Outsourcing gets a boost as global banks expand captives

MUMBAI: Top multinationals banks continue to set up new back-office units or expand their existing captive operations in India even as the model is criticism for being high cost and less efficient than third-party vendor operations. Wells Fargo, Ingersoll Rand and Standard Chartered are some of the banks and companies that are setting up or expanding their back-office centres in India. Standard Chartered, for example, is setting up a new knowledge process outsourcing centre in Bangalore, while Wells Fargo is expanding its captive operations in India for technology services and BPO. The 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, according to MarketVista, a quarterly analysis of outsourcing trends by Dallas-based Everest Research Institute. In all, around 28 firms set up captive operations in Asia, Europe, Latin America with India being the most popular destination. “The number of new captives being set up are far more than divestures, indicating a revival in the market,” Ameet Singh, vice-president for global delivery, Everest, told ET. German firm Kontron, which is one of the world’s largest manufacturers of embedded computer technology and a supplier to OEMs, 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 Mr 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 Mr Singh, the market for outsourcing transactions is seeing two counter forces — lower business volumes and opportunity to reduce costs. “Companies are attempting to push the envelope further in terms of costs leading to offshoring and outsourcing,” he said. Based on publicly disclosed transactions, the overall number of transactions have come down 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% in the reported global transaction volumes (BPO volumes decreasing by 14% and IT outsourcing activity reducing by 8%), there were signs of improvement in key geographies and verticals,” Everest said in the study.

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PALLAVI SINGH

PGDM III SEM