Captives in low cost countries like India, China and Russia are struggling due to lack of management support, increasing costs, attrition, and a lack of integration with the parent organization.
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Ericsson, started its own captive in India almost three years ago, failed, and later sold it to Wipro due to its unsustainable model.
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Apple computers closed its offshore software development and support operations in Bangalore last year, and continues to work with its existing outsourcing partners, HCL and Transworks.
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Pervasive Software closed its offshore development center in Bangalore a few months ago, but it continues to work with its long-term partner Aztecsoft.
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Mimosa Systems, a US-based privately-held VC-funded software product company has captive centers in Bangalore and Pune, but works with Symphony Services, its partner in India.
Industry experts say unless a captive has a certain volume and unless it scales up to a 300-odd people organization, it fails to justify its existence.
Global firms preferred to set up captive operations due to the lack of credible third-party service providers in India during the early nineties. The trend has changed from 2001, lot of captives were spun off or sold to private-equity firms. There are a couple of reasons for that — global firm have got enough third-party service providers to serve them better and captive units have reached a level that they can serve external clients (other than parent company). Also private investment firms are geared up to buy these firms because they see a growth potential in this firms.
Key Events
In 2001, HCL Technologies acquired a majority stake (51 percent) in Deutsche Bank’s BPO arm and in 2005 acquired the remaining 49 percent.
In 2002, it was the Mumbai-based WNS Holdings and in 2004, GE Capital International Services divested 60 percent of its stake in its BPO arm (now known as Genpact) to General Atlantic and Oak Hill Capital Partners at an estimated price of $500 million.
In 2004, TCS acquired Phoenix global solutions, technology-business solutions provider to insurance companies.
In 2006, Capgemini acquired 51 percent stake in Unilever India Shared Services firm (Indigo), finance and accounting business process outsourcing (BPO) in India.
In 2005, ICICI Infotech has transformed itself from being ICICI Bank’s back-office to a global technology company with a new name 3i Infotech.
In 2007, United Utilities sold its business process outsourcing arm Vertex Data Sciences to a group of private equity firms for $427 million. A consortium led by Oak Hill Capital Partners, and which includes GenNx360 and Knox Lawrence International.
There are few more to join the list soon.
