D. Murali

Chennai, Sept. 12

A few days ago, Hindustan Lever Ltd (HLL) announced its decision to sell a majority stake in its subsidiary company, Indigo, to Cap Gemini S.A. As you may remember, Indigo, more formally known as Unilever India Shared Services Ltd, is the captive BPO (business process outsourcing) arm, offering services to a number of Unilever companies globally, including HLL.

"One way of looking at this sale is the `core competence' view," says Mr K. Mohan Babu, a technologist with Infosys, and the author of `Offshoring IT Services,' a recent publication of Tata McGraw-Hill. "Core competence of HLL is in fast-moving consumer goods (FMCG). For them BPO is just yet another `functional silo'," he adds.

What does the deal mean to Cap Gemini? It is an extension of its strategy of servicing clients by adopting innovative solutions, observes Mr Babu. "Investing in Indigo provides Cap Gemini with an added incentive of strengthening presence in India, the de facto headquarters of IT (information technology) and BPO."

The author- technologist is of the view that HLL's move is similar to the strategy adopted by GE in selling a majority stake in its Indian BPO (GECIS) about a year ago. "Another example is that of Wipro buying Spectramind BPO arm," adds Mr Babu.

He positions the strategy as one of the series of options available to a manufacturer such as HLL. "For instance companies like Cap Gemini entering India have the option to buy a stake, form a joint venture (JV), go in for a build-operate-transfer, or consider a combination of such options," elaborates Mr Babu.

"Buying a stake is the easiest and the least risky option, since the company in which a stake is being bought is already functional (and hopefully profitable). The flip side, however, is that of cultural integration between teams of acquiring company and of the acquired unit," Mr Babu explains.

In an article titled `Evolution of a Sourcing Strategy' and dated April 24, on www.computerworld.com, Mr Babu traces how EDS's strategy, portrayed by some as a `dramatic' step, was in fact "the culmination of a gradual evolution that began with a JV-like relationship with vendors in India a decade ago."

He notes that, as strategies for offshoring mature and are tested on the ground, "experts are beginning to benchmark successes (and failures) from the field." Mr Babu concludes by conceding that there is hardly a `cookie-cutter approach' to offshoring.

"One may have to draw a customised road map to migrate from one model to another as the organisation's understanding of the offshoring business matures," wraps the Computerworld article.

And, answering posers from

Business Line

by e-mail, Mr Babu points out that companies have to, and do, regularly revisit their strategies.

(This article was published in the Business Line print edition dated September 13, 2006)
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