Staffing firms find it more profitable putting employees in GCCs than IT firms

Better profitability and revenue from global capability centres (GCCs) have helped the staffing firms offset slowdown in their income from the country’s $283 billion IT sector, which has gone slow on hiring engineers in the past couple of years.

GCCs contributed about 4.2%, or ₹153 crore, of Quess’s January-March revenue. TeamLease, on the other hand, got ₹95 crore, or about 3% of its revenue from GCCs, according to its press release.

For job platform Naukri’s parent company Info Edge, most of the growth of its job-hunting platforms came from GCCs. This business, known as ‘Recruitment Solutions,’ makes up almost three-fourths, or ₹542 crore, of its overall quarterly revenue.

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Staffing firms recruit employees for GCCs and get a commission for each person onboarded in the captive centre. Quess and TeamLease mentioned that they get more money from placing candidates in GCCs.

“GCC is a high-margin business,” Guruprasad Srinivasan, chief executive of Quess, told Mint on Tuesday. “The space that we operate for GCCs is in 5-8 years of experience, whereas in IT services, it is freshers,” added Srinivasan.

He added that employing people in GCCs increases profitability because Quess can get more commission for deploying an experienced person in a GCC as opposed to employing a fresher in an IT services company. “It’s 3-4 times higher than what I could do at IT services,” said Srinivasan.

TeamLease voiced a similar opinion.

“The salaries and margins (for placing candidates in a GCC) are better than the IT services companies. This is largely due to the hiring demand being in high value roles with niche skills,” TeamLease said in response to Mint’s queries on Tuesday.

GCCs also fetched these firms more revenue per employee.

“With GCCs contributing over 60% of our net revenue, they generate higher revenue per associate and contribute meaningfully to margin enhancement,” said TeamLease.

Even the operating margins of the staffing firms jumped due to GCCs.

For Bengaluru-based Quess, India’s largest staffing firm, GCCs made up 66% of its ₹77 crore operating profit. This is higher than two years ago when this contribution totalled 45% at the end of the three months through March 2023.  “In specialized staffing, improved GCC mix and operational efficiency have contributed to margin expansion on a year-on-year basis,” said Ramani Dathi, chief financial officer of TeamLease, as part of the company’s post-earnings interaction with analysts on 21 May.

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Quess and TeamLease ended the three months through March with revenue of ₹3,656 crore and ₹2,868 crore, respectively. Info Edge ended the quarter with ₹750 crore in revenue.

Quess, TeamLease and Info Edge ended FY25 with ₹14,967 crore, ₹11,201 crore and ₹2,849.6 crore in revenue, respectively.

This growth from captives comes on the back of a decline in revenue from IT service providers. For Quess, recruitment for IT services companies has been low, and GCCs have offset much of the decline.

“As we’ve called out, I think IT services is still not in the market with open positions and growth. There is still an element of absorption or a decrease in headcount that’s happening from the IT services side. I think what we had called out was GCC substituting for that to some extent,” said Ashok Reddy, chief executive of TeamLease, as part of the company’s post-earnings call with analysts.

Quess’s Srinivasan voiced a similar opinion, saying “it’s a known fact now there is not much hiring happening in that space.” Most of the new onboards at Quess and TeamLease are from GCCs, reflecting the growing importance of the sector.

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For InfoEdge, new recruits are trickling in from GCCs.

“To diversify and expand its client base, the company is strengthening its go to market offerings and acquiring new clients and focusing on the GCC segment,” said Kotak Institutional Equities analysts Kawaljeet Saluja, Sathishkumar S. and Vamshi Krishna in a note dated 27 May.

According to IT industry lobby National Association of Software and Services Companies (Nasscom), there are 1,760 GCCs in India.

More than 875, or half of the country’s GCCs, are based in Bengaluru, while Hyderabad has about 355. The rest are located in cities such as Delhi-National Capital Region, Pune and Chennai. Nasscom estimates the number of Indian GCCs will hit 2,200 by March 2030, with a market size of $105 billion.