With reports of buyouts hitting headlines, Indian BPOs are looking at an inflection point—survival of the fittest and biggies getting even bigger.

In the fish pond of Indian BPOs, the IBM deal to acquire Daksh e-Services, one of the largest Indian BPO outfit for about $ 160 million, is the first of its kind.

The next big binge, according to market reports, is that GE Capital International Services (GECIS) divesting its back office processes. Out of the nine centers of excellence (CoE), it has some non-core CoE which will be divested to realign the business strategy. GECIS, for quite some time, has not been expanding its facilities, but has been looking at optimizing the usage of its existing infrastructure through either getting more processes or consolidating its present processes.

With a combined asset base of Rs 7,200 crore, employing over 12,000 people, delivering over 450 processes to 30 different businesses in the US, Europe, Japan and Australia; GECIS is contemplating some serious rethinking about its BPO outfit.

Reacting to the reports, Paroma Roy Chowdhury, VP, communications, GE Capital Services India said, "GECIS is a wholly owned subsidiary of GE and employs around 12,000 people across all its centers of excellence in India. We are extremely competitive in the market place and have consistently delivered increased productivity to GE. The company does not comment on rumors or speculations."

Speculation might not be the right word for the strategy that could fall in place for GECIS. The recent purchase by Genworth Financial of GE Financial Assurance Holdings and other financial services operations that are to be spun off from General Electric might mean financial processes going to Genworth Financial, which also plans an IPO. It was formed by the conglomerate in 2003 to acquire its life insurance, long-term care insurance, group life and health benefits, retirement planning, and mortgage insurance business in the US, Australia, Canada, and Europe. This could well mean a strategy to focus on businesses with higher returns and stronger growth potential. Genworth’s growth strategy has three key points: capitalizing on growth trends in retirement income, protection and international mortgage insurance markets; strengthening and extending distribution channels; and enhancing returns on capital and margins through pricing discipline, capital efficiency improvements, optimizing investment income and operating cost reductions.

With these strategies in place, acquiring financial processes of the GECIS might come in handy for this $ 10.9 billion mortgage giant.

On the other hand, the non-financial process might also be in the offing for other BPO players. There are also reports that Convergys is trying to buyout the e-learning process of GECIS in India. GECIS e-learning offers a variety of wing-to-wing e-solutions to GE Businesses worldwide.

It provides complete and comprehensive solutions in custom content design, development and maintenance focused on customer needs and end-learner effectiveness.

It has a team of 300 employees based in Gurgaon and Hyderabad comprising instructional designers, software developers and media developers. It caters to the e-learning needs of GE Medical Systems, GE Power Systems, GE Aircraft Engines, GE Consumer Finance, GE Water Technologies, GE Corporate, NBC, GE Insurance, Tip Mod, Penske, GE Industrial Systems-Interlogix, GE Plastics, etc. When the Convergys office was contacted, it declined to comment. However, Nanette Bentley, National Media Relations Specialist, Convergys Corporation said, "We already have a significant workforce in India and remain committed growing globally."

Convergys India had recently announced its plan to increase its present workforce to 20,000 employees by 2005. Internationally, Convergys has recently acquired DigitalThink Inc, a custom e-learning solutions provider to enable the company to offer a wider range of learning outsourcing services such as content development and delivery services. This deal is worth $120 million.

"The acquisition of DigitalThink is a further demonstration of our strategic commitment to employee care as a major growth engine for Convergys and further strengthens our growing leadership position in HR BPO. It also creates a new set of capabilities for us in learning outsourcing segment while adding additional revenue stream and new customers," said Steve Rolls, Convergys executive VP, Global Customer Management and Employee Care. The e-learning process buyout falls completely in place for the Convergys operations, which is looking at India as the most preferred BPO destination.

According to experts, GECIS’s selling its BPO processes might be triggered off due to four primary reasons. First, to save on the taxes that it is incurring being a captive unit. Second, additional cost arbitrage by finding a third party operation company. Third could be making money on the present business processes and expertise available. Another reason could be to rationalize the captive units and keep only the core processes and further outsource the non-core processes.

As per the latest report released by KPMG, a captive units operates on operating profit margins between 15-20%, where as third party units can garner anywhere between 20-25 % operating profit margins. If this report holds true, GECIS’s plan to sell out its non-core processes with a billing rate averaging about $4 to $11 can be a well thought step. Does this mean a step ahead for consolidation—realigning the business once again as core and non-core areas even for the captive units?

Shweta Khanna/CyberMedia News

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