0

Global Capability Centres (GCCs): Handling the Digital Era — An in-depth exploration of developments, approaches, and regulatory frameworks

ABSTRACT: 

In the dynamic landscape of global business, Global Capability Centers (GCCs) emerge as strategic powerhouses, reshaping how organizations operate, innovate, and scale. This article unravels the multifaceted journey of GCCs within the Indian context, where India’s leadership shines brightly. From inception to execution, this article aims to delve into the intricate steps involved in running GCCs on Indian soil, emphasizing legal compliance, talent fusion, and strategic autonomy.  

The canvas extends to various metropolitan cities and states in the subcontinent., encompassing rural ecosystems and equitable growth. As data guardians and cultural bridge-builders, GCCs navigate complexities, leveraging innovation and safeguarding sensitive information. This study attempts to shed light on the complex web of myths and beliefs surrounding the GCCs by evaluating the historical background, legal provisions, investigation difficulties, and prosecution barriers. 

 

KEYWORDS: 

GCCs, Global Capability Centres, India, Innovation, Technology, Legal Compliance, Regulatory Authorities, Data protection, Expansion of business, MNCs, Corporate Structure, Diversification, Legalities. 

 

INTRODUCTION 

India has established itself as a centre for innovation and R&D in recent years. An increasing number of international corporations are considering looking to India as a means of propelling their corporate growth into the next phase, given its well-established reputation as a hub for outsourcing and offshore, particularly in the technology industry.  

The nation is leading the way in tech-driven innovation because to the fast changing services industry, which has made global capability centres essential hubs for business strategies, new technologies, and transformation. These hubs enable organisations to remain flexible in a very dynamic setting. 

 

EMERGENCE AND EVOLUTION: 

In order to reduce costs and meet the operational needs of a foreign organisation (referred to as a “Foreign Entity”) in its service offerings, global capacity centres, or “GCCs,” were first established in the Indian banking sector as offshore global in-house centres, or “GICs.” India’s knowledgeable workforce (large potential base) and reasonable operating expenses have helped it become recognised as a desirable location. With 1.66 million1 workers as of FY 2022–2023, India employed roughly 1,580 GCCs, and this figure is rising quickly. 

By generating excellent job opportunities and boosting the GDP of the nation, these centres have been crucial to India’s economic development. These global corporations in India, known as GCCs, are present in a variety of industries, such as technology, engineering, consulting, and many more. Indeed, India has become the go-to location for many of these innovation clusters due to its abundance of highly trained and bright workers, affordability, and government regulations that encourage them. 

The most sought-after locations are Bengaluru, Hyderabad, Delhi NCR, Mumbai, Pune, and Chennai; with their strong infrastructure, talent pool, and encouraging climate, these cities provide an ideal setting for global capabilities centres in India. The majority of the operational GCC footprint in India’s top 6 cities is made up of US-headquartered companies, with European companies making up the remaining 35%2. With the support of local unicorns, the percentage of GCCs with an APAC base is now very low but is rapidly increasing. Furthermore, the total amount of office space occupied by GCCs in the top six cities has surpassed 200 million square feet and is increasing quickly over time. 

 

INDIA’S CONTRIBUTION TO GLOBAL COMPETENCE CENTRES: 

The development of global captive centres in India has been influenced by a multitude of growth drivers, both past and present. They consist of:  

  • ABILITY: The presence of highly skilled labour in India’s global capability centres is one of their main advantages. Every year, millions of people graduate from India, with a large percentage having studied business management, computer science, or engineering. These graduates have a strong sense of motivation, outstanding technical proficiency, and a solid grasp of global business procedures. As a result, multinational corporations operating in India can take use of this talent pool to offer a broad range of services to their clientele worldwide. 
  • AFFORDABLE FACILITIES: An additional benefit of global capability centres in India is their cost-effectiveness. Compared to industrialised nations like the US and the UK, running a captive centre in India is far less expensive. This is because of better exchange rates, lower real estate expenses, and lower salaries. Thus, by setting up a GCC in India, multinational corporations can drastically cut their operating costs. Indian towns entice multinational corporations to establish their global inhouse centres because they provide occupiers with comparatively lower rentals for Grade A workplaces, and institutional landlords are pushing for better services and higher-quality real estate. 
  • GOVERNMENT SUPPORT: In an effort to draw in international investment, the Indian government has supported the establishment of global competence centres by offering a number of programmes and incentives. Businesses can establish their GCCs in special economic zones (SEZs) created by the government, where they can also take advantage of a number of additional advantages and tax breaks. Additionally, the government has put policies in place to support R&D and innovation, which has assisted captive centres in India in creating cutting-edge services and technology. 

 

ENACTING OR RUNNING A GCC IN INDIA: LEGAL AND REGULATORY ASPECTS: 

Every federal, state, and municipal law that a foreign entity intends to establish a GCC in India must be complied with. Compliance with contract laws to regulate the GCC’s contractual relationships (such as intergroup agreements and vendor/supplier contracts), corporate structuring, regulatory interventions, dispute mitigation techniques, etc., are all included in this.  

Additionally, compliance with corporate laws specifies the type of legal entity that must be established in order to incorporate the GCC. In addition, the GCC would be exposed to some legal risks due to the fact that different jurisdictions may have different legal positions on matters like as minimum compensation, non-compete agreements, data protection, permanent establishment, and reporting structure. 

These include various factors like: 

INITIAL STAGE: COMPLIANCES AND SETTING UP- 

Prior to incorporating the GCC in India, the foreign entity would need to decide what kind of legal entity to create. It could be an office, a partnership, a limited liability partnership, a business, or a joint venture. It would next have to decide on the corporate structure for the GCC.  

This could fall into one of two extremes in terms of the ownership and control that the Foreign Entity has over the GCC in India: Choose the conventional or “do-it-yourself” model (also known as the “DIY Model”), in which the foreign entity establishes the GCC while maintaining total ownership and management. Specialised jobs requiring local assistance or advice are then outsourced. Adopt the “build-operate-transfer” model (also known as the “BOT Model”), in which a third-party service provider establishes the GCC/GIC, runs the centre, and then progressively hands over ownership and control to the foreign entity. 

Getting to the section on compliances, The standards for compliance before and after setup vary based on how the GCCs are set up in India. For example, the GCC would have to adhere to a number of requirements if it were to become a company under the Companies Act, 2013, as well as its regulations. These would include deciding on reporting lines, reviewing and preparing company policies and charter documents, preparing routine and event-based reporting and filings, and more. 

 

SECOND STAGE: GEOGRAPHICAL AREA- 

The special economic zones (SEZs) and international financial services centres (IFSCs) are the two tools that regulate GCCs and GICs established in controlled territories; nevertheless, there is no specific legislation or regulation that governs GCCs generally. GCCs and GICs established in Special Economic Zones (SEZs) are subject to regulations outlined in the Special Economic Zones Act, 2005 (“SEZ Act”).  

Any “GIC” setup at an international financial services centre (IFSC) is governed by the International Financial Services Authority (Global at-House Centres) Regulations, 2020 (“GIC Regulations”). To maximise “ease of doing business,” SEZs and IFSCs provide regulatory exemptions to businesses operating within its borders. These exemptions include non-fiscal (such as simplified licencing) and fiscal (such as labour legislation and tax relaxations). 

 

THIRD STAGE: RESOURCING- 

Due to the centre’s operations in India, employment and/or labour regulations in India would apply to anyone hired or recruited to work for the GCC, regardless of their citizenship. One of the main reasons foreign entities establish GCCs in India is because of the availability of diverse “human capital.”  

Therefore, the centre must ensure proactive compliance, which includes, but is not limited to, putting in place the required policies and systems to prevent and handle employee-related grievances at work. In addition to hiring foreign nationals, the GCC is permitted to hire Indian people, but it must carefully manage the extra compliances associated with doing so. Recruiting from the Indian labour force appears to be a goal, based on the current enormous and heightened recruitment activities3. 

 

STAGE 4: TAXES- 

Evaluating various corporate proposals requires constant assistance on transfer pricing, GST-related issues, and taxation (including employee incentives, property, etc.) due to India’s strict tax system and the GCC’s global servicing model.  

Since the Indian tax department would review and evaluate the GCC in terms of its control, supervision, and management by the foreign entity—specifically, how employees in India report to the employee at the foreign entity—the foreign entity should also take precautions to avoid any risks from being classified as a “permanent establishment.” 

From a theoretical perspective, this is the last or “final” stage overall. To survive in this fiercely competitive market, there are still numerous steps to take. Maintaining the regulatory authorities is the primary goal. 

 

OUTSOURCING OF GCCs: 

To elaborate on the previously mentioned point, there are two strategic models available for setting up a GCC in India: (1) the traditional or do-it-yourself model (also known as the “DIY Model”), wherein the foreign entity establishes the GCC (by incorporating an entity in India) and maintains full control and ownership (while outsourcing specialised tasks requiring local support/advising); and (2) the build-operate-transfer model (also known as the “BOT Model”), wherein a third-party service provider either fully or partially establishes the GCC, runs the centre, and gradually transfers ownership and control to the foreign entity4. 

A service agreement with a professional employer organisation (PEO) or employer on record (EOR) is one of the numerous hybrid models. In this arrangement, the foreign entity enters into a contract with an EOR/PEO to engage employees who will work directly for the foreign entity under the EOR/PEO’s supervision and execute services that the foreign business would typically expect from the GCC. This usually lasts only temporarily, until the foreign company establishes procedures for directly onboarding staff and incorporates its GCC in India. 

 

BENEFITS: 

  • TALENT: Having access to a global talent pool allows businesses to customise their dream team by finding experts with specialised knowledge and abilities. Combining creativity, problem-solving, and operational excellence in this way yields optimal results. 
  • AFFORDABLE: Capitalising on areas with reduced labour costs is a wise financial decision for GCCs. Because of the large savings in infrastructure, salaries, and operating costs that result from this, firms are better able to manage their resources for improved financial health and competitiveness. 
  • FLEXIBILITY: GCCs offer businesses the amazing capacity to instantly scale up or down in response to market conditions. Therefore, GCCs maintain organisations competitive and nimble, whether it’s managing unexpected demand spikes or taking on exciting new projects. 
  • SCOPE FOR INNOVATION: GCCs enable businesses to concentrate on innovation and core competencies. By assigning regular duties to these centres, organisations can free up resources for things like product development, market expansion, and strategic projects. This emphasis strengthens the company’s competitive advantage, fosters a culture of continuous innovation, and moves the business in the direction of steady growth and adaptation. 

 

DRAWBACKS:  

Although they have numerous advantages, Global Capability Centres (GCCs) also have some difficulties and disadvantages. Let us investigate a few of these: 

  • Lack of Executive Sponsorship: Strong executive sponsorship is frequently necessary for GCCs to form and grow successfully5. Delays in decision-making and operational inefficiencies could occur in the absence of high-level support. Insufficient comprehension of expenses, ROI, and the operational framework may impede the efficacy of the Gulf Cooperation Council. 
  • Complex Setup and Resource Intensiveness: Legal compliance, infrastructure preparation, and hiring talent are just a few of the many tasks involved in establishing a GCC. Budgeting, coordinating resources, and ensuring they are in line with corporate objectives may all be challenging. 
  • Cultural Differences: There are difficulties while working in multicultural environments. It takes extra work to effectively communicate, grasp local customs, and bridge cultural divides. 
  • Data Privacy and Security Risks: Adherence to data protection rules is crucial when managing confidential information. Making sure there are strong security protocols and privacy protections is crucial. 
  • Legal and Regulatory Compliance: It can be difficult to navigate local tax laws, labour legislation, and intellectual property rights. Legal ramifications and reputational harm could result from noncompliance. 

 

CONCLUSION: 

GCCs are strong promoters of innovation and growth in the complex world of international business. They do face some legal challenges along the way, though. Under the guidance of strategic foresight and legal caution, organisations must use caution when they create and maintain these centres. Global Capability Centres (GCCs) facilitate innovation and progress in the complex world of global business. But they also have to deal with issues including complicated setup, cultural disparities, and privacy concerns pertaining to data.  

Ensuring compliance with labour regulations, data security, and contractual accuracy are all critical aspects of legal compliance. Strategic independence, talent fusion, and a global vision are essential as GCCs traverse these boundaries. Under the direction of a peaceful future and superior legal standards, India’s position as a leader among the GCC states keeps changing. 

 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.” 

 

Written by Riddhi S Bhora. 

 

0

The Kerala High Court permits students to enter District-Level Kuchipudi competitions despite underperforming at the Sub-District Level owing to “Apparent Prejudices”

Title: Archa Nair v. State of Kerala
Decided on: 21 November, 2023

+ WP(C) NO. 38620 OF 2023

CORAM: HON’BLE Justice Devan Ramachandran

Introduction

Kerala High Court ordered the District Level School Kalolsavam (Annual Arts Competition) organizers to permit a student to compete in the ‘Kuchipudi’ competition, if the student was unable to perform adequately at the Sub-District level because of some “apparent prejudices”. The bench further mandated that she be granted access to all ensuing advantages.

Facts of the Case

The student petitioner took part in ‘Kuchipudi’ at Kalolsavam Sub-District School and placed second in the tournament. It was claimed that some pins and sharp objects had injured her since the stage where she played had not been adequately cleared after the previous performances. A number of other arguments were made to support the claim that her performance fell short of her expectations. When she filed an appeal against it with the Appellate Committee, it was argued, the committee rejected it without providing a reason, stating that the “Appeal stands rejected”. She prayed that the same would be lifted and that she would be allowed to take part in the District Level School Kalolsavam.

Courts analysis and decision

The court, however, rejected the argument and granted the writ petition as a result.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Written by- Hargunn Kaur Makhija

Click here to view your judgement

0

Cartels and Competition Law in India

Abstract

This Article gives an analysis on the topic of cartel and their nature and new era cartels. It also looks into the matter of impact of cartels on the competition in a market and how Indian competition law comes in rescue of market from the impacts of cartel and lastly, we would discuss the recent amendments to the competition act regarding cartel operation.

Introduction

A cartel is a group of similar independent companies who join together to control prices and limit competition[1] for example, Oil cartels like OPEC or OPEC+, they manage and influence the prices of crude oil all around the globe.

Definition & Nature

Cartel has been defined under section 2(c) as –

“an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”[2]

The General nature of a cartel involves increase in the profitability of its members and overall increase in the strength of cartel in the market. These cartels usually undertake four forms of activities to influence the market, they are –

  • Price Fixing, includes determination of Price for commodity, setting a minimum resale price etc
  • Collective bidding
  • Sharing of markets as per areas or sectors or products
  • Controlling production

Laws on cartel

Cartel arrangement which aims at distortion of competition through controlling market conditions and determining prices are held illegal per se and violative of competition act. These arrangements are clearly violation of Section 3 of the competition act which prohibits all those agreements which causes or likely to cause AAEC[3].

Now, referring to the definition, It is quite clear that these cartels are based out off agreement and as per section 2(b) of the act as –

“agreement” includes any arrangement or understanding or action in concert[4]

Generally, these agreements are not based out in a formal setting, when it aims to control the market, they are based out in a clandestine manner usually behind the closed door so, proving its existence is usually difficult but as per the Raghavan Committee “there is no need for an agreement to be formal or written to be considered illegal. In principle any kind of agreement is illegal if it violates law.”[5]  And similar view has also been held in the case of Director General (Supplies & Disposals) v. Puja Enterprises, 2013 SCC OnLine CCI 55, “It may be observed that the definition of ‘agreement’ as given in section 2(b) of the Act requires inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings. The definition, being inclusive and not exhaustive, is a wide one. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a nod or a wink[6].

And to prove the existence of these arrangement there is need of evidence but usually finding direct evidence in these situations is usually difficult and next to impossible as these arrangements are so clandestine in nature that many times evidences are destroyed. So, finding its whole existence is under the shades and it could only be proved trough various circumstantial evidence implicating the existence of such arrangement. As the same thing has been observed in Director General (supra) “There is rarely a direct evidence of action in concert and the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in co- operation with each other. In most cases, the existence of an anti-competitive practice must be inferred from a number of co-incidences and indica which, taken together, may, in the absence of another plausible explanation, constitute evidence of the existence of an agreement.[7]” and Hon’ble SC in Rajasthan Cylinders & Containers Ltd. vs UOI (2020) 16 SCC 615 “There may not be a direct-evidence on the basis of which cartelisation or such agreement between the parties can be proved as these agreements are normally entered into in closed doors. The standard of proof which is required one of Probability,[8]

Here, standard of probabilities is such that for a fact is said to be true when either the court believes it to be true or its existence is so probable that any prudent man, ought under the circumstances of a particular case, to act upon the supposition that it exists meaning if a prudent man would be given similar circumstances to dealt with then the analysis of the given circumstances would make him conclude about the existence of a cartel. These circumstantial evidences might include, parallel business behaviour, exchange of sensitive information etc.

The competition law in India proscribes all those arrangement which causes or likely to cause AAEC and Cartels are always presumed to AAEC, as has been held by Raghavan Committee that “The presumption is that such horizontal agreements and membership of cartels lead to unreasonable restrictions of competition and may, therefore, be presumed to have an appreciable adverse effect on competition.”[9] And also held in FICCI – Multiplex Association of India v United Producers/Distributors Forum(2009), where Commission specifically held that Cartels are most pernicious form of arrangement and they are presumed to AAEC under section 3 (3) of the act.[10]

Indian Laws on competition have provision to tackle the problems posed by Horizontal and Vertical agreement and it also has provisions to make them liable for their actions as Section 27 provides for imposition of penalty for formation of cartels which could amount to three times or ten percent of the profit in the year of agreement, whichever is higher. And Commission has powers to initiate Investigation under section 26 of the act.

It may seems like the competition act got enough teeth to bite threat to competition but that’s definitely not the case in real world as many times these cartels form indirect arrangements for collusion, commonly known as a Hub & Spoke Cartel, where a Hub provides all the necessary support for the existence and survival of cartel, its support ranges from providing sensitive information among rivals, calculating prices, organising meetings etc. and all these activities are connected to spokes which cooperatively controls the market. In this new era there is generally an involvement of an Algorithm which usually works as a hub for the enterprises and creates a cartel, these arrangements are generally tacit in nature thus forming an tacit algorithmic cartel. CCI has also explained these arrangement as “A hub and spoke arrangement generally requires the spokes to use a third-party platform (hub) for exchange of sensitive information, including information on prices which can facilitate price fixing. For a cartel to operate as a hub and spoke, there needs to be a conspiracy to fix prices, which requires existence of collusion in the first place, earlier mentioned arguments clearly indicates these circumstances which proves the existence of hub and spoke cartel. It also held that a hub-and-spoke cartel would require an agreement between all parties to set prices through the platform, or an agreement for the platform to coordinate prices between them”[11]

Prior to the amendment, Competition law only prohibits arrangement between traders at same level of production meaning it covers only Horizontal agreements but this Hub & spoke arrangement has element of both horizontal and vertical arrangement thus it lacks powers to penalise the offenders leading disruption of competition in the market. But after the competition amendment act 2023, it has amended the definition of cartel in section 3(a) of the act as –

“Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it participates or intends to participate in the furtherance of such agreement.”[12]

After this amendment any arrangement between enterprises aiming at disruption of competition would be prosecuted irrespective of their position in the production level, irrespective of the nature of trade or business conduct of the enterprises meaning all kinds of tacit algorithmic cartels would be prosecuted with provisions of penalty as per section 27.

Conclusion

This amendment is in right direction as the time is changing, and with more influence of technology in the business. It would eventually create new loop holes to exploit by these violators of competition, thus to maintain fairness, equity and uphold the law of natural justice, strong steps had to taken in order to tackle and empower the commission in maintaining the just level field of competition in the market.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Written By – Shreyanshu Gupta

[1] https://dictionary.cambridge.org/dictionary/english/cartel

[2] Section of 2(C) of the Competition Act 2002

[3] Appreciable Adverse Effect on Competition

[4] Section 2(b) of the Competition act 2002

[5] Para 4.3.2 of the Raghavan Committee

[6] Para 25, Director General (Supplies & Disposals) v. Puja Enterprises, 2013 SCC OnLine CCI 55

[7] Para 26, Ibid

[8] Para 81, Rajasthan Cylinders & Containers Ltd. vs UOI (2020) 16 SCC 615

[9] Para 4.3.8, Raghavan Committee

[10] Para 23.6 FICCI – Multiplex Association of India v United Producers/Distributors Forum(2009)

[11] Para 18 Samir Agarwal vs ANI Technologies 2018 SCC OnLine CCI 86

[12] Section 3 (a) of the Competition amendment act 2023, https://www.cci.gov.in/images/legalframeworkact/en/the-competition-amendment-act-20231681363446.pdf