Wal-mart Stores (NYSE:WMT) and its Indian partner Bharti Enterprises are all set to storm the Indian consumer market. The first clutch of retail stores by the duo is set to open early next year.

Bharti, a leading telecom player in India has announced an investment of $2.5 billion in its retail venture, and would manage the front-end, while Wal-Mart would provide back-end and logistics support to the retail operations. India is currently experiencing a major retail boom, with the larger Indian cities as well as rural areas witnessing an upsurge in the number of shopping malls, movie theaters and retail stores.

Outsourcing: riding the boom
Retail companies are not far behind in leveraging the Indian outsourcing industry’s cost advantage. Besides, the experience and maturity in the Indian retail industry is bringing along expertise and talent that is helping the outsourcing industry.

• Tesco, the UK-based international grocery and general merchandising retail chain that operates more than 2300 stores in the world, set up a shared services center, Hindustan Service Center in Bangalore in 2004. The back-office handles IT functions such as enterprise application integration and BPO functions such as financial processing, payroll and bill processing. The company recently increased its headcount from 1,300 to 2,000 people. It also plans to source higher-end services such as testing for ERP services from India.
• Target Corporation (NYSE:TGT), a $43 billion US retailer set up its software development captive center in Bangalore. The company also sources application development and maintenance work from major Indian vendors like TCS, Infosys and Wipro. This center is also planning to increase its strength upwards from 180 to over 1,200 by the end of 2007.
• US-based grocery chain Supervalu has announced that it will set up a software development center again in Bangalore. It expects to invest $50 million for a 300-member team over the next few years.

Several global retailers, including Tesco and Wal-Mart, have been sourcing from India in the past. Retail companies started outsourcing their IT functions initially but have now also embraced BPO. Typically outsourced and offshored services are customer relationship management, human resources, facilities management and finance and accounting (F&A) functions. F&A outsourcing particularly offers a huge cost saving potential, and is therefore ripe for offshoring.

Vendors, on the other hand, are building up capabilities in retail rapidly. Wipro Technologies (NYSE: WIT) acquired a Portugal-based retail solutions company Enabler for $52 million in 2006. Revenue from retail solutions constitutes about one eighth of Wipro’s total revenues. Indian companies are also providing services such as market research and analytics, providing retailers an insight into buying patterns of shoppers. Large BPOs such as WNS, Convergys and Intelenet are offering a wide array of retail outsourcing services. There are also analytics BPOs such as Evalueserve, Manthan and Integrated Retail that offer retail analytics.

Future Outlook
Retail sourcing has been there for a while, but outsourcing in this area has been a relatively new phenomenon. As offshore vendors mature, retail outsourcing will gain further momentum. Though most of the larger BPOs already offer an array of services to this vertical, going forward, they are likely to widen their range of offerings, adding business intelligence and customer analytics.

The accent of outsourcers is gradually shifting from "shaving costs" to "working smarter and staying ahead of the competition". With competition becoming intense, retailers are already adding new channels such as the Internet and telemarketing to sell their products. As a result, this trend is likely to take offshoring away from sourcing varied services at a lower cost - to sourcing integrated services that "create value".

ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities.

No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited.

ValueNotes Outsourcing Watch articles are distributed through FinancialWire, an independent, proprietary news service of Investrend Information, www.investrend.com

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