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American companies are now actively competing for product development and design talent from India for their captive centres while reorganising their technology operations.

In Walmart’s case, one of its big problems in catching up with Amazon on the tech front is that Amazon has common platforms across the world—be it for shopping, or cloud services (AWS). This allows Amazon to just make tweaks on top of a core platform that’s common across the globe by adding services and features unique to a geographic market.

Walmart Labs and India’s Offshoring 3.x Moment

There is now a considerable effort to consolidate technology at Walmart, says the Walmart Labs manager quoted earlier. The first step is to aggregate Walmart’s technology organisations across the world. This way, it will know if a new product for a specific market already exists within the ecosystem in another market, which could save it from reinventing the wheel.

The development centres are thus not an outpost for multinationals, like in the first two waves. They are integral to the operations of enterprises. “The end state is not a separate identity as a global development centre. The end state is to be an extension of headquarters,” says Arindam Banerrji, the CEO of Wells Fargo’s India and Philippines Group. It has 25,000 employees, of whom around 20,000 are based in its Hyderabad, Bengaluru, and Chennai centres. The rest are in Manila, Philippines.

Development centres have to be in the end-to-end flow of business. “We don’t get measured by billing more,” says Banerrji. “That’s the big advantage between a third-party provider and development centres. I am paid to be efficient to the bank.”

Consequently, IT service providers have relatively less or no business from multinationals that have captive operations in India. Does this mean game over? Not in the least. There is more competition to build better digital technologies, and win back business.

But this was before the pandemic struck.

The race for talent

The race for talent

The consequences of Covid-19 have been felt far and wide, but the travel sector has been the worst hit. And without talent mobility, companies’ dependence on development centres go up. The race is now on for talent capture.

The ISG Index pointed to opportunities for technology service providers such as IBM or Infosys to acquire captive centres and data centres that had been underperforming so far. “Poor performing captives will likely be monetised to provide a cash infusion and improvement in business resiliency, thus creating opportunities for service providers to expand their portfolios,” stated the ISG Index report for the first quarter for the year ended 2020. Although there are no examples of this yet, a headline acquisition of this kind happened in September 2019, when $22 billion-worth Tata Consultancy Services acquired General Motors’ India engineering centre and took over its 1,300 employees.

With the pandemic, the dependence on offshore arms will increase. “Some of the best talent in the world comes from India, so American companies are really concerned about the talent supply getting cut off,” says Peter Bendor-Samuel, CEO of Everest Group, which advises enterprises on technology sourcing. “You’re going to see an increase in captives. As the talent shortage persists, captives will continue to flourish and grow.”