India Captives and Offshoring Analysis

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Captives in India

Market Landscape


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Key Highlights

Captive back office accounts for the 40% of Indian back office revenue. i.e. close to USD 4.3 Billion

There are close to 200 back office captive centers in India with a significant employee count (~>100),

Around 150,000 employees work in the back office captives, research database captures more than 120,000 of these

F&A and financial vertical processes are the most common processes (~48%) outsourced to the back office captives

Customer and Technical support (level-1) (~43%) is the next most common function being performed by the captive back

offices

Bangalore has the highest number of back office captive centers followed by NCR and Mumbai (Captive distribution is

more skewed words Bangalore when compared to the third party vendors which are distributed equitably)

While the average billing rate for third party vendor is between 15 to 20 K per FTE per annum, the captive employee cost

is up to 20% to 30% higher. Captive centers are focused on three themes 1)Global center of excellence 2)Innovation

Incubator 3)Low cost aggregator

In last 2 to 4 years there has been a lower number of captive centers setting up back offices in India, primarily due to: 1)

Increased confidence in third party vendors 2)Global economic slow down has triggered cost reduction measures, as the

captives are more expensive then the vendors

There has been a series of acquisitions of the back office captives in the last 2 to 4 years, a trend favoring the third party

vendors

For the Purpose of this analysis, financial vertical based services have been merged with the F&A process e.g. claims

processing, insurance settlement etc. KPO, equity research and analytics have not been included in the analysis

2Source: RedSeer Call Center Services


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Captive Back offices account for 40% of the ~USD 10 billion IndianBPO market

Source: Everest Nasscom Report-2008, Web search, RedSeer Analysis

Indian BPO Market was pegged at USD 10.9Billion in 2008

It has grown with a 34% CAGR between 2005 -

08

Services considered in BPO market are by

Nasscom:

F&A (13%)

HRO (4%)

Customer Interaction and Support

(42%)

Procurement & Supply (2%)

KPO (9%)

Vertical Specific Services (27%)

Others (3%)For the purpose of this analysis, vertical specific

processes have been merged with

Customer/Tech Support, F&A and

Manufacturing Support

Captive Back Office

(40%)

Total =USD 10.9 Billion

Revenue Distribution Indian BPO Market

(2008)

Third Party Vendors

(60%)

Source: RedSeer Call Center Services


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More than 150 back office captives in India employ close to 150Kemployees

0

20000

40000

60000

80000

100000

120000

140000

160000

0 to 50 50 to

100

100 to

200

200 to

500

500 to

1000

1000+ Total

Employee Distribution between Back office Captives

(2008-09)

Size of Captive Center

NumberofEmployees

(inThousands)

Unacco

unted

2%1% 1% 3%

7%

67%

19% 100%

67% of

the

headcou

nt is with

1000+

FTE

sized

centers

Note:

1: Not extrapolated to 150K, as captured in the database

Source: Everest Nasscom Report-2008, Web search, RedSeer Analysis`

Total ~125,000 FTEs1

Back Office Captives in India by Employees

(2008)

0 to 50

(2%)

50 to 100

(1%)

100 to 200

(1%)

200 to 500

(3%)

500 to 1000

(7%)

More than 1000

(67%)



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Manufacturing followed by Hi-Tech has the highest number of backoffices in India, BFSI accounts for the overall highest FTE base

28%

7%

19%

47%

8%9%

12%11%

9% 5%

23%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

By Number of Centers By FTE Split

Manufacturing Hi-tech BFSI IT/ ITES Services Others

125,000 EmployeesFor 145 Centers

Back office by Number of Centers and Employees

(2008-09)

PercentagebyIndustryVerticals

Findings based on the analysis of the 145

company database:

Manufacturing1companies have the

highest number of back office captivecenters

BFSI vertical accounts for 19% (27

captives) of the captive centers and

47% of the overall headcount

1

Note:

1: Manufacturing companies include chemical, hi-tech manufacturing, aerospace, automotive and all other type of manufacturing heavy sectors

2: Services companies includes the non technical services like consulting, transportation, hospitality etc.

Source: RedSeer Back office Captive Database

2



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Number of companies setting up back office captives in India has gonedown in last 2 to 4 Years

Companies Setting-up Back office Captives

Years

NumberofCaptives

Started

3

25

39

14

0

5

10

15

20

25

30

35

40

45

1990-95 1995-2000 2000-2005 2005-2009

Illustrative For 65 Centers

Findings based on the analysis of the 65 Back

office centers: Number of new captive centers have

come down drastically in last 2 to four

years

This is primarily because of two

reasons 1) Increased maturity of third

party vendorshence increased

reliability

2) Global slowdown in last 1.5 years

As a sign of increased confidence in

the capabilities of Indian vendors, lot

of companies have sold their stable

captive centers to the Indian Vendors

Selling of the back office centers have

helped MNC in reducing the cost by

20% to 40% and focus on the core

business

The upcoming captives typically have

two rationale:

IP and data security issues

Vertical specific complex

process



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More than 2/3rdof the centers and 85% of headcount is with NorthAmerican companies

68%

85%

8%2%

13%

24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

By Centers By Headcount

NA EUROPE ASIA

125,000 EmployeesFor 145 Centers

Back office by Number of Geography

(2008-09)

1 2




8

Bangalore followed by NCR is the most preferred back office location

57

37

31

21

20

18

10

0 10 20 30 40 50 60

BANGALORE

NCR

MUMBAI

HYDERABAD

PUNE

CHENNAI

OTHERS

Captive Centers by Cities(2008-09)

Number of Back office Centers

Cities

Bangalore has the highest number of BPO

captives when compared to any other centers

Tendency of a captive center to chooseBangalore ahead of NCR is higher when

compared to third party vendors. This is due to

presence of higher number of MNCs and

support ecosystem

Based on the Nasscom report, 24% of the

overall BPO headcount is in Bangalore when

compared to 21% of NCR and 15% of Mumbai

Bangalore is preferred more

over NCR by captives when

compared to vendors




9

F&A is the most common function outsourced to IndianCaptives

Findings based on the Analysis of 55 captive

centers:

F&A is the most commonly

outsourced function to the India back

office captives. This is primarily

because of the data security and

confidentiality issue

For the purpose of this analysis,

vertical specific processes likesclaims have been included in the

F&A

Technical and customer support is the

second most common function at 43%.

It included the voice and non voice

operations, level-1 technical support

(NOC)

HRO is not commonly outsourced tothe back officebecause of relatively

lower volumes of work and constraints

with outsourcing

Total ~115,000 FTEs

Back Office Captives in India by Employees

(2008)

Finance & Accounting

(48%)

Technical andCustomer Support

(43%)

HRO

(4%)Sales and Marketing

(3%)

Manufacturing support activities

(1%)

Procurement & Supply

(1%)



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1 Technical/Customer services

a Customer Data acquisition

b General Query Handling

c Customer surveys and satisfaction

d Customer Interaction and Support strategy

e Post sales/Product services support

f

Other Technical support (Low level

Infrastructure Management Services)

2 HRO

a Employee data Management

b Payroll

c Benefits Administration

d Compensation

e Recruitment and Selection

f Training and development

g Global Mobility

h Regulatory and Compliance

i Performance Management

j Employee Relations

k Human Resource Management Strategy

3 Finance and Accounting

a Accounts Payable

b General Accounting

c Accounts Receivable

d Tax

e Fixed Assets

f Regulatory Reporting and Compliance

g Management Reporting and Analysis

h Capital Budgeting

i Budgeting/Forecasting

j Internal Audit

k Finance and Accounting Strategy

4 Procurement & Supply

a Transactional Procurement

b Spend and Category Management

c Procurement and Services Strategy

Comments

5 Sales and Marketing

b Sales and Marketing services

6 Manufacturing support activities

High Med LowCapability

Capability Mapping of Indian Back office Captives



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Illustrative Acquisitions

Companies Acquired by /Spun off Vertical

Aviva WNS BFSI

British Airways WNS Aviation

EDS HP IT/Ites

Serco Group InfoVision IT/Ites

AOL Aegis IT/Ites

Citibank e-serve TCS BFSI

ICICI Onesource FirstSource BFSI/Telecom

GE- Consumer Electronics Genpact Manufacturing

GE- Healthcare Genpact Manufacturing

Travelport Intelenet Services

UBS Cognizant BFSI



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India Captives and Offshoring Analysis