Amongst the recent entrants, JP Morgan, who set up its first captive shop in Mumbai in 2003, operated from two centers (the other one in Bangalore) in FY '06; this investment banking arm of JP Morgan Chase was involved in serious KPO work around equity research other than handling the bank's traditional transaction processes. In recent weeks, Threadneedle Investments of UK are negotiating to outsource its back-office operations to JP Morgan; if the deal clicks, India would witness another conversion from captive to third-party BPO. On the insurance front, AXA Business Service, the BPO arm of AXA France, the largest insurance company of the world, with over 2000 employees across two sites in Bangalore and one in Pune supported the company's client-facing activities in France, the UK, the US, Japan, and Australia. Even Aviva with more than 5,000 people (across Bangalore, Chennai, Kolkata and even Sri Lanka) had become a name to reckon with, though it too came into unwarranted limelight following the recent murder of a female employee by her colleague in Bangalore.

Techies too Embrace Captives
If BFSI led the pack amongst captive BPOs, the technology sector did not lag behind by much. While isolated processes, primarily helpdesks, have been outsourced even in the 90s, the avalanche started following the arrival of HP Global in 2000 and the subsequent entries of Dell and AOL in 2001. Strictly speaking, HP Global was not a pure captive operation as it had moved from HP back office to 25% BPO (going on to 50% by 2008, with 2,000 more people); it serviced finance and admin processes of global clients like P&G during the year. The Consumer Contact Center (CCC) part of HP's IPG, provided support for US imaging and printing customers, while the Global Solution Center Bangalore contact center, part of erstwhile Digital, provided tech services, such as a helpdesk, for enterprise customers. 

Though HP was high profile, it was actually Dell which defined the concept of a tech captive BPO in India. Dell had significant outsourcing relations with third parties like Wipro BPO and Sitel, but it still maintained four captive BPO units in India at Bangalore (5,000 employees), Hyderabad (3,000), Mohali (1,800) and Gurgaon (1,000). What can be delivered out of India was best illustrated by Dell's captive BPO operations, developing process innovations, which are being adopted worldwide in the organization. No wonder, therefore that Romi Malhotra, MD of Dell International Services, flew high the flag of the captives when he told Nasscom's BPO summit in Bangalore recently that the earlier slogan “Come to India for cost and stay for quality” can now be changed to “Come to India for quality and stay for innovation”. Current CEO of Sitel India, Safir Adeni, the man who pioneered Dell's outsourcing blitz to 17 countries also endorses this innovative role played by Dell's India operations.

Where Third Parties Fear to Tread
As FY '06 draws into FY '07, the common consensus seems to be that captives do have an important role to play in offshoring. Understandably, many companies were using captives to preserve control and protect intellectual property. At a very large scale of operation, captives may even provide lower costs than the price charged by vendors. Nevertheless, there are immense risks. The BPO industry is in a state of explosive expansion primarily because economies of scale are vital. Those who have set up are compelled to grow simply to manage attrition and control costs. Those that are yet to come in or have not achieved scale yet, risk being severely squeezed in a rush for size.

In the current environment, therefore, it is imperative that a captive center needs great commitment. Therefore, companies must align their view on captives with their sourcing strategy before committing to a course of action. This alignment should necessarily involve a decision on what must be kept in house and what can be outsourced; and a separate assessment of the best location for a particular activity.

Rajneesh De
rajneeshd@cybermedia.co.in

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