What is GCC as a Service: Overview, Challenges and Strategies

What is GCC as a Service?

The first concept to grasp is that GCC-as-a-Service separates the asset from the operational liability. 

This model permits companies to use the speed of outsourcing while keeping the depth of a wholly-owned center.

In this framework, GCC providers act as specialized builders. They handle the operational liability such as the legal entity setup and payroll administration. You keep control over the asset which includes the intellectual property and project roadmaps.

• Main Philosophy: It is a Borrow-to-Own framework that lets you build a team before you commit to a legal entity.
• Market Shift: Modern GCCs are moving away from back-office work to become innovation hubs.
• Primary Benefit: It converts fixed capital expenses into variable operating expenses.
• Goal: To protect the client from the difficulty of setting up a foreign legal entity until the team grows.

How GCC as a Service Works?

Understanding the mechanics of GCCaaS requires looking at how the GCC-as-a-service provider and client split duties.

In this model the service provider hires talent onto their payroll and houses them in their offices yet these employees work under your direct instructions.

While the GCC-as-a-service provider manages the location and the staff administration you keep full control over the work content. This includes choosing the technology and setting the performance metrics. The setup copies the captive experience without the immediate legal registration.

• The Provider Role: They manage local approvals and labor registrations to take on the initial setup risk.
• The Client Role: You give the functional leadership to make the remote team match the headquarters values.
• Operational Clarity: Unlike outsourcing this works on an open book model where costs are visible.
• Integration Aim: The operational phase targets cultural connection so the team does not feel like a vendor.

Types of GCC as a Service Models

1. Fractional GCCs

A Fractional GCC works well for mid-market companies with revenues between $500M and $5B that cannot support a large center.

In this model multiple clients share office space and administrative costs. This allows a company to use high-quality R&D centers without paying for the full lease.

2. Virtual Captives

The Virtual Captive often comes before full ownership. Here the team works only for you but they stay on the GCC service provider payroll for a set time.

This model suits companies that want to build a specific center but prefer to delay the legal registration until the team reaches a sustainable size.

It protects the client from Permanent Establishment risks during the early phase.

3. Build-Operate-Transfer (BOT)

The Build-Operate-Transfer model represents a structured path to internal ownership. It acts as a delayed acquisition transaction.

The GCC-as-a-service provider builds the team and runs it for a set period. At a pre-set time you exercise an option to buy the center. This moves assets and employment contracts to your own legal entity.

4. Hub-and-Spoke Models

Companies are using hybrid setups. A Hub-and-Spoke model might involve a large client-owned center in a primary city managing smaller GCC-as-a-service provider-run centers in smaller cities.

This allows the business to keep strict control over sensitive IP at the Hub while using the lower costs of provider-managed Spokes for support services.

Costs and Overhead Related to GCC Services

The decision to use a GCCaaS model is an exercise in financial planning. It trades the large cash outflows of a new setup for a predictable operational expense.

Unlike outsourcing which uses fixed rates that hide the true cost, GCCaaS uses a Cost-Plus pricing model.

This clarity forms the base of the partnership so you know exactly what goes to the talent and what goes to the GCC-as-a-service provider.

• Direct Costs: These are expenses paid by the GCC-as-a-service provider for the client including the gross salary and social security.
• Management Fee: This is the provider margin which ranges from 12% to 18% of operating costs for large operations.
• Hidden Statutory Burdens: In India mandatory payments like Provident Fund and Gratuity can add 15-18% to the base salary.
• Recruitment: In a Cost-Plus model you pay the recruitment agency fees for every replacement unlike managed services where the vendor pays.

GCC as a Service Strategies

To handle these risks success in a Service engagement must be written in the contract. A standard outsourcing agreement is not enough so the contract must function as a partnership with a clear exit path.

For example companies must use a Digital DNA plan for risk reduction. This includes rotating leadership between HQ and the center and giving the center ownership of entire product lines. You must also agree on the exit terms before you begin.

I. Transfer Trigger and Fees

The contract must define when the transfer can happen and use a formula for fees rather than a fixed number.

• A common structure is to set the transfer date to any time after month 24 with 90 days notice.
  
• The fee calculation should be a formula such as 10% of the trailing 12 months operating costs to account for the size of the team at transfer.
  
• Defining this upfront prevents the GCC-as-a-service provider from charging arbitrary amounts when the client holds the least leverage.

II. Asset Valuation

Verify assets are valued at Net Book Value at the time of transfer. The methodology for valuing the assets such as computers servers and office fit outs should use the depreciated value rather than Market Value or Replacement Cost.

• This distinction prevents the client from paying inflated prices for used equipment during the handover.
  
• This can also help in calculating the final capital requirement for the transfer phase accurately.

III. Reverse Non Solicit

The agreement must state your right to hire all assigned employees upon transfer. This clause acts as a Non Solicit in reverse guaranteeing that the client can absorb the entire team that worked on their projects.

• It must also bar the GCC-as-a-service provider from moving key staff to other accounts during the notice period.
  This protection is essential to keep knowledge within the company and prevent the GCC-as-a-service provider from stripping high value talent before the handover.

IV. Step in Rights

You must have the legal right to take over operations immediately if the provider fails. In the event of GCC-as-a-service provider insolvency or severe breach this clause allows the client to step in and manage the center directly to keep business continuity.

• Without this legal safety net a GCC-as-a-service provider bankruptcy could lock the client out of their own operations and data.
  
• This right should include immediate access to facilities and data systems without waiting for court proceedings.

Main GCC as a Service Challenges

Moving to a GCC-as-a-service model presents specific dangers. While the financial logic is sound, operational trouble often rises from cultural gaps and legal errors. One common issue is that center employees feel like support staff rather than product owners. If the center serves only as a cost savings vehicle it risks becoming a stagnant unit with high turnover rates of 20-30% annually. Also the Virtual status is a legal fiction that you must maintain to prevent tax debts.

1. Permanent Establishment Risk

The virtual aspect of this model relies on a legal distinction that you must maintain carefully. If a foreign parent company exercises too much direct authority over the employees of the GCC-as-a-service provider, tax authorities in countries like India or Poland may deem the parent company to hold a Permanent Establishment. 

• This classification subjects the global parent to local taxation on a portion of its global profits attributed to that center.
  
• Nuanced triggers for this risk include actions such as conducting performance reviews directly providing laptops directly or authorizing leaves without the GCC service provider intermediary.
  
• To manage this the Master Services Agreement must state that the GCC-as-a-service provider keeps direction and control over the employees.
  
• Governance should flow through a joint steering committee rather than direct managerial reporting lines on paper.

2. Data Sovereignty and Security

In shared Fractional GCC-as-a-service models there is a risk of IP leakage or data mixing if strict separation is not applied.

1. With the enforcement of the GDPR in Europe and the Digital Personal Data Protection Act in India data handling is a main risk.
   
2. To handle this, GCC-as-a-service providers must set up Zero Trust security architectures and physical segregation where they place separate access controlled zones for different clients.
   
3. Using VDI solutions where data never leaves the secure cloud environment of the client is another method to secure information.

3. The Mid Way Vulnerability

The period between 18 and 36 months is the vulnerability window. This is when the initial excitement of the launch fades the honeymoon period with the GCC service provider ends and operational fatigue sets in.

• Operational inefficiencies that teams overlooked during the rapid build phase begin to compound. Scope creep dilutes the main purpose and attrition spikes as employees seek new raises.
  
• To correct this companies should build a Mid Term Review and Recalibration phase into the contract to audit processes and refresh technology stacks.

4. Integration Costs

Managing the remote culture requires travel and onshore managers which costs an additional 5-8% of the budget.

Although the GCC-as-a-service provider manages the administrative side the client must invest heavily in functional and cultural management.

Executives from the headquarters must travel frequently and dedicated onshore bridge managers are often necessary to keep alignment. This shadow management cost is often absent from the initial budget but is essential for long term success.

Why Partner with Entrans for Your GCC as a Service Engagements?

Do you want to start a GCC but worry about the operational work?

Well, luckily at Entrans, we’ve worked with many companies to update their global operations. We are prepared to handle everything from product engineering to full GCC setup. 

We update the process so you can aim at the big picture while we handle the execution. Our GCC-as-a-Service model delivers a framework that combines the speed of outsourcing with the control of a captive.

From building teams to managing the Build-Operate-Transfer lifecycle we handle projects using industry experts.

We place AI processes into GCC workflows from the start so your center acts as an innovation hub.

Do you want to know more? Reach out for a free consultation call.