Captives in India: Is the honeymoon over?

By Manoj Madhusudan, Evalueserve (VCCircle.com)

Capacity addition by 3rd party service providers (‘Buy’) is likely to surpass additions by captives (‘Make’).

The recent announcement of UBS, a global financial services firm, selling its captive in India to Cognizant Technolgies is the latest in a series of such sell-offs.

This only reiterates what Evalueserve had predicted way back in 2007 that the capacity addition by third-party service providers (‘Buy’ option) is likely to surpass additions by captives (‘Make’ option).

After a study of about 100 captives of western companies in India, Evalueserve confirmed that a majority of these captives are in serious trouble.

Sixty-one percent of the captives studied have faced significant issues, with many of them already shut down. Smaller captives have been the worst hit; many of the larger ones are not in good shape either.

Captives across all segments—Information Technology (IT), Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO)—have fared somewhat similarly. Smaller captives Captives across all segments—Information Technology (IT), Business Process Outsourcing (BPO)

In contrast, third-party service providers have been scaling up during this

period. Access to new markets and increasing maturity of the service providers have helped them stay ahead.