India
• Choice of the Site Leader
• Regulatory approvals
• Hiring the core team
• Hiring enabling team
• Infrastructure
• Setting-up the India team to succeed
• Cultural Sensitivity

Setting up a GCC: Infrastructure

 Given the rentals are very high especially in Bangalore, where the office is located plays an important role in terms of cost, branding and given the traffic, it even becomes a factor for the potential hires to accept the offer. Best practice perhaps would be to start-off in a co-working space for 6 to 12 months and then perhaps move to a separate facility if needed. It is also difficult to find office space for 50-100 people set-up in a branded space (most of the big names won’t even talk if the requirement is less than one single floor). Starting off in a co-working space also relieves the India team of taking care of things like networking, catering, designing the office space etc., A post-covid phenomenon is the addition of hybrid and remote models, which has a bearing on the space required. The critical decisions at this phase are:

• Decide on total space requirement (preferably for 3,6 and 12 months) and find a suitable space. Space requirement should also take into account how many days we’d want engineers to be in office each day (best practice: for the initial few months people should predominantly work out of office)
• Decide on whether to rent or work out of co-working space. 
• Decide on broad area(s) where we’d like the office to be
•  Decide the co-working space vendor or hire real estate agents to find a place, based on all of the above.
• Choice of STPI or SEZ – the two tax incentive schemes. Whereas any office space be labelled an STPI, SEZ has certain restrictions and therefore has a bearing on the location.

Good to know:

• The rental space comes in 3 flavours and the rent varies from highest to lowest:
• Fully furnished (cubicles, conference rooms, networking, private offices are already done). No or limited flexibility. Usually this office would be occupied by someone and who have left after their lease expired
• Warm shell (networking and carpeting are done). We have the flexibility to design the office as per our requirements.
• Cold shell (just the four walls). Maximum flexibility.

• Best practice would be to go with the fully furnished option.
• Several builders are notorious for not following all the building codes. It is therefore essential to make sure that the paper work is accurate.
• Employees expect some amount of inhouse catering or have the office in such a place where it is easy to get food. As trivial as it may sound, lack of food options could create a major dissatisfaction even in the age of food delivery ops.
• Rentals come with a huge security deposit (often 6 to 12 months). This upfront cost needs to be factored-in as a part of set-up costs.

Related posts on "Setting up a GCC":

• Introduction
• Location within India
• Choice of the Site Leader
• Regulatory approvals
• Hiring the core team
• Hiring enabling team
• Scaling up and Staffing models
• Setting-up the India team to succeed
• Cultural Sensitivity

Setting up a GCC: Hiring the enabling team

A great enabling team will keep the engineering team productive. This’d be mostly the IT, Finance/payroll, Legal, HR and Administration/facilities. Depending on the nature of the work, Finance/payroll and Legal activities can be outsourced. IT support could come from the parent company itself and it might suffice to have one IT support engineer locally. Payroll administration is a critical function, but there are lot of vendors that’d take care of running the payroll and the required filings. Similarly, finance and legal consultancy and filings could also be outsourced easily. At the initial stages of the company it doesn’t make sense to hire people for these. However hiring the HR staff and Administrative staff cannot be postponed – these should be hired simultaneously along with the seed team, but definitely once the Site Leader is hired, allowing the Site Leader to pick his/her team. Again, a good Site Leader should be able to tap the network to get these people quickly. Best practice is to start with the HR and the Admin leaders and then have them hire for sub-functions (Talent acquisition for example). Key decisions of this phase include:

• Identifying the level of outsourcing for enabling functions and finding the right vendors for the same.
• Deciding how IT will be handled – what will be supported from the parent org and what will be done locally.
• How expenses of initial few weeks (while the bank accounts, signatories and other registration activities are still going on) would be handled.

 

Good to know:

• For the first year or so, it is better to go with a single vendor who could offer these services – Accounting, Taxation, Payroll, MIS, Local Law compliance and Company Secretarial services. This’d reduce the overhead of working with several vendors and allow to focus more on getting the engineering team up and running.

 Related posts on "Setting up a GCC":

• Introduction
• Location within India
• Choice of the Site Leader
• Regulatory approvals
• Hiring the core team
• Infrastructure
• Scaling up and Staffing models
• Setting-up the India team to succeed
• Cultural Sensitivity

Setting up a GCC: Hiring the core team

Talent – the single most important reason why companies come to India. However, this could be one of the most challenging activities in a highly competitive market. It is very common to see some engineers have multiple offers and pit one company against the other and try increase their compensation. Core team joining only for money can be a disaster down the road. We’d need people to join for the mission, nature of the work and backed up with a “good” salary. This is where a great Site Leader can make all the difference and can attract talent on his/her own and use the network to spread the word and attract talent in a cost-effective matter. Some of the key decisions at this phase include:

• Identifying the number of key/senior engineers with the required skill set and experience levels and how to compensate them (see next two bullets)
• Where to position the company w.r.t salary levels vis-à-vis comparable companies (should it be in the 80-90 percentile or say 50-60 percentile). 
• Incentives like annual bonus, variable pay linked to performance, stock options and other benefits (insurance, contribution to super-annuation etc.,). 
• Ratios of engineers to tech-leads/managers, number of entry level engineers, interns and a long term growth plan. Avoid the temptation to hire entry engineers till there is enough tech-lead bandwidth to guide them.
• Nature of work in the short and longer term. Engineers get drawn to work that is on the cutting edge. It’d be very difficult if only maintenance work is moved.

Good to know:

• While there is no dearth of talent, it is time consuming to onboard engineers, especially the senior ones. Typically, companies in India have notice period of 30 to 90days and the process drags. Expect about 5-6 months to get tech-lead type people, about 3-4 months for people with 3-5years of experience, on an average. 
• Good number of people will accept the offer and do not turn-up on the day they promised to join. This can be anywhere from 10-30%. Hiring plans therefore should therefore over hire (atleast the mid-level positions). There are several best practices to keep the candidates engaged till they join.
• For start-ups, the concern from most potential hires would be on the runway length that is remaining (and for established/bigger companies, the concern would more be on nature of the work). It is therefore essential for the hiring team to be broadly open about the investors, how the company’s business is, potential funding rounds in the future etc., and even the plans of exit (IPO/Sale). It adds credence if it comes from the founders/senior execs (see next point)
• Involvement of founders and senior execs especially for fence-sitters is a must. While the Site Leader and the local leadership should be able to close most positions, senior execs taking time to explain the mission etc., will go a long way in increasing the yield.

Related posts on "Setting up a GCC":

• Introduction
• Location within India
• Choice of the Site Leader
• Regulatory approvals
• Hiring enabling team
• Infrastructure
• Scaling up and Staffing models
• Setting-up the India team to succeed
• Cultural Sensitivity

Setting up a GCC: Regulatory approvals

There isn’t much of a decision making involved as all the regulatory approvals need to be in place anyways. There are a bunch of approvals. Here’s a quick (but not exhaustive) list: Registrar of Companies, Reserve Bank of India, Shops and Establishment, Tax registration numbers (GST, Permanent Account Number (PAN), Professional tax, Provident fund etc.,). 

 

However, the Government of India (GoI) has made all these seamless and made it a single window system. There are several local and multinational companies who’d assist in getting all these done. Still, the following decisions need to be made by the parent:

 

• The company (local/multinational) company to be engaged. Cost, time, and reputation need to be analysed and a call need to be made.
• The directors of the India entity. Usually this’d be from the company assisting in getting the registration done, along with the Site Leader. During registration a lot of documents need to be signed and to speed up the process the founders and other senior execs are brought in to the board later, in place of the directors from the company assisting with the registration process.
• STPI or SEZ? These are the two incentives that GoI offers to encourage foreign investment and offers different tax incentives. For smaller (<200) set-ups STPI sounds good, as it is little more flexible.

 

Good to know:

• Costs involved in registration (both the government fee and consultation fees)
• Dependencies (for example, bank account, lease agreements are needed before applying for some of the approvals)
• Transfer pricing (the profit that the India entity can claim). Most GCCs operate on cost+profit model for the India entity. The profit margin is usually around 15-20% and periodically the India entity will do dividend repatriation. This has been a messy issue with GoI demanding higher profits for the India entity, especially for bigger companies that claim to do end-to-end product development out of India. 

Related posts on "Setting up a GCC":

• Introduction
• Location within India
• Choice of the Site Leader
• Hiring the core team
• Hiring enabling team
• Infrastructure
• Scaling up and Staffing models
• Setting-up the India team to succeed
• Cultural Sensitivity

Setting up a GCC: Choice of the Site Leader

This is the 2^nd most critical decision that needs to be made. A great Site Leader can get the center take off quickly, absorb all turbulence and make the center cruise on auto-pilot and in alignment with the strategic objectives. A mediocre one will slow things down, distract senior leadership and worse might not be able to attract talent. The Site Leader is THE face of the parent organization in India and he/she should have the same spirit, passion and commitment of a founder (or CEO in case of large companies). Some of the key traits of the Site Leader include:

• Ability to attract talent (both engineering and enabling functions)
• Broad understanding of regulatory needs and the ability to patiently and tactfully deal with government agencies, bureaucrats and industry bodies
• Resourcefulness and the ability to tap on to the eco-system on demand (vendors for functions like payroll etc., hiring consultants, vendors of all sorts whose services would be needed, university relations, etc.,)
• Entrepreneurial mindset (ownership, keen sense of cost and benefit, bootstrapping, passion and drive to make the center and the parent successful)
• Cultural fit and bought into the mission of the organization

Of course, setting up is a one-time activity and once the center is up and running, the Site Leader will have to play an active role in making the center productive and help the parent organization to move forward. While some of the traits mentioned above, will continuously be needed, a few more traits would be needed to make the center successful in the long run.

• Engineering leadership
• Representing the company flawlessly, both internally and externally
• Managing change with grace
• Retaining the talent
• Vision for the site in alignment with parent’s strategic objectives
• Entrepreneurial mindset (continuous learning, making everything cheaper, faster and better, never letting the organization to entropy)
• Ability to manage quick growth

Good to know:

• One question that I get asked is whether the Site Leader should be a domain expert too? Good leaders are hard to come by and one with experience of the exact domain is even harder to find. My recommendation is to look for ability to learn quickly and strong transferable skills (leadership, ability to carry everyone along, strong engineering and program management skills, networking, ability to be the bridge between the parent company and the IDC, governance and regulatory experience). 
• I also recommend that giving higher weightage for Integrity. This is hard to detect in a couple of interviews, but it is essential. Afterall, this person almost has to act as co-founder for the IDC to succeed, especially for start-ups. 
• Both a Leader and a Follower. You wouldn’t need an “Yes-Person” and also someone that is not aligned. An Yes-Person would not add much value as the IDC grows, and someone that is not aligned might even subtly sabotage

 Related posts on "Setting up a GCC":

• Introduction
• Location within India
• Regulatory approvals
• Hiring the core team
• Hiring enabling team
• Infrastructure
• Scaling up and Staffing models
• Setting-up the India team to succeed
• Cultural Sensitivity

Setting up a GCC: Location within India

This is the first and perhaps the most critical decision (apart from the choice of the Site Leader) that needs to be made. This is not exhaustive, but only dwells at a higher level. Some of the popular choices and their pros and cons.

Bangalore: Contributes over 40% of the exports. The Silicon Valley of India. High availability talent pool, Home to most large and medium sized MNCs, HQs of Indian behemoths like Infosys and Wipro, lately a glut of start-ups including unicorns, top educational units, California like weather etc., all make Bangalore a no-brainer (even after accounting for the potential bias of a Bangalorean!). However, salaries tend to be a tad higher increasing the overall cost. The infamous Bangalore traffic has taken some sheen away.

Hyderabad: As Bangalore started getting saturated, and competition amongst different states increased to woo investments, Hyderabad has grown by leaps and bounds. Anchored by biggies like Microsoft and Amazon, Hyderabad offers most of the things that Bangalore offers. Might not be the preferred option of migrant population as Bangalore remains popular.

Chennai, Mumbai, Pune and NCR (National Capital Region): Lately companies have started expanding into these cities. Chennai boasts of lot of manufacturing activities, Mumbai has been the media/finance/entertainment hub, Pune has a lot of automotive industry and NCR is dominated by firms that have a large regulatory need. However, it is still not comparable to Bangalore in terms of the sheer size of the talent pool. However, it makes perfect to open a center in these places if the nature of the business is closer to the type of activity happening in these cities.

Other Tier 2 cities: Lately, native entrepreneurs and biggies like Infosys (who hire in 1000s) have moved to Tier 2 cities to reduce their cost. However, the nature of work isn’t deemed cutting edge and they struggle to attract top talent. 

Some companies come to India inorganically i.e. they acquire some company so that they get a fast start. When this is the case, it is always better to start in the same place where the acquired company currently exists and think of opening a second center only after crossing atleast 250 in head count. 

Good to know:

• Due to highly competitive schooling, people with school going kids won’t move out of a city that easily (compared to my observations in western world). 
• Couples will move only if both of them get good offers that is in line with their career goals. 
• State taxes are negligible and the central governments Income tax remains the same across the country. Prices of groceries, white goods etc., remain mostly the same across India. House rent is a major variable and usually the only item that helps save compared to Bangalore/Mumbai/NCR. It is therefore very hard to woo someone to say Pune, with lesser salary compared to Bangalore. As salary costs form a very high percentage of cost per employee, it is difficult to get cost arbitrage moving to non-Bangalore/Hyderabad locations. 

One should have a very strong reason if they want to open a center in a non-Bangalore location.

Related posts on "Setting up a GCC":

• Introduction
• Choice of the Site Leader
• Regulatory approvals
• Hiring the core team
• Hiring enabling team
• Infrastructure
• Scaling up and Staffing models
• Setting-up the India team to succeed
• Cultural Sensitivity