Captives are the next big opportunity for Capgemini

Captive IT units, often referred to as global innovation centres, pose a big threat to Indian IT industry as it allows large enterprises to build technology skills internally and not require an outsourced firm such as Infosys and TCS.

However, some companies are seeing captives as the next big opportunity area instead of seeing them as a threat.

According to Ananth Chandramouli, Head of Local Business Services for India and the Middle East, Capgemini, large enterprises are looking for partners to set up their captive units in India, creating a big opportunity for Capgemini.

“I agree captives will cause cannibalisation at some point in time. But the additional revenue potential that can happen in India through these captives, far outway the negatives that could happen in terms of a large deal getting curtailed and going through the captives,” Chandramouli told BusinessLine .

India has about 1,100 captive units and the number is growing fast. According to estimates, as many as 300-400 new captive units will be set up in 2019

As more technology work is being shifted to India captive units, several technology outsourcing decisions are also being driven out of these units.

More so, these units are looking at using large IT services companies to set up operations in India, augment their capabilities, and attract talent.

Win-win situation

“This is going to be a win-win situation for the MNC clients as well as the IT services provider like us,” Chandramouli said.

He puts the opportunity from captives in three buckets. Those looking to set up operations here, those looking to build centres of excellence and those who want to get rid of the bottom of the pyramid IT work and outsource it.

“There are captives who are looking at doing innovative projects for their parent. So they want to outsource the traditional IT business. This becomes an additional revenue that we probably didn’t have with the parent group in the past. Through interactions with captives we are getting this new bottom of the pyramid business,” Chandramouli said.

According to Chandramouli, about 250 of the 1,100 captives in India fall into this category. And the overall number of jobs that are being carved out to temp staffing organizations and the likes of Capgemini are pegged at 1-2 lakh. With Capgemini deploying only about 6,500 employees in the segment, the growth opportunity is immense.

“Captives are also looking to set up large centres of excellence for newer technologies like robotic process automation or analytics but they don’t have the bandwidth to do that. That’s where we come in. The intent is to setup the CoE, hand hold them for some time, have our consultants work for them initially and then swap them with their own employees with time. This is additional revenue that we’ll get,” Chandramouli said.

There are several new captives that are setting up operations in India. Many of these don’t have big brand names and need help from companies like Capgemini to set everything up for them. “These brands also face challenge in attracting talent and that’s where Capgemini helps them with. We work with them in a build, operate, transfer model. We equip them with skilled employees,” Chandramouli said.

Chandramouli says that the existing outsourced work for captives is currently led by temp staffing organisations and now MNCs are looking to work with IT services players who can offer value added services to them along with just staff augmentation. And that makes the opportunity even sweeter for the Indian IT services companies.

For Capgemini, growth in business from these captives is already twice its overall revenue growth. The company expects further upheaval as more MNCs look to set up their captive units in India.

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