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Home > Business > PTI > Report

Many MNCs plan to sell India offshore units

March 07, 2007 15:47 IST

Multi-national companies setting up offshore business units in India for saving costs is an old story -- the latest trend is to hive off their Indian units with over two dozen MNCs considering to sell off of their business process units in the country through a gradual process of exiting.

While British Airways was among the first to spin off its Indian outsourcing unit in 2002, which is today known as WNS Holdings, this trend is catching up fast with the global companies operating in India.

US conglomerate General Electric sold off its Indian outsourcing operations about two years ago for about $500 million, London-based United Utilities sold its Vertex unit last year, while global PC giant Hewlett-Packard is also expected to follow suit.

At least over two dozen firms are evaluating options to sell off their Indian outsourcing units through a gradual exit process, global technology research firm Forrester's India head and senior analyst Sudin Apte told PTI.

While all may not go for straight forward sell-off, most firms will opt for soft way, part outsource first and increase that share over the period, and this trend is already happening in the industry, Apte said.

According to Forrester, if the size of company's own facility is small with up to 100 employees, then it is actually counter productive, with savings in staffing costs getting over-shadowed by management overhead. And if size becomes too big, over 3,000 people, then the issues of people, processes and costs emerge, which are time consuming. "The amount of time India management spends in these things (issues) get to such level that they start deviating from their core business of making phones or managing mortgage life cycle. And then a stage comes when corporate managements of these firms start thinking if it's worth to continue running their own facilities," Apte said.

The research shows that most of the sell-off by MNCs are either to stop further losses or to focus on core competency and cut costs at the same time, he said adding that it also depends on type of work and nature of business.

For example, typically in call centre or IT backoffice type work, selling out lock and barrel makes more sense for the firms, whereas, in high-tech firms, most of commoditised and lower-end work goes out and core or complex work remains in-house.

The reason for the MNCs looking for an exit route is that outsourcers are needed for mundane and low risk type of tasks. But for work that decides the differentiation or core value of the firm, it is advisable to manage it internally, the Forrester analyst said.

The experts believe that MNC's captive centres do not make sense in most situations and captive facility is not an end destination in itself. For most, it's a transient stage to go or expand on offshore.

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