Transitioning to a GCC Model: When EOR Stops Making Sense 

The Employer of Record (EOR) model offers speed, compliance, and reduced initial capital expenditure – three things every business values when entering new markets. But as teams grow, that same model can quietly become a cost and control bottleneck. On the other hand, setting up a legal entity from scratch in a new country comes with multiple challenges: think employment and taxation laws, talent acquisition, payroll management and much more. 

So, when does an EOR stop making sense? Let’s explore where the inflection point lies, how costs compare with setting up a Global Capability Center (GCC), and the various factors that leaders should evaluate before making the shift. 

The Appeal of EOR: Cost Efficiency, Speed and a Turnkey Solution

When emerging enterprises decide to diversify globally, the EOR model often comes across as the ideal solution. From talent acquisition and payroll management, to ensuring regulatory compliance and the disbursement of statutory benefits, the EOR partner enables the company to build a small remote team with 100% compliance with local laws. In most cases, the EOR partner charges on a per-employee basis, thus turning out to be highly cost-efficient in comparison to setting up a legal entity. For businesses looking to test a new market or build a small remote team, it offers an efficient and low-risk entry point. 

Consider this: A 150-person cybersecurity company in Europe needs to hire 5 malware analysts + 3 Python engineers urgently to meet a large client contract. Setting up an entity in India is not the best option at this stage because they:  

• would need talent within 30 days 

• have no legal presence in India 

• would have to validate whether long-term India expansion makes sense  

• want a fully compliant, low-risk way to onboard a small team 

An EOR partner works beautifully here, as it offers:  

• fast onboarding (<3 weeks) 

• no requirement for a legal entity 

• transparent costs, which are manageable at small team sizes 

• easy way to test the market 

However, as the team gradually scales, the EOR model will be unable to help the company capitalize on the economies of scale. 

The Tipping Point: When the Model Starts to Strain

The advantages of an EOR begin to fade as a company’s offshore headcount grows, typically around the 15–20 employee mark. Most EORs charge a monthly per-employee fee, depending on the location, the roles being filled, and other such considerations.  

For a minute, let’s go back to our imaginary European cybersecurity firm. Within 9-12 months, this startup:  

• expands the team to 18 employees (analytics, SecOps, backend, QA) 

• starts requiring cross-functional collaboration 

• needs tighter governance for incident-response workflows 

• feels the strain of paying recurring per-head EOR fees 

• realizes engineers feel “contracted,” not “company-owned” 

The final point poses a bigger challenge with the EOR model in actuality. 

• Lack of Cultural Cohesion: Under the EOR model, employees remain legally tied to the provider, which can dilute cultural alignment and belonging. This separation often limits engagement and weakens the connection between the offshore team and the parent organization. 

• Limited Control over Operations and Quality: With employment and HR functions managed externally, the parent company has restricted visibility into day-to-day operations. This can result in uneven performance, limited accountability, and challenges in maintaining consistent quality as teams scale. 

• Compliance and Ownership of IP: While EORs are built to manage local labor laws and ensure legal compliance, the employer-employee relationship remains indirect. Ambiguities often arise around ownership of intellectual property, responsibility for data protection, and enforcement of internal policies.  

The result? 

The company starts feeling the pinch across multiple fronts: 

1. Talent attraction slows down because senior engineers and product leaders hesitate to join an entity where they aren’t officially employed by the company.
   
   
2. Critical roles remain unfilled, creating delivery bottlenecks and delaying product roadmaps.
   
   
3. Teams feel detached, because a 20+ member group doing core engineering work still operates “outside” the parent organization – no shared culture, no unified performance framework, no long-term career clarity.
   
   
4. Compliance headaches surface, especially around IP ownership, data processing, SOC2 alignment, and customer audits, all of which become friction points when the workforce is not legally part of the company. 

The EOR model did exactly what it was designed to do – help the company kickstart a team. But it cannot help them scale. 

This becomes the inflection point where transitioning to a GCC becomes not just a strategic choice, but the only sustainable path to growth, control, and long-term capability building. 

The Economics: EOR vs. GCC (Cost and Value Comparison)

While ‘CapEx Savings’ is one of the biggest motivators for companies choosing the EOR route, they soon reach a financial tipping point which forces them to reconsider. Let’s dive a little deeper:  

• An EOR typically charges a base salary plus a management fee, which can range between 10%–15% of payroll costs. For a 20-person team or above, this adds up to significant overhead each year, and that’s before accounting for renewal costs, platform fees, or currency fluctuations. 

• By contrast, setting up a Global Capability Center (GCC) requires a larger initial investment, but the long-term cost curve flattens quickly. Once established, the per-employee cost is lower because the company directly manages payroll, infrastructure, and compliance. Specifically in India, GCCs receive substantial set-up incentives from state governments in the form of GST rebates, land and infrastructure subsidies.  

• EOR fees are ongoing operational expenses (OpEx) with little residual value, whereas GCC setup costs, though higher initially, are capital expenditures (CapEx) that build long-term assets such as infrastructure, local brand equity, and intellectual property. 

Beyond Cost: The True Value of a GCC

For most mid-market firms, the realization that “EOR is getting expensive” is only part of the story. The deeper shift comes when leaders start asking, “What’s the real value we want from this global presence?” That’s where a GCC comes in.  

• A GCC allows organizations to take true ownership – of people, processes, goals and outcomes. Teams work under the same brand, culture, and performance framework, and leaders can design cross-functional collaboration, invest in local leadership, and even drive R&D or digital transformation from the center. 

• GCCs, once established, drive innovation, process optimization, and IP creation, thus generating long-term enterprise value beyond cost savings. This is especially valuable for tech and product companies, as GCCs enable full control over organizational knowledge and data governance, leading to higher quality and alignment with global standards. 

• By leveraging robust employer branding, GCCs can develop a stronger sense of belonging and commitment to the parent organization, leading to higher retention, deeper engagement, and sustainable capability building 

Returning to our example one final time: the cybersecurity firm transitions from EOR to a GCC model. Within a year, it notices stronger talent retention, smoother collaboration with headquarters, and reduced overall costs. Instead of simply being an offshore team, the GCC functions as a true extension of the HQ. 

The Transition Decision: A Practical Checklist for Leaders

While an EOR partnership serves as an effective entry strategy, scaling sustainably demands a model that enables greater control, deeper value creation, and stronger cultural integration.  

For leaders standing on the brink of the EOR-to-GCC transition, here are a few key-factors to keep in mind:  

1. Team Size and Scale: If your offshore team exceeds 15–20 employees, evaluate the economics carefully. This is the financial inflection point, as the per-head cost advantage of the EOR model diminishes quickly beyond this point.
   
   
2. Lack of Control: Are you struggling to enforce company policies, culture, or performance standards? If yes, then this is a clear signal to transition to a GCC model.
   
   
3. Long-Term Presence: If the market you’re in is strategic to your business and its expansion, establishing a GCC will help you build permanence and credibility.
   
   
4. Compliance and IP: Direct ownership mitigates risks around IP protection and data privacy, simultaneously ensuring protection of organizational data. This is often a major limitation of the EOR model.
   
   
5. Leadership Readiness: Establishing a GCC requires planning, governance, and local partnerships. If these are initiatives that you are ready to invest into, then it’s time to take the plunge. 

Ready to take the first step towards building your GCC? Our experts would be happy to help. 

The Bottom Line

There is little doubt that the EOR model delivers tangible value in the early stages of global expansion. However, as companies scale up, the GCC model offers greater control, cost optimization and seamless cultural cohesion. For mid-market firms aspiring to build lasting global capabilities, transitioning to the GCC model isn’t optional – it is the natural next step. 

EORs help you start the journey, GCCs help you scale it.