Outsourcing Rises: Captives

Mumbai: The top multinationals banks continue to set up new back office units or expand their existing captive operations in India, even as the model is under criticism for being high cost and less efficient than third-party vendor operations.

Organizations such as Wells Fargo, Ingersoll Rand and Standard Chartered are setting up or expanding their back-office centres in India, reports The Economic Times.


For example, Standard Chartered is setting up a new Knowledge Process Outsourcing (KPO) centre in Bangalore, while Wells Fargo is expanding its captive operations in India for technology services and Business Process Outsourcing (BPO).

According to MarketVista, a Dallas based Everest Research Institute, these three are among the 11 firms that have set up new units or added more staff to their existing units in India during the September quarter, taking the number of captives being set up globally to an 18 month high. Around 28 firms are setting up captive operations in Asia, Europe, and Latin America with India being the most popular destination.

"The numbers of new captives being set up are far more than divestures, indicating a revival in the market," Ameet Singh, Vice President, Global Delivery, Everest. German firm Kontron, one of the world's largest manufacturers of embedded computer technology and a supplier to Original Equipment Manufacturers, is also setting up a contact centre in Bangalore to provide sale and tech support to its Asia-Pacific operations.

"Near-term economic pressures that were there earlier have been reduced. But organisations that reviewed their global sourcing agenda could still be looking at the same outcome, a modified strategy or a more intensive one," said Singh.

The September quarter also saw four captive divestures; UBS' captive to Cognizant Technology Services, AIG's to Mphasis, Schneider Logistics to EXL Services and Kyocera Wireless to MindTree.

According to Singh, the market for outsourcing transactions is seeing two counter forces; lower business volumes and opportunity to reduce costs.

"The companies are attempting to push the envelope further in terms of costs leading to offshoring and outsourcing," said Singh. Based on publicly disclosed transactions, the overall numbers of transactions have fallen to 422 in the September quarter from 467 in the past quarter but contracts from sectors such as financial services have almost doubled from the previous quarter, according to Everest's research.

Apart from financial services, sectors such as healthcare, travel and energy and utilities are also seeing significant rise in demand for offshoring.

"Although there was a marginal decline of 10 percent in the reported global transaction volumes (BPO volumes decreasing by 14 percent and IT sourcing activity reducing by 8 percent), there were signs of improvement in key geographies and verticals," said Everest in the study.