The GE way

Citigroup's divestment of its 43% stake in i-Flex Solutions is another example of a captive BPO unit going the GE way. Late last year, GE announced that it was offloading 60% of its stake in GE Capital International Services, its Indian back-office processing business, to a pair of private equity firms to transition from a captive facility to a third party services provider. Interestingly enough, GE and Citigroup were pioneer investors in the Indian offshore industry more than a decade ago. An article in the Financial Times outlines three broad factors that propel organizations such as GE and Citigroup to take on third-party customers and possibly to spin off their captive units: the need to extract value from an asset, a volatile labor movement that disrupts captive operations, and pressure from local managers seeking independence, allied with the frustration felt by headquarters about running a distant unit.

However, I think this is more a function of the outsourced process than macro environmental characteristics. As this article reports, a large number of companies, including Bank of America, Fidelity Investments, Goldman Sachs, Microsoft and Unilever have established captive centers in India. Therefore, the need to reduce costs of process ownership while controlling for factors such as risk mitigation, the need for control and protection of competitive assets may persuade a firm to establish a captive center. Such outsourcing requirements are characteristics of strategic business processes such as research, product design, etc. and probably explain why there is an increased incidence of captive centers in the area of Knowledge Process Outsourcing in India. Most important, the ambiguity that surrounds the captive vs. third part decision process is symbolic of the dynamism that characterizes the BPO market and its consequent inability to pin itself on one standard model of success.