Between January 2008 and December 2010, 37 new captives were set up and 21 announced significant expansion, whereas 13 were divested.
Multinational companies (MNCs) with captive units in India seem less interested than they earlier were in selling these off; instead, they seem to want to set up more.
According to a study done by the Everest Group, the number of captive set-ups in India has gone up. Between January 2008 and December 2010, 37 new captives were set up and 21 announced significant expansion, whereas 13 were divested.
In 2010 alone, 23 captive units were set up. Similarly, divestment in captives went down from five in 2008 to two in 2010. In 2000, there were 44 captives of Fortune 2000 firms, which had grown to 225 captives in 2008.
| WELCOME TURNAROUND | ||
| GROWTH OF CAPTIVE ADOPTION IN INDIA | ||
| Pre 1990 to 1998 | Pioneered by hi-tech engineering and research firms | |
| 1998 to 2005 | By IT and BPO industry and BFSI vertical | |
| 2005 to 2008 | Verticals like manufacturing, retail and consumer products led the adoption | |
| SOME BIG TICKET DIVESTMENTS | ||
| Company | Captive acquired | |
Value
Also Read
Captive units were set up as research and development centres initially by companies such as Texas Instruments and GE. Many also set up such offshore centres in India for their information technology (IT) work.
According to the data from Nasscom, the industry body representing the IT services industry, there are a little over 750 MNC captive units in India. Their combined revenue was $11.1 billion in 2010, contributing 22 per cent to the export revenue of the Indian IT-BPO industry.
Analysts say while the period from 2007 saw a spike in the sell-off of captive units, many are also realising their strategic importance. Among the big-ticket acquisitions were Tata Consultancy Services’ of Citi’s BPO unit for $505 million and WNS’ of Aviva’s captive unit for $228 mn.
“Almost all the Fortune 2000 companies have a captive set-up. The sell-offs that happened in 2008 onwards were not because the captive model failed, but because some of the firms were open to cashing out a strategic asset. Captives are thriving and scaling up,” said Gaurav Gupta, managing partner, Everest India.
Of the 13 divestures, seven were because the parent company saw their finances eroding. Five of these 13 were divested as the organisation was shutting operations, such as Lehman and AIG or restructuring and selling the business like Unilever.
Illustration
Agrees Sandeep Dhar, CEO of Tesco Hindustan Service Centre (HSC): “For Tesco, the India centre is 75 per cent of its IT capabilities and talent base. Besides, the cost it incurs would be a fraction of what the company earns. More, a third-party vendor will treat the CIO of Tesco as his customer, but for us the person walking into the store is the customer,” added Dhar.
The importance of the 6,000-employee base of Tesco is not considered just another offshore unit but known as the ‘operations and technology centre, for UK’s third largest retailer’.
“The Bangalore team is making a serious business contribution for Tesco’s business to grow. At present, we are largely working for the UK business. But our mandate is to work for all the centres of Tesco stores across the globe. To provide a standardised operations of all the Tesco units and also run innovation initiatives for the group,” said Dhar.
Under the innovation initiative, Tesco HSC is responsible for continuously improving the systems and solutions of the global retailer. “While these might be small in nature, so far we have implemented 500 such solutions that help Tesco manage operations better,” added Dhar.
Every second saved to reduce the time taken for a customer to be handled at the cash counter can save the company anywhere between £1-2 mn.
One such initiative led by the Bangalore team was related to its e-commerce portal. The website has a favourites’ list and each time a user visits it, they would get a list of items shopped in the past. The challenge with this system was the long list of items, which was inconvenient at times.
“So, the team here came out with an algorithm-based solution that would predict what the customer might be looking for or eliminate goods they might not buy. So, someone who had purchased milk on Monday, might not be looking to purchase it again on a Wednesday,” said Dhar.
Increasingly, captives are skewing their work mix towards more complex services, where their investments in differentiated talent can add more value to the parent organisation and also aid in retaining talent.
“Earlier, MNCs would think of either working with a third-party vendor or keeping the captive unit. Now, the talk is about both. Organisations are making a distinction between transactional and strategic roles. So HR policy, compensation and transaction-like activity are still core. The captive units are getting integrated with the management decision making,” said Gupta.
However, it is also a fact that scale is important for the existence of a captive unit. Captives with less than 250 employees typically have significantly higher operating cost than a services provider.
Some of the other captives functioning successfully in India include Dell, Qualcomm and American Express.