GE to sell 60% of Indian BPO operation

The deal, expected to close within six months, is worth about $500M

General Electric Co. said today that it is selling a 60% stake in GE Capital International Services, its business process outsourcing (BPO) subsidiary in India, for about $500 million.

GE was one of the first multinational companies to outsource back-office work and data center and call center operations to a subsidiary in India, and its outsourcing operation, with a staff of 17,000, is one of the largest set up in the country by a multinational company.

General Atlantic Partners LLC in Greenwich, Conn., and Oak Hill Capital Partners LP in New York will buy a majority stake in GECIS. After the transaction, GE will continue to hold 40% of the equity in GECIS, which is based in Gurgaon, near Delhi.

As a recapitalized, stand-alone company, GECIS will extend business-support services to companies worldwide, said Scott Bayman, president and CEO of GE India at a news conference in Delhi.

After GE divests 60% of its stake in GECIS, the Indian company will continue to serve GE under a multiyear contract. GE will continue to use and expand on the services GECIS provides, Bayman said. The transaction is expected to close over the next six months.

Established in 1997 to provide internal business support for GE, GECIS has built global operating capabilities supporting nearly 1,000 business processes across each of GE's 11 business units. Its services include finance and accounting, supply chain management, customer-service support, software development, data modeling and analytics. In addition to its operations in India, GECIS has facilities in North America, Europe and China.

GE's strategy to divest GECIS reflects a growing trend among multinational companies to move away from having wholly owned subsidiaries doing captive software development and delivering BPO services in India, and to instead outsource to independent Indian outsourcing companies.

Multinational companies initially set up the captive subsidiaries because few third-party companies were able to offer the quality of service that companies wanting to send work to India were looking for, said Ravindra Datar, an analyst at Mumbai-based Gartner India Research and Advisory Services Pvt., a subsidiary of Gartner Inc.

But now multinational companies are finding that the savings from offshore outsourcing are far higher with an independent company than they would be with a captive operation, Datar said. "While the captive operation is a cost center, the third-party outsourcing company is driven by the profit motive," he said. "Also, while the captive operation services the parent company, an independent operation can leverage the same resources across a number of clients."

By selling off a part of the equity in Indian software and BPO subsidiaries, multinational companies aim to cash in on investments and pass on the management to others, without losing access to the services, according to Datar. "The captive centers have good business potential if converted to a profit center, because they have strong domain knowledge that could not be leveraged fully while they were captive operations," said Datar, adding that by continuing to hold a stake in the Indian operation, a multinational company also stands to benefit from the profits of the operation.

Copyright © 2004 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon