Captive centres are facilities set up by MNCs at off-shore locations to take advantage of their cost advantage and skilled manpower boast. And, a story doing the rounds of the IT industry, whether based in fact or fiction, tells of the CEO of an European firm, who on visiting the impressive tech campus of an IT giant in Bangalore – complete with manicured lawns and artificial bodies of water, was provoked into asking: “Are your clients, including us, paying for all this?” The story encapsulates the angst many MNCs feel about the very high profitability of Indian IT service vendors i.e. Tier I vendors like TCS, Infosys and Wipro. Vendors, for instance, who have an average net profit margin of 24%, compared to 6 – 8% of their multinational competitors. It is not surprising then, most MNCs come to the conclusion that they will be better off setting up their own ‘captive centres’, thus making huge savings on vendor margins.

IPR protection and end-to-end control over processes for quality assurance is another argument that sways them in favour of captive centres in India, which has led to more than 300-such captives popping up in India, in the past two years alone, as Ford, Bosch, Lear Schneider Group, Honeywell, JP Morgan, Morgan Stanley, Tesco and HSBC, all jumped on to the bandwagon.

However, a recent report by Forrester Research Inc., a research and consultancy firm, titled Shattering the Off-shore Captive Centre Myth, states captive centre reality differs sharply from company perceptions, as 60% of captive centres in India struggle for survival.

Forrester’s findings show, Dell, SAP, Microsoft, Honeywell and others with captive off-shoring centres need to outsource operations to third-party BPOs, if they wish to avoid running the risk of huge loss accumulations. Sudip Apte, Research Head – Forrester (India) who authored the report, affirms: “Unrealistic cost models, attrition among employees, lack of process integration and inadequate management support are the key causes for captive centres getting into trouble.”

As lack of scale, process maturity and integration, leads to captive centres failing, poor morale and unrealistic costs compound the problem. Apte believes: “As a result of these issues, firms quickly realise that setting up a captive centre is not an end point in itself, but just a stage in their off-shoring and outsourcing evolution.” Consequently, when number of early entrants realised this, they sold off their captives, and instead, opted to outsource work to third-party vendors.

A number of companies have logged out after setting up captives, and prominent amongst them are Apple Inc., which shut its development centre in Bangalore, Sykes Enterprise, UK-based BelAir Networks and Powergen, both of which cited high operation costs and staff attrition as high as 80%, as major factors that ate into parent company margins, and caused them to shut down their Indian call centres in 2006. As well, Pervasive has sold out its operations to Aztec Software & Technology Services.

The CEO of a Tier II Indian IT services firm responds to all this and states: “What they don’t realise is that there are huge challenges – like the ability to attract and, more importantly, retain talent, given the high attrition levels prevailing in the industry. Also, the systems and process maturity that we have developed is difficult to replicate. The (high) fixed costs are also spread across many clients. Many firms don’t realise this, set up captives and then regret their decision, later.”

The Forrester report also cites other examples of firms, such as, Google, Yahoo, Seagate and others, who have partnered Indian BPOs on a model that builds, operates and transfers, wherein third-party BPOs, on behalf of parent firms, take all the risks that involve the running and maintenance of operations. “This enables a captive centre to scale up, making it sustainable and cost-effective, the way Genpact is managed,” says Avinash Vashishta, Chairman of Tholons, an off-shoring advisory company.

As well, unrealistic cost models seem to be a cause for concern, too. “Our research shows that captives spend more on salaries because they hire more senior staff, spend lavishly on buildings and furnishings, and end up spending on head-hunting to compensate for attrition,” says Apte. “Costs like these build up for captives over a period of time and the advantage is negated,” affirms A. Saravanan, founder of Allsec Technologies.

It is also the lack of delegation and non-involvement of off-shore staff in strategic projects, such as, new product releases that leaves employees dis-illusioned. “As a result, attrition at captive centres is in excess of 45%, higher than the industry average of 35%,” according to Apte. “This results in delays in launches of new products,” confirms the senior executive of a Bangalore-based BPO that works with information technology product vendors, globally.

The Forrester report predicts the shutting down of 5 – 10% of captives, even as 20% embrace a hybrid approach of captives plus outsourcing, while 40 – 50% adopt what Apte calls the termite strategy. “Here, the third-party vendor ‘hollows out’ the captive centre, and slowly takes the existing staff onto its own rolls. All that then remains of the MNCs captive centre is the Project. This model provides a unique combination of close monitoring and low-cost execution,” he says. And, the remaining 10% of firms selling out, will go the whole hog in to outsourcing.

This failure of the captive model means, within the next three years, the demand for third party vendor services will accelerate, especially in product development. The good times, it seems, will continue for the Indian IT sector. That puts me in mind of Chuck Berry’s famous rock ‘n roll number: “Roll over Beethoven and tell Tchaikovsky the news! Let’s take some liberty and make that “Roll over MNCs, it’s third party vendors in India that rule!” Yet again, ‘BPO Queen’, India continues to retain the Off-shoring / Outsourcing crown!

Source: Asian News Service

Wipro, Airtel and Bank of India, three leading Indian firms have bagged the prestigious Outsourcing Excellence Award, showing India’s credibility yet again, as the world’s most preferred Business Process Outsourcing (BPO) destination.

A 15-year partnership responsible for bringing great achievements to the off-shore industry, also helped Wipro – Nortel bag the ‘Best Off-shore’ award.

Efforts to implement a core banking solution, saw the Bank of India – Hewlett Packard duo combination win the ‘Best IT Infrastructure’ award .

The ‘Best First Steps’ award was awarded to Bharti Airtel - Nortel Networks India for representing best outsourcing practices.

The awards are to be presented in August 2007 in a glittering ceremony in New York by Everest Group and US-based Forbes magazine, sponsors to the awards.

“In addition, to the fact that three of the nine winners in 2007 were Indian companies, a large number of the US-based service providers this year are delivering services from off-shore locations,” Gaurav Gupta, Country Head (India), Everest Group declared, going on to add: “Although these (awards) range from Russia to eastern Europe to the Philippines and China, three-fourths of the nominated offshore services are provisioned from India.”

Source: www.business-standard.com

In the quite recent past, just a few years back, American and European venture firms had only one simple mandate for their portfolio firms i.e. “Look at outsourcing product development to Indian firms to save costs.”

That old scenario is undergoing a rapid change, as global product firms approach Off-shore Product Development (OPD) firms like Aztecsoft, Symphony Services, Persistent Systems, Aspire and Aditi Technologies for full product life-cycle (from concept to launch) participation. As in IT / ITeS / BPO outsourcing, OPD players have begun to move up the value chain.

That is becoming more than self-evident, as only some six months back, US-based global corporation approached Aspire Systems, a Chennai-based OPD provider to build a ‘concept stage to launch’ product for them.

Gowri Shankar Subramanian, CEO, Aspire Systems confirms: “We developed the concept and built the complete architecture. Finally, we integrated the software and hardware before bringing out the completed products in six months.”

Ajay Kela, Managing Director & COO, Global Operations, Symphony Services, corroborates: “Four years ago, we had to sell to product companies. We had to make a pitch that ‘we can build your products’. Today, they all want to come here on their own.”

As many of these firms graduate to the next phase, Pradeep Rathinam, President of the North American half of Aditi says, apart from driving innovation with new product development, OPD firms in an advisory role for many of their customers, are guiding them from time-to-market to go-to-market.

Take Symphony Services, for example, who is providing product development expertise to many start-ups that comprise approximately 40% of its total customer base.

“We do 80-90% of the engineering works for over 40% of our customers who are in the start-up phase. We also do 30-40% of product development for many of our high-value customers who have large operations in India. It is no more a non-core work,” says Kela, as Rathinam of Aditi Technologies corroborates: “We are experiencing a rapid growth in the number of customers. I am sure the trend will continue in the future.”

Barring a few large firms present in India, Indian product services companies say big players like BEA Systems, Yahoo! and Oracle that have significant operations in India, have also begun to opt for third-party services providers.

Symphony claims 40-50% of its revenue comes from clients with captive centres in India, while both Aditi and Aspire Systems substantiate Symphony’s claim saying about 15% of their clients have captive operations in India.

Sudin Apte, Country Head (India) of Forrester, a research firm, notes: “The industry is around $15-18 billion in India in the product development space. There’s an opportunity to build one more Infosys or TCS in this space.”

Source: www.business-standard.com

Capgemini, the $10-billion French software consultancy firm plans to add 4000- employees to its India operations come December this year.

Its recent acquisition of Kanbay, a $1.25-billion financial software services company, CapGemini is planning to consolidate its presence in financial services, while also also looking to set up delivery centres in Vietnam, Philippines and Romania.

Currently, Capgemini employs 15,000-people, while it plans to increase its headcount to 40,000 over the next three years.

Source: Economic Times

Bring on the cheerleadering pom pom brigade, it’s ‘Rah Rah’ time for Desi (home-grown) firms, as two US-listed Indian companies i.e. Cognizant Technology and EXLService, make it to the world’s 100-’hot growth’ firms that boast of significant growth potential.

Both, Cognizant and EXLService are among ten software and services firms to appear in the list of global firms. While Cognizant, head-quartered in USA, with most of its operations, including 75% of its workforce in India, managed to snatch 15th position, with EXLService ranking 57th in the annual list, BusinessWeek published in its latest issue. A list that is led by Heelys Inc., maker of wheeled sneakers that kids use for skating.

Using Standard and Poor’s database of 10,000-public firms with gross revenues worth $50-million to $1.5-billion per year, the rankings are based on three year sales and earnings growth, including return on capital.

Only firms with a market cap of $-25 million dollars or more, and a stock price of at least $5 were considered for the list. The magazine was quick to point out, ‘profit or stock price shortfalls, or news that put prospects in doubt, may knock a company off the list.’

Cognizant, with more than 43,000 employees, has consistently racked up better growth rates than its larger rivals, according to the US-based magazine.

The first quarter of this year, saw Cognizant, the fifth-largest Indian IT firm’s turnover rise by 61% to $460-million. “It has outperformed its peers, because it has deftly targeted a handful of industry segments where demand for off-shore outsourcing is strongest, including financial services, health care, and pharmaceuticals,” to quote the the magazine.

While, wage inflation and rupee appreciation continue to be matters of concern, making Indian labour more expensive, Cognizant has adopted a modestly restrained attitude in respect of its hiring activities. Quite evident by Francisco D’Souza, Cognizant’s newly promoted CEO, reducing by a 1,000, the 17,000 people he planned to hire this year.

EXLService, the other Indian entry in the list and listed in US only last year, has a total headcount of close to 8,200-employees, with the Indian firm reporting an 85% jump i.e. $40-million in its first quarter revenue.

Founded in 1999, EXLService provides a vast range of BPO solutions like transaction-processing services and Internet and voice-based customer care services to Global 1000 firms in banking, financial services and insurance segments.

With a market cap of close to $540-million, EXLService has a long way to catch up to Cognizant’s $11-billion.

According to BusinessWeek, Cognizant has been on the list six years running, including seven times since 1985, when the list was first launched. While, bigger competitors like Wipro and Infosys, other Indian IT majors offer stiff competition, despite that the IT services provider continues to offer ‘better, faster, cheaper’ services than other IT outfits. “And, being better and faster than the next guy is what ‘Hot Growth’ is all about.”

India Inc. is coming into its own, as it consistently finds new entrants into Top Ten or Top Hundred global lists. It is capable of ruling the world, as long as the sub-continent’s ignorant and corrupt politicians, including the rank and file of its Babudom do not let it down each time. Case in point, the most recent slap in the face from the Chinese Government regarding visa issuance for a study group consisting of 108-Indian Administrative Services (IAS) officers to China.

Shouldn’t the Ministry of External Affairs officials have had a better grasp of the history, including mental and cultural make-up of the countries they have diplomatic relations with. Were they oblivious to the fact that China with its burgeoning population and shrinking land resources is on an expansion spree. Did the ‘Hindi Chini Bhai Bhai’ rumblings that have been heard of late, put them off-guard, leading them to request China to issue a visa for an Arunachal Pradesh cadre IAS officer. The Chinese encroach on 20-km. and more of Arunachal Pradesh land, and the only response from the Indian government and the MEA is that its nothing to worry about, it happens frequently and then the Chinese move back to their former positions.

Well, you idiots, that could be just to lull your suspicions. A wily lot who have their match in the West, the Chinese will not give up until they have snatched Arunachal Pradesh from right under your noses. You let them flood the Indian market with cheap, tacky goods, while our own factories and businesses go under. How can you be so naïve at the expense of your own countrymen. I reiterate, those in positions of power are a weak, cowering lot, total wimps, who cannot take a tough stand and tell the Chinese and the West where to get off.

Time and time again, they make Indians the laughing stock of the world. While, India’s private sector has focused the world’s attention and earned its respect, India’s Legislature, Executive and Judicial organs continue to let it down. Salaries, standard of living, expenditure per capita may have gone up, but ‘we the people’, continue to suffer at the hands of politicians and bureaucrats, who seem to have forgotten the days of Goonda Raj should long be over. Pockets continue to be lined, as they hobnob, protect and count the criminal element of the Indian Mafia, amongst their closest friends.

Well, ‘we the people’ are tired as red tape continues to hamper and slow us down, tired of paying hard-earned money to get a simple job done, tired of those who buy and sell justice, tired of the government Mafia that makes life a daily grind. Perhaps, if the terrorists who attacked Parliament House had succeeded, it might just have been a good thing. In one fell swoop, they would have rid us of all the criminal element lining the corridors of power. A clean, new government would have been elected, and this time round, we would vow it would remain clean, as power lay in the hands of those who elect them, not those who are elected. They would have no option, but to do what is best for the nation and its people, not what serves their personal interests!

Can that miracle ever happen, yes, if ‘we the people’ join forces and do a ‘Rang de Basanti’ if we have to! Go India Go! Forge your own Destiny as India Inc. has done! And, let us take another vow that there will be no slaps on our face, such as, the Chinese refusing a visa to an IAS officer belonging to Arunachal Pradesh cadre. Knowledge is Power, and politicians and IAS officials alike, have to be far more knowledgeable than the ordinary man on the street. If, they aspire to their positions of power, they should have what it takes and much, much more.

And, while Indians get deported and sent back home for minor visa infringements, what do the officials of the Ministry of External Affairs do, not understanding that ‘common-law wife’ does not mean a legally wedded wife, they issue a visa to a foreigner without checking the details. As a consequence, a carpenter’s daughter, a woman from a common peasant background, a blue collar worker, who came to India with her Dutch partner and seduced by the luxurious living India offered in comparison to her own Netherlands, continues to wreak havoc, getting away with murder and attempted murder for property and money. Despite all odds, the police and government officials refuse to revoke her visa, even as the Americans have deported an Indian couple, denying them immigration status, even though they spent 10-years in the USA as students, and their 10-year old son was born in USA. Today, he remains behind with relatives, while his parents have been deported to India.

But, the Indian government and police do little in the case of MARIA CATHARINA HEEMSKERK, who continues to wreak disaster and inspire misfortune on the Indian family, whose son she zeroed in on due to his immense property holdings, destroying his marriage, separating two baby girls from their father, all for money, as she laboured under the delusion, she could get him to sell the property, set her up in Netherlands, and once the entire cash was in her hands, boot him back to India. She holds him to ransom, emotionally blackmailing him with the threat, his two children born on Indian soil would be taken away to Netherlands, if he did not do as she tells him.

What do the wimps who have the power to deport her do, even while ensuring the children, born in India and, therefore, Indian citizens do not leave the country, they keep silent, as Madam labouring under another delusion that she is a Princess, due to a flaw in Indian thinking that every uneducated, blue collar Westerner is far superior to any well-educated, high-bred Indian, and having lain with a scion of one of India’s petty princely states, including a good looking, well-educated, suave and from a good background IAS officer, dictates her own terms, even as she spirits Indian funds into an overseas bank account.

Oh, well! What can one say, but hope next time round, MEA officials will get their act together, not falling for the ‘Hindi Chini, Bhai Bhai!’Nehruvian myth ,or for that matter believe westerners are in India, because they love the Indian culture and our country. Wake up and smell the coffee! They are only here, because the economic opportunities in their countries are dwindling, unemployment is rife, while India offers them everything, a well-paid job, palatial houses, servants, plentiful savings, including respect they are so short of in their own countries. Nothing in their home countries, they are elevated to great prominence in India, as they are chased by movie producers to the ordinary man. As, I overheard one Danish intern telling another intern from Canada of an Indian girl who asked him to be her friend: ‘They love to chase us whites. To have a white friend is a kind of a status symbol for them!’ Puhleese! And, I was called rude for ticking him off soundly, telling him not to misunderstand Indian hospitality and simple naiveness for something quite different!

When will we Indians learn to respect and be loyal to our own country and our people. When will we stop holding those in high esteem, who are unfit to be called either friend or foe! That time is not too far distant, as India’s economic success and jobs aplenty, imbue India’s Next Gen with brimming over confidence, secure in the knowledge their education, prowess and sheer smarts can get them far! In the not so distant past, no Indian dreamt of a salary package worth Rs. 1-crore plus per annum. Today, freshly graduated Next Gen Indians are turning down Goldman Sachs and other such offers, to return to their home country, where a Rs. 1-crore per annum salary is no longer a distant dream, but an every day reality! ‘We the people’ only ask that the politicians and Babudom let those dreams be realised!