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An end to the Indian adventure

Paul Smith (MIS Australia) | July 21, 2009
More and more stressed companies are selling their captive set-ups to cashed-up locals

"The acquisition of Citigroup BPO in 2008 and Financial Network Solutions in Australia has transformed Tata Consultancy Services into essentially being a banking institution without a banking licence," Sharma says.

"These acquisitions have made it possible for TCS to offer end-to-end processes to the banking industry which would not have been possible through organic growth."

The Citigroup acquisition provided an example of how a deal can be made more manageable for an acquirer through the guarantee of long-term business. Tata's agreement bundled up a 91/2-year agreement to provide the back office services back to Citigroup, which will be worth $2.5 billion over the life of the contract.

Bucking this overarching trend, ANZ Banking Group says that, despite persistent rumours to the contrary, its Bangalore captive centre, with 3000 staff, is not on the market. The bank has owned the centre since 1989 when Index Computing was established to run technology for ANZ Grindlays in India.

The bank's group managing director, operations, technology and shared services, David Cartwright, says he prefers to run a captive centre rather than outsource because of the better risk profile, greater flexibility and control. He says ANZ approaches the topic with an innate sense of conservatism, and the idea that it will be better able to respond to changing circumstances if it retains total control.

"We have had the Bangalore captive for over 20 years and it is part of our DNA. It has become more important over the last few years because the capability that you can acquire in Bangalore has increased," Cartwright says.

"Some firms are selling because they need to raise capital and the Indian players see the current crisis as an opportunity to buy a long-term income stream. We don't have the sort of problems other institutions are facing so we don't have to think about those issues."

However, rumours persist that ANZ is looking to sell its Bangalore facility.

According to the Australia and New Zealand head of Indian firm Satyam, Venki Prathivadi, the array of companies seeking to sell off their Indian centres is indicative of an initial rush to get into India, without long-term strategic planning. He says some companies invested in India because they saw rivals doing so and had only flimsy business cases for following suit.

"It almost seemed like a knee-jerk reaction to Indian IT service providers being successful in providing services and thinking they could just do it themselves," Prathivadi says.

He says some companies were ill-prepared for cost blow-outs and the reduced benefits due to the significant appreciation of the Indian rupee against the US dollar and other currencies.

The rising cost of Indian labour has been blamed by some for problems faced by captive centre operators, but Fred Bertram, who ran ANZ's Bangalore operation for three years before becoming chief operating officer at ING Australia last year, says this is a furphy. While the growth in the Indian IT sector has seen a rise in wages, Bertram says Australian businesses can still save a premium in staff costs by sourcing talent there.


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