KOLKATA - General Electric, the US-based
multinational that pioneered the India "offshoring"
model much before it became a lightning rod issue, has
just taken a back seat in its Indian back-office
business. In the largest business process outsourcing
deal in India yet, GE offloaded its 60% stake in General
Electric Capital International Services (GECIS), its
global business process operation, Monday to two private
investment companies - General Atlantic Partners and Oak
Hill Capital Partners - for $500 million. With this,
India's largest, one of the oldest, and perhaps the most
profitable back-office outfit that operated as a captive
unit for GE, has become independent, said GE officials.
As a confused back-office sector in the country
struggles to fathom the real reason behind the sell-off
of a money-spinner, the question that looms large is,
has India started loosing its allure for GE? After all,
the offloading of the GECIS stake is not GE's first
divestment in the country. Earlier in the year, in a
quiet and comparatively insignificant deal, GE sold its
stake in Godrej-GE Ltd, a joint venture with a local
industrial group (Godrej) that made GE's washing
machines. And Monday, a report in India's Economic Times
- the newspaper that hinted way back in March that GE
was planning to sell out of GECIS - suggested that GE is
keen to get out of its Indian electrical motors and
lighting businesses as well.
GE officials,
though, maintain that the GECIS divestment is "a
strategic decision". "This transaction allows us to
offer our quality business process services to an
expanding roster of leading companies worldwide. We can
now go all over the world," said Pramod Bhasin,
president and chief executive officer (CEO) of GECIS,
who retains the designations under the new ownership
pattern. "GE has taken a strategic decision, and we
believe we will now be able to tap the external customer
more effectively and grow at a faster rate," Bhasin
said. GE India's president and CEO Scott Baymen said,
"There is little strategic fit between back-office
operations and GE's high-technology business. GE would
rather invest [the $500 million that goes straight to GE
instead of GECIS] in its core business."
In a
way, these reasons appear perfectly plausible. As a
captive unit of GE, GECIS was indeed getting stymied to
a large extent. For instance, GECIS was unable to scout
for business outside GE in the US, Europe and Asia
without encroaching on the parent's business interests
there. As a captive unit, GECIS was unable, too, to
utilize its full potential as a back-office outfit
within the country.
As an independent entity,
GECIS can now synergize with other Indian tech and
business process outsourcing (BPO) companies in which
General Atlantic Partners and Oak Hill have invested.
These include India's sixth-largest software company,
Patni computers, and $50-million BPO company EXL. While
Patni counts GE among its largest clients, with over 30%
revenues coming from GE, EXL till now has no direct
connections with GE. "We will provide all the support to
the companies we have invested in. The first step could
be sharing of experiences," says Abhay Havaldar,
partner, General Atlantic Partners, India.
Moreover, under the current chairman, Jack
Immelt, priorities of GE have undergone drastic changes.
Since he took over from Jack Welsh, GE's famous
ex-chairman and CEO who said he "believed in India's
brainpower", Immelt has redefined and restructured
several of GE businesses. For instance, he has
identified transportation, energy, healthcare and
financial services as the company's core businesses and
has decided to rationalize others by reducing the number
of companies under GE's hold from 14 to 11. So, under
the new order, GECIS is indeed a strategic misfit.
Yet it is also true that under GE's stewardship,
GECIS has grown to be the country's largest and most
respectable BPO outfit. GE made tentative moves to
offshore software development to India in 1994 when Jack
Welch had visited the country and realized that "GE
could use India's brainpower far outpacing my wildest
dreams". In 1995, GE started by offshoring $10 million
worth of software services. The number doubled in the
next three years. BPO's turn came in 1997, when Pramod
Bhasin took the idea to GE. By then, American Express
and British Airways had already begun captive operations
in India and GE had appointed Andersen Consulting to
look for a third-party vendor to outsource its
back-office work. So when Bhasin came forward with his
idea of setting up a captive center in Gurgaon, near
Delhi, it was sold instantly.
The rest is
history. GECIS India today has around 17,000 people on
its rolls worldwide, with 13,000 stationed in India. It
has 700 processes, structured under 10 Centers of
Excellence within the country and outside - in China,
Mexico and Hungary. From mere call center operations in
the beginning, GECIS's expertise has now grown to areas
like finance and accounting, insurance, collections,
customer fulfillment, industrial and equipment
businesses, analytics, learning, IT services and
software. The company is projected to post a turnover of
$420 million in 2004 and $513 million in the next
financial year.
But even as GECIS's past
performance is exemplary, skeptics say that it may soon
start running out of steam. Troubled by high attrition
rates and rising costs, the BPO landscape in India is
undergoing a paradigm shift where third-party BPO
outfits (when back-office operations are sourced out to
third-party owners) has a distinct edge over captive
operations like GECIS. "When you move certain processes
offshore to a country like India your cost savings are
one-off; they tend to diminish pretty quickly," says
John Atkins, head of Chennai-based BPO outfit Gavs
Information Services.
Rumors doing the rounds
also suggest that GE's move to sell GECIS may be
motivated by growing problems in retaining staff. In
fact, in a searing report about a month back - when
speculation on GE divestment was at its peak - London's
Financial Times reported: "Many workers are leaving
because the company has allegedly become too large and
bureaucratic. GECIS is thought to have an annual
attrition rate of 40-50%". Bhasin, however, says GECIS's
attrition rate is "40% lower than the industry
standard".
Adds Vikram Talwar, CEO of EXL, a
third-party BPO outfit, "What we hear increasingly
loudly is international companies saying they don't want
to do this anymore. If others can provide a certain
value and we can still retain some control, then that's
the way we should go." Interestingly, GE, too, says it
will retain the 40% stake in GECIS and has no plans to
dilute its stake any further.
This is why then,
some in the country's back-office sector feel that there
is more to the GE divestment than just making GECIS
independent. They believe GE's divestment may have come
at a right time because by selling now, perhaps GE has
realized a much higher value than what it would have got
selling a few years down the line. But GE India honcho
Scott Bayman insists that GE continues to see what Welch
saw back in 1994. "Our strategy has not changed and is
not changing. The strategy has been, and remains, to
capitalize on the intellectual talent in India."
Indrajit Basu is a Kolkata-based
equity-analyst-turned-journalist with more than 12 years
of experience in business/finance and technology
journalism. Besides writing for Asia Times Online, he
also writes for US-based publications, as well as IT
companies.
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