Global capability centers have become a central component of many companies’ technology and shared services strategies. Unlike traditional outsourcing, GCCs allow companies to retain direct control over personnel, intellectual property, and delivery priorities—with this control, however, comes a significantly different legal risk profile.
Common legal issues to consider in connection with managing a GCC include the following:
- Employment law compliance, including hiring, payroll, benefits, worker classification, termination, and personnel policies
- IP ownership and assignment, particularly enforceability under local law
- Data governance and privacy, including data classification, cross-border transfers, and access controls
- Tax and corporate structuring, including transfer pricing and permanent establishment risk
- Operational resilience, including concentration risk and business continuity planning
- Exit planning, including considering potential exit strategies and the operational and financial implications
Looking Closer at the Legal Risk
Employment-related compliance is often the most immediate challenge. Companies operating GCCs must comply with local hiring, payroll, benefits, termination, and labor regulations—often across multiple jurisdictions. Missteps can create compliance exposure, operational disruption, and reputational risk. Employment documentation must also align with IP ownership objectives, ensuring that inventions and developments created by GCC personnel are properly assigned.
Intellectual property protection is a core driver of the GCC model, but it is not automatic. Lawyers must ensure that IP assignment mechanisms are enforceable under local law and confidentiality obligations extend beyond the employment relationship. Where GCC teams collaborate with third-party vendors, additional safeguards may be required to prevent IP contamination or inadvertent disclosure.
Data governance and privacy considerations are equally critical. GCCs frequently handle sensitive personal data and proprietary business information, triggering cross-border transfer restrictions and sector-specific regulations. Companies must establish clear policies governing data access, localization, and incident response, often integrating GCC operations into broader enterprise compliance frameworks.
Tax and corporate structuring issues also loom large. Transfer pricing, permanent establishment risk, and intercompany agreements require careful planning and ongoing documentation. Changes in scope or scale can have unintended tax consequences if not addressed proactively.
Operational resilience is another critical—and often underappreciated—dimension of the GCC model. Because GCCs regularly involve concentrated delivery in a single geography or a small number of locations, companies should assess and plan for operational continuity risks arising from geopolitical developments, natural disasters, infrastructure outages, public health events, and labor disruptions.
From a legal perspective, resilience planning should extend beyond business continuity policies to include governance structures, escalation protocols, and clearly defined decision-making authority during disruption events. Companies may also need to consider redundancy strategies, such as multilocation delivery models, cross-training of personnel, and contingency arrangements with third-party providers.
Finally, exit planning is often overlooked. Scaling down, restructuring, or divesting a GCC can be far more complex than terminating an outsourcing agreement. Lawyers should consider early on how assets, personnel, and IP would be transitioned if the business model changes.
When structured thoughtfully, GCCs can deliver significant strategic value. Achieving that value requires early, coordinated legal planning across employment, IP, data, tax, and technology disciplines.
How We Can Help
Morgan Lewis’s technology transactions, outsourcing, and commercial contracts lawyers regularly advise clients on complex technology deals, global sourcing strategies, and evolving regulatory risk. If you have questions about the topics discussed above or would like to learn more, please reach out to any member of our team.