For financial service cos, captive story’s far from over

MUMBAI: The captive is dead! Long live the captive! Captives as they existed once are fast dying. Many companies, mostly in financial services, are looking to monetise them, according to Dennis McGuire, chairman emeritus, TPI, one of the largest sourcing advisory firms. He, along with other eminent researchers and advisors, was speaking on ���Sourcing strategies in a slowdown��� at the Nasscom-The Economic Times roundtable on Thursday.

���Relooking at captives is one of the big changes. And the interesting thing is that suppliers will acquire captives in non-Indian locations, such as Eastern Europe and Brazil,��� said Mr McGuire.

For suppliers, this is a route to enter a market and also get assured revenues. ���People want to get rid of fixed costs. This is one way to do so and will also help in de-risking their business,��� said Peter Redshaw, vice-president, Gartner, who is focused on the financial services companies. The list of captives on the block is more comprehensive now than before, admitted Rodney Nelsestuen, research director, Tower Group, a research and advisory firm.

As opposed to before when buyers of captive units typically looked for a return on investment in 7-10 years, they now look to recover it in 3-6 years, said Mark Toon, CEO, Equaterra, a leading advisory firm in the
BPO industry.

But the captive story is far from over. While captives in the form they earlier existed are no longer being set up, discussions around setting up shared service centres or captive units that do a number of back-office processes are still happening. In the manufacturing sector, for instance, where most of the captives have been in engineering services, there is now an interest in doing analytics and other knowledge process outsourcing work, said Dana Stiffler, research director, AMR Research.

���Captives are nowhere close to dying. About 22% of our business is around global service delivery is around shared service centres. And this is across the board and across industries. There are a variety of reasons: one is cultural control ��� you cannot underestimate culture. Companies still have a focus of building from within. Outsourcing is not the be all and end all,��� said Mr Toon.