GE to sell 60 percent of Indian BPO operation

BANGALORE, INDIA — General Electric Co. (GE) is selling a 60 percent stake in GE Capital International Services (GECIS), its business process outsourcing (BPO) subsidiary in India, for about $500 million, the company said Monday.

GE in Fairfield, Connecticut, was one of the first multinational companies to outsource back-office work, 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, Connecticut, 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 percent 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 chief executive officer of GE India at a press conference in Delhi.

After GE divests 60 percent 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 it, Bayman said. The transaction is expected to be closed 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. Besides India, GECIS operations include facilities in North America, Europe and China.

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

Multinational companies initially set up captive, wholly owned subsidiaries for BPO and software development in India because there were not enough third-party outsourcing companies able to offer quality services to those wanting to offshore to India, said Ravindra Datar, principal analyst for IT services and BPO at Mumbai-based Gartner India Research and Advisory Services Pvt. Ltd., a subsidiary of Gartner Inc.

Multinational companies are also finding that the savings from offshore outsourcing are far higher with an independent outsourcing company rather than setting up a captive operation, Data 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 captive operations in India provided, 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, the multinational company also stands to benefits from the profits of the operation.