Captives in India

Market Landscape

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 Key Highlights

Captive back office accounts for the 40% of Indian back office revenue. i.e. close to USD 4.3 Billion

There are close to 200 back office captive centers in India with a significant employee count (~>100),

Around 150,000 employees work in the back office captives, research database captures more than 120,000 of these

F&A and financial vertical processes are the most common processes (~48%) outsourced to the back office captives

Customer and Technical support (level-1) (~43%) is the next most common function being performed by the captive back
offices

Bangalore has the highest number of back office captive centers followed by NCR and Mumbai (Captive distribution is
more skewed words Bangalore when compared to the third party vendors which are distributed equitably)

While the average billing rate for third party vendor is between 15 to 20 K per FTE per annum, the captive employee cost
is up to 20% to 30% higher. Captive centers are focused on three themes 1)Global center of excellence 2)Innovation
Incubator 3)Low cost aggregator

In last 2 to 4 years there has been a lower number of captive centers setting up back offices in India, primarily due to: 1)
Increased confidence in third party vendors 2)Global economic slow down has triggered cost reduction measures, as the
captives are more expensive then the vendors

There has been a series of acquisitions of the back office captives in the last 2 to 4 years, a trend favoring the third party
vendors

For the Purpose of this analysis, financial vertical based services have been merged with the F&A process e.g. claims
processing, insurance settlement etc. KPO, equity research and analytics have not been included in the analysis

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 Captive Back offices account for 40% of the ~USD 10 billion Indian
BPO market

Indian BPO Market was pegged at USD 10.9

Revenue Distribution Indian BPO Market Billion in 2008
(2008)
It has grown with a 34% CAGR between 2005 -
08
Services considered in BPO market are by
Nasscom:
F&A (13%)
HRO (4%)
Customer Interaction and Support
(42%)
Third Party Vendors Captive Back Office
(60%) (40%) Procurement & Supply (2%)
KPO (9%)
Vertical Specific Services (27%)
Others (3%)
For the purpose of this analysis, vertical specific
processes have been merged with
Customer/Tech Support, F&A and
Total =USD 10.9 Billion Manufacturing Support

Source: Everest Nasscom Report-2008, Web search, RedSeer Analysis

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 More than 150 back office captives in India employ close to 150K
employees

Back Office Captives in India by Employees Employee Distribution between Back office Captives
(2008) 160000
(2008-09)
19% 100%

140000

Number of Employees (in Thousands)

67%
120000

500 to 1000 200 to 500

100000
(7%) (3%)
67% of
100 to 200 the
80000 headcou
(1%)
More than 1000 nt is with
50 to 100 1000+
(67%) 60000
(1%) FTE
sized
0 to 50 40000 centers
(2%)
7%
20000
3%
1% 1%
2%
0
0 to 50 50 to 100 to 200 to 500 to 1000+ Unacco Total
unted
100 200 500 1000
Total ~125,000 FTEs1
Size of Captive Center

Note:
1: Not extrapolated to 150K, as captured in the database
Source: Everest Nasscom Report-2008, Web search, RedSeer Analysis`

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 Manufacturing followed by Hi-Tech has the highest number of back
offices in India, BFSI accounts for the overall highest FTE base

Back office by Number of Centers and Employees

(2008-09)
For 145 Centers 125,000 Employees
100%
9% 5%
90% 11% Findings based on the analysis of the 145
12%
company database:
Percentage by Industry Verticals

80% 9%
8%
70% Manufacturing1 companies have the
highest number of back office captive
19%
60% centers
50% 47% BFSI vertical accounts for 19% (27
captives) of the captive centers and
40% 23%
47% of the overall headcount
30%

20%
20%
28%
10%
7%
0%
By Number of Centers By FTE Split

Manufacturing1 Hi-tech BFSI IT/ITES Services 2 Others

Note:
1: Manufacturing companies include chemical, hi-tech manufacturing, aerospace, automotive and all other type of manufacturing heavy sectors
2: Services companies includes the non technical services like consulting, transportation, hospitality etc.
Source: RedSeer Back office Captive Database

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 Number of companies setting up back office captives in India has gone
down in last 2 to 4 Years

Findings based on the analysis of the 65 Back

office centers:
Companies Setting-up Back office Captives
45 Number of new captive centers have
Illustrative For 65 Centers come down drastically in last 2 to four
39
40 years

35
This is primarily because of two
reasons 1) Increased maturity of third
party vendors hence increased
Number of Captives Started

30
reliability
25 2) Global slowdown in last 1.5 years
25
As a sign of increased confidence in
20 the capabilities of Indian vendors, lot
of companies have sold their stable
14
15 captive centers to the Indian Vendors

10
Selling of the back office centers have
helped MNC in reducing the cost by
5
20% to 40% and focus on the core
3
business
0 The upcoming captives typically have
1990-95 1995-2000 2000-2005 2005-2009 two rationale:
Years IP and data security issues
Vertical specific complex
process

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 More than 2/3rd of the centers and 85% of headcount is with North
American companies

Back office by Number of Geography

(2008-09)
For 145 Centers 125,000 Employees
100% 2%
8%
90% 13%

80% 24%

70%

60%

50%
85%
40%
68%
30%

20%

10%

0%
By Centers By Headcount

1 2
NA EUROPE ASIA

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 Bangalore followed by NCR is the most preferred back office location

Captive Centers by Cities

(2008-09)
BANGALORE 57
Bangalore is preferred more
over NCR by captives when
compared to vendors
NCR 37

Bangalore has the highest number of BPO

MUMBAI 31 captives when compared to any other centers
Tendency of a captive center to choose
Cities

HYDERABAD 21 Bangalore ahead of NCR is higher when

compared to third party vendors. This is due to
presence of higher number of MNCs and
PUNE 20 support ecosystem
Based on the Nasscom report, 24% of the
CHENNAI 18 overall BPO headcount is in Bangalore when
compared to 21% of NCR and 15% of Mumbai
OTHERS 10

0 10 20 30 40 50 60
Number of Back office Centers

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 F&A is the most common function outsourced to Indian
Captives

Findings based on the Analysis of 55 captive

Back Office Captives in India by Employees centers:
(2008) F&A is the most commonly
outsourced function to the India back
office captives. This is primarily
because of the data security and
confidentiality issue
For the purpose of this analysis,
Technical and vertical specific processes likes
Customer Support claims have been included in the
(43%) F&A
Technical and customer support is the
second most common function at 43%.
Finance & Accounting
(48%)
It included the voice and non voice
operations, level-1 technical support
(NOC)
HRO is not commonly outsourced to
HRO the back office because of relatively
(4%) lower volumes of work and constraints
Sales and Marketing with outsourcing
(3%)
Procurement & Supply
Manufacturing support activities (1%)
(1%) Total ~115,000 FTEs

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 Capability Mapping of Indian Back office Captives
Capability High Med Low

1 Technical/Customer services 3 Finance and Accounting

a Customer Data acquisition a Accounts Payable
b General Query Handling b General Accounting
c Customer surveys and satisfaction c Accounts Receivable
d Customer Interaction and Support strategy d Tax
e Post sales/Product services support e Fixed Assets
Other Technical support (Low level f Regulatory Reporting and Compliance
f Infrastructure Management Services)
g Management Reporting and Analysis

2 HRO h Capital Budgeting

i Budgeting/Forecasting
a Employee data Management
j Internal Audit
b Payroll
k Finance and Accounting Strategy
c Benefits Administration
d Compensation 4 Procurement & Supply
e Recruitment and Selection a Transactional Procurement
f Training and development b Spend and Category Management
g Global Mobility
c Procurement and Services Strategy
h Regulatory and Compliance
Comments
i Performance Management
5 Sales and Marketing
j Employee Relations
b Sales and Marketing services
k Human Resource Management Strategy
6 Manufacturing support activities

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 Illustrative Acquisitions

Companies Acquired by /Spun off Vertical

Aviva WNS BFSI

British Airways WNS Aviation
EDS HP IT/Ites
Serco Group InfoVision IT/Ites
AOL Aegis IT/Ites
Citibank e-serve TCS BFSI
ICICI Onesource FirstSource BFSI/Telecom
GE- Consumer Electronics Genpact Manufacturing
GE- Healthcare Genpact Manufacturing
Travelport Intelenet Services
UBS Cognizant BFSI

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Thank You!
(query@redseerconsulting.com)

2010 RedSeer Consulting Confidential and Proprietary Information. www.redseerconsulting.com.