Captives captivate

When Texas Instruments set up its wholly-owned subsidiary in India 25 years ago, few thought that it would set off a trend of ‘captive' companies coming to India.

But now, there are over 100 captives in the business process outsourcing (BPO) segment alone, not to speak of other sectors such as engineering and automobiles.

Is it not time then to take a fresh look at captives — from nomenclature to business models — in the context of a ‘flat world' as Thomas Friedman put it?

The first Global Captive Conclave 2011 organised by Nasscom during March 23-24, 2011, in Hyderabad, did just that.

VALUE PROPOSITION

In the initial period it was the cost arbitrage that drove multinationals to set up captives in India, among other factors, such as availability of a large pool of talent.

“But now, the question is, how do we create a compelling value proportion for captive centre. As the ‘inside' centres are now seamlessly embedded into a global company, getting functions into a so-called low-cost centre is an old theory now,” said Deenanath Harapanahalli, Chairperson of Nasscom's Hyderabad Captive forum.

The captive entities have not been sitting idle, though, and there is no call to say they should commence moving up the value chain now.

According to Rumi Contractor, Group Head Service Delivery, HSBC Technology Services, the maturity in the captives was ‘enormous' in the last ten-fifteen years.

“The onshore country now feels much confident in captive's work. The same compliance standards adopted on-shore are also being adopted in offshore captives,” he said.

In HSBC, for instance, there is a service delivery organisation on a global level. “We have vertical service organisations in six global regions which are well-integrated horizontally with HSBC's centres of excellence,” he said. The growth of HSBC in India — from 20 employees in 2000 in Hyderabad to 19,000 in India in BPO and KPO sectors — illustrated the success of the captive model, he claimed.

`WIRED YOUNGSTERS

Alongside ‘maturity' to make captives more captivating, harnessing young talent is vital, stressed industry leaders.

“A rose is a rose. It (captive business) started with cost-saving but we moved away,” said Kalpana Morparia, Chief Executive Officer, JP Morgan - India.

Designing different cost structures from those in the developed world would become vital. “For example, the average size of a bank deposit in India is $1,000 while it is at $10,000 in the US,” she said, adding that the operating costs and business model should keep this kind of difference in mind.

The biggest challenge is, however, use of the “restless young energy in India for driving innovation.

“These youngsters are born in the Internet age. Their brains are differently wired. Appropriate platforms have to be created for tapping this young talent,” the banking expert said.

ROLE OF THIRD PARTIES

Another interesting issue was the relationship between the captive entities and third- party service providers.

According to Contractor, third-party service providers would never be allowed to do “some” work that was being done by the captives. “Because, very few third-party service providers will be able to stand scrutiny by different regulators/statutes,” the HSBC functionary said.

Arindam Banerjee, Managing Director, Global Head, GBS Service Centres, Deutsche Bank Group, said there was 100 per cent separation of the work done by the third- party service provider and the captives.

The regulatory pressure would remain intense, he added.

CURRENT TRENDS

At present, the captives encompass diverse areas. “We now have captives in almost all major industry verticals such as automobile, biotech and analytics. People are now leveraging global talent,” said Som Mittal, President, Nasscom. About 90 per cent of all captives are from the US and Europe while 10 per cent come from West Asia, Japan and Latin America.

“Till recently, the top six cities were the favourite destinations for captives from abroad. But now, they are moving to tier II- III cities such as Visakhapatnam and Coimbatore,” the Nasscom President said.

On the work front, the engineering services segment now has the highest percentage of work being done through the captives. “Over 50 per cent of all engineering is done by captives now,” he said.

WHAT'S IN A NAME?

A section of industry is also seeking a better name than ‘Captives' as part of a re-branding exercise. A passionate plea for name change came from Harapanahalli on the ground that it would help broaden the definition of captives. “The word captive makes me feel like prisoner, an inmate,” was the support he received from Contractor.

But Som Mittal appears to be comfortable with the name. “They are captives and are so called. After all what is in a name,” he told journalists.

The organisers also asked the participants to come up with new names which may be considered probably by the time of the second edition of the conference next year.

IT-BPO captive industry size estimated at $12.3 billion in FY2011

200 new captives were set up in India during the last three years

4.4 lakh employees are on rolls, which is 20 per cent of total employee base for exports

Now, many captives are also being called centres of excellence

> nagsridhu@thehindu.co.in

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