June 11th, 2009
No Surprise - Firms selling off Indian centers
The Wall Street Journal is reporting that major corporations are selling off their Indian IT and back office centers as part of belt-tightening moves. This really isn’t a big surprise. Why?
If well-designed and operated, these centers become assets of the firms they service. They would operate in a cost-effective and efficient fashion. They should perform at first or second quartile levels of performance. Great assets would be attractive to outsourcers, business process outsourcers and others. Should a third party make an attractive offer to the owner of these operations, many firms will accept these deals as they create a lot of scarce capital for the seller. This is capital that may be needed to help these firms get through tough economic times.
If these centers are not performing to the highest levels of performance, then these become luxuries that few companies can afford to keep in a tough economy. Selling these operations to others that can operate them better may be a good business decision for everyone involved.
If these centers are performing poorly, then they need to be sold asap as they represent a capital drain on earnings.
The fact that sales are up at this time represents two key factors:
- the economy is making firms re-assess their operations and their need for capital
- the cost and economics of running these operations may have changed. What looked like a good business decision years ago may no longer be so as the exchange rate and cost of labor in these centers are much changed.
It’s that latter item that should concern any firm/operation relying on low-cost labor arbitrage for its existence. Ireland used to be a big F&A BPO locale until Eastern Europe locations could deliver similar capabilities for less. India may become less attractive when compared to up-and-coming Chinese and other locations. As one market becomes popular, its economics often force businesses to look elsewhere in due time.
These sales of service centers may be just a data point in the evolution of labor arbitrage in India. They could also signal a change in the appetite of businesses to do business there versus an even lower cost locale.
This blog explores the intersection set between services and technology. If it impacts either space, it will be covered here. Brian Sommer is a former Accenture partner. He did an 18-year tour of duty there and ran three small practice units (Finance Center of Excellence, HR Center of Excellence and Software Intelligence). He’s sold service projects in almost every continent and remains just as current on both services and technology today as ever before. Brian is currently CEO of TechVentive, a strategy consultancy servicing technology providers, and a research analyst with Vital Analysis. See his full profile and disclosure of his industry affiliations.
Subscribe to Software & Services Safari via Email alerts or RSS.
