It’s High Time GCC companies had a GCC Strategy

Author : Jayaram Vengayil – COO, SmartKatch

Companies in the Arabian Gulf Cooperation Council (GCC) countries have not kept pace with the rest of the world in planning and implementing Global Capability Centers (GCC) to support their business growth. This article examines the reasons and the way forward.

Terms like ‘shared services’ and ‘global business services’ are not much used in the Arabian Gulf. While across the globe, businesses transition from shared service centers to more strategic global capability centers, most back offices and staff functions in the Gulf are still decentralized and closely aligned with the operating units both in physical and strategic terms.

The reasons for the reluctance of GCC companies to set up centralised support operations are not hard to find:

• Family and Government owned entities: Dominate the landscape in the region. Both these assign importance to confidentiality and privacy of data.

• Reservations about Outsourcing: The initial phase of centralized back-office functions was driven by the business process outsourcing (BPO) industry. Given their family business and regulated nature, Gulf businesses had a general aversion to letting critical data get into outside hands.

• Availability of cheap expatriate labour: For companies in the West, there is a compelling case for cost arbitrage by offshoring lower value activities to lower cost locations. Gulf businesses however were always able to easily tap into low-cost expat labour from Asia for routine tasks and hence did not feel the need for this makeover.

• Low adoption of cloud technology: for the same reasons of confidentiality and privacy, GCC businesses have been slow to embrace the cloud and majority of them continue to operate their own physical infrastructure. The cloud is a catalyst for digital transformation and without it, businesses tend to be at a disadvantage to operate remotely.

• Language constraints: Countries that are typically associated with offshoring lack Arabic language resources which is a crucial requirement for most Gulf businesses.

However, circumstances are changing quite rapidly in the region and the emergence of GCCs has already started. What is driving this change and how can businesses and governments in the region build a winning GCC strategy? We looked at some of the factors pushing businesses in the Gulf to consider GCCs favourably.

• Emergence of GenZ entrepreneurs: As the old guard gives way to the younger generation, that is primarily educated in the West, there is growing awareness about the benefits of centralising and productionising back-office functions.

• In-sourcing trend: Globally, businesses are taking back control of the shared functions and reducing dependency on third parties. This eliminates a lot of the concerns around loss of control and confidentiality associated with outsourcing.

• Growing Youth Population: The oil era led to a boom in population in the region creating a generation of educated youth seeking employment. Unlike the old days when low availability of skilled manpower forced dependence on expatriates, today’s Gulf youth are ready to claim their rightful place in the world.

• Reducing Cost Arbitrage: With hitherto low-cost economies now booming, the availability of cheap manpower from traditional source countries is getting scarce. This has narrowed the cost gap between expat and domestic labour.

• Visa Availability: Driven by the need to provide meaningful employment to local youth and correct the demographic imbalance, visas for entry level and basic skilled jobs are being reduced drastically while the costs are increasing.

• Increasing acceptance of the cloud: With the entry of large players into the cloud business and the reduction in costs with increased security features, there is greater reliance on the cloud among today’s entrepreneurs. This fuels the ability to offshore work.

• Availability of skilled Arabic resources: GCC nationals themselves are now increasingly bi-lingual and able to handle the native language requirements easily to build high-skill centers onshore. Furthermore, neighbouring countries in the greater Middle East and North Africa region are positioning themselves as attractive and relevant alternatives to the traditional offshoring hotspots.

With all the favourable tailwinds, Global Capability Centers will soon become a driver for growth in the GCC. However, they need to navigate the waters carefully. Some key learnings from the rest of the world would be useful to fully leverage the benefits from this strategic move.

• Go beyond Cost Arbitrage: While cost remains a prime consideration, it is essential that centralization of support and specialist functions also focus on activities higher up the value chain. Appropriately used, GCCs are a valuable source of financial risk intelligence and data analytics that create significant competitive advantage way beyond mere staff cost savings.

• Blend onshore, nearshore and offshore: Given the demographic pressures, it is essential to carve out activities carefully into onshore, nearshore and offshore areas. This would help to boost local employment in the right areas and move lower-value adding roles or professions without adequate local resources to other territories.

• Focus on upskilling youth: Training for local workforce in skills and specializations that are in short supply will help move such work back to the country and create meaningful employment for the next generation.

• Open up visas for highly skilled personnel: Upskilling of youth should go hand in hand with creating a favourable environment to attract highly skilled expat resources that can enable such knowledge transfer. This will create a strong base for a knowledge-based economy that judiciously creates value.

Isn’t it time you started evaluating the centralisation of certain critical activities to create the competitive advantage for your business to scale exponentially. What plans do you have in this regard?