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IT services firms gear up to acquire more Captive BPOs
By siliconindia
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Wednesday, 15 October 2008, 16:27 IST
Bangalore: The recent acquisition of Citigroup Global Services by Tata Consultancy Services seems to be prompting many IT services providers to do more such acquisitions. Experts predict that the next 12 to 18 months could see large Indian IT services providers making bids for captive business process outsourcing centers reported Business Line.
According to, Industry experts, one of the principal motivations for such deals is the large business contracts that come with it. Also, it would help the IT services providers, who were late entrants into the BPO space, to scale up their BPO operations.
"They are literally buying contracts. It's a natural business model," said Vinu Kartha, Principal, Tholons Consulting, an off-shoring advisory company. In a slowing economy, the biggest challenge is getting large contracts (5 to 7 years) as clients are unsure about their IT budgets. Smaller contracts fail to provide the certainty that comes with the bigger contracts, he added.
He added that buying a captives excludes a vendor's competition from getting into the account for a long time, while it gives sustained revenue to the vendor, almost like an anchor client. This helps the vendor to build scale around its BPO operations.
Many of the large Indian IT services providers did not have significant capabilities in the BPO space, said Siddarth Pai, Partner and Managing Director, TPI India, a sourcing advisory firm. Therefore, the captives are attractive assets for the service providers.
Also, as service providers work with more than one client, they are better prepared to deal with fluctuations in demand, unlike the captives who only caters to the parent organization, he added.
Kartha said in the next two years, many more captives would be sold. On being asked which other captives could be sold, he said, "It's the usual suspects."
Citigroup has signed an agreement for TCS to provide, through CGSL, process outsourcing services to Citi and its affiliates in an aggregate amount of $2.5 billion over a period of 9.5 years.
