American Express is looking to sell out a part of its captive center in India.
Early this year, Dell sold one of its two call centers to Teleperformance.
UBS is in discussions to sell out its captive arms in India and Poland.
In these recessionary times, companies across verticals are looking to cut costs and stay profitable. The immediate concern of companies, irrespective of the size of their business, is to protect their profitability by focusing on cost control. In these challenging times, where companies are increasingly cost-conscious, are captives fading away?
Captive BPOs in India
Since the time American Express and Citigroup established captive centers in India two decades ago, several global giants have made India their back office hub. The captive movement further gained momentum after 2002 when cost pressures increased and offshoring became accepted as more of a mainstream activity. This spurt in the captive activity was driven by the increasing sensitivity towards Intellectual property, data security and confidentiality. Moreover, many large corporations that had been testing the offshore waters took the plunge in a bigger way. Some significant captive BPOs in India are listed in the exhibit below:
Electronic
data processing, voice based services, cash management
JP
Morgan
2003
Research
& analytics, transaction processing, investment management
Lloyds
TSB
2003
Back
office operations
Morgan
Stanley
2003
Transactions
processing, research support
Nomura
2008
Research
support
Standard
Chartered
2002
IT,
HR processes, F&A
UBS
2006
IT
support functions, back office and research and analytics work
Source: ValueNotes Research
Sale of Captives
With the current global financial crisis, companies are wary about continuing with their captive center operations. Some of the corporates are seen pulling out of their well-established captive centers. Over the last couple of years, several large captive centers have pulled out of their BPO business.
British Airways and GE both started a captive center that was later spun off as a third party provider.
Deutsche Bank sold its captive BPO arm to HCL Technologies.
More recently, Citigroup sold its captive arm, CGSL to TCS for $505 m.
Dell sold one of its two call centers to Teleperformance a French outsourcing service provider for Php200 m(approx. $4 m)
UBS and American Express are reportedly looking to walk out of their captive centers.
Beyond a certain size, the economics of captive centers are not favorable. Cost structures of captives are typically higher (almost 30 to 40%) as compared to third party service providers. Further, most corporates have been under tremendous financial pressure over the last couple of months. With the current liquidity crunch in the market, attractive valuations will drive companies to sell off their captive centers. This will not only provide the corporates with access to liquid funds but also relieve them of the burden of running an offshore captive operation.
One reason to retain a captive operation however is to protect confidential information and processes, so it is likely that some activities will remain in-house, while many of the other processes will go the third party way. Most companies in the banking and financial sector, which have been under tremendous financial pressure are likely to find this an attractive option!
