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November 14, 2003

Why captive BPOs are feeling the heat

There have been a string of announcements from captive BPOs--including the pioneer, GE Capital--that they will start pitching for business from companies outside of their parent. Obviously, these companies have to make very fundamental changes--including setting up marketing teams, re-align their cost structures, etc.--to cater to external clients. So, what is making them take this step?

Businessworld magazine recently carried an interesting article titled "Crunch Time For Captives" answering this question.

"In the last couple of years most of the captive units have begun to hit saturation point. That's when their parent organisations in the US, like GE, took the decision to derisk the India business by setting up alternative bases in Mexico, China, Hungary and the Philippines....By then, most of them had hired people in anticipation of more work moving to India. So when the events of 9/11 took place and concepts like disaster planning became common, they suddenly put a ceiling on how much a captive unit could grow," the article says. "With not enough new work on offer in the last two years, they have struggled to devise new, more meaningful roles for middle and senior managers. The result: attrition rates as high as 35%, with maximum erosion in the middle and senior management levels. So GE has to recruit and train 4,000 new hires every year to replace the exiting employees," it adds.

The article has a Gartner Group analyst predicting that several captive BPO units would be up for sale in 3-4 years time. In fact, the article (quoting unnamed industry analysts) says Infosys' BPO subsidiary, Progeon, has actually avoided scaling up since it expects to snap up such units at a good bargain! WNS President & CFO Neeraj Bhargava confirms that his company is waiting for such acquisition opportunities. "The trends globally throw up several instances of third-party vendors (like EDS and ACS) buying up in-house (captive) operations," he says in the article.

Click Here to read the full article.