Why is GECIS for Sale?

There are three reasons why I decided to pick up this topic. The most obvious
one: it is the most discussed topic among the offshoring fraternity these days.
Two-because I heard many giving a negative connotation to this development,
which is certainly not true. And last and least, because many of my friends in
the industry have told me that I am getting too 'philosophical' in my edit.
While most of them say so appreciatively, that indicates I am getting too far
away from the issues on hand. Hence, this topic.

At the very outset, let me clarify that I don't have any insider
information from GE or any potential buyer. However, one thing I know-and so
do most of you-that GE was one of the first ones to offshore to India on such
a large scale. Why did GE choose a captive model? Unlike many other companies
who give various reasons for choosing the captive models, GE has always said
that it is not any superiority of the captive model, but a lack of options at
that point of time that prompted it to build its own capability.

In an interview to this publication, more than two years back, Pramod Bhasin,
president, GECIS said, "When we came, there weren't many choices. It is
changing today. There are many companies that are doing well and are growing.
There are competent managements and therefore you can trust them. Today (in June
2002), there are only a handful of Indian companies who can do the job well. You
need at least 10 such companies to be able to make that choice. So, most people,
so far, have gone for captives. But that is changing. Some Indian companies are
getting very good customers. It will change."

Who else is in a better position to initiate that change? As many would
agree, the India offshoring model has not just found more acceptance, it has
matured quite fast. Today, it is very robust and reliable.

It just needed a pioneer to proclaim that loud and clear-in unambiguous
terms. That is what GE is doing, through its action. By deciding to sell off
GECIS, GE has put a decisive stamp on the coming of age of the offshore
outsourcing model in general, and India in particular. Just remember the
original 70:70:70 formula of Jack Welch. That, 70 percent of GE processes could
be outsourced, 70 percent out of that could be offshored, and 70 percent of what
is offshored could be offshored to India. In the earlier model, it was not
really outsourced, in the right sense of the word, because the time was not
right. Today, GE is just giving finishing touches to what it set out to do
almost a decade back. It is part of a strategy, a game plan that was finalized
right from day one, except maybe the timing. There is nothing surprising about
the development, much less negative.

What, however, does not seem so logical is the beeline of captives in India.
If a company like GE is sure that it is time to get out and rely on outsourcing
service providers, why are there so many companies who are starting on their own-sometimes
taking on an India partner in setting up, in a BOT model?

A senior executive of one such company that has decided on an India captive
model, but is yet to announce it publicly, had something unique to say.
According to him, not many big Indian companies are interested if you say you
want to offshore more processes, but in a small magnitude. They jump the moment
they hear one would ramp up a single process to a few hundred seats in a few
months; but are not half as excited if they are asked to take care of more
processes, but all on a small scale. According to this gentleman, they did not
want to offshore in bits and parts, they wanted to offshore many processes-sometimes
very different from each other-in a small time. This approach, as all would
agree, is far more difficult, but shows more commitment to India. Yet, he found
few exited souls. In other words, big Indian companies do not get excited if
they do not hear big numbers. Since the company found it too risky to try out
small players, it decided to set up on its own.

Now, this could be one company's isolated story. But looking at some new
captive operations, one tends to believe that he was speaking representatively
for a large number companies, if not all of them. There could be other
short-term reasons like doubt about capability to execute certain types of
processes, political issues, and so on. But the fact is that even other more
mature captive operations are beginning to feel more comfortable about
outsourcing to a third party. Do not get surprised if GECIS' footsteps are
followed.

To answer the big question on captives versus third parties, one is not
predicting an imminent death of the former. But what is becoming a little
clearer is that, only in certain cases, it makes sense to have captive
operations-if the work involves very confidential and sensitive user data or
if the company can also make a business out of it, by taking on outside work.

The first category will comprise largely banks, where the sensitivity of
consumer data will force them to run small critical processes on their own, and
these captives will be hubs for their other offshoring activities like vendor
management etc. The second category, though not a significant one right now,
will see a few companies turning their cost centers into profit centers by
taking third-party work, like eFunds has done. And of course, there will always
be a set of people who would like to try the model themselves before realizing
the full benefits of outsourcing as compared to running their own operations.
These will be temporary operations.

One thing, however, is for sure. Companies like WNS, AFS, and GECIS will soon
be called pioneers, not exceptions.

Shyamanuja Das