Indian IT eyes captives as global companies rejig operations

Global companies look to outsource work to large services firms to offset demand slowdown.

BENGALURU: India’s cash rich IT services companies are eyeing captive technology centres of global corporations, as they gear up to provide IT and back-office services at lower costs and offset a demand slowdown from the US and European markets in the wake of the COVID-19 pandemic.

In the last three years, many global firms have either expanded their global in-house centres or set up new ones in India, looking to own the digital and analytics-based tech operations within the company as it became strategic.

The global economic slowdown has, however, made some of these companies shed costs and outsource work to large services companies.

India has nearly 1,300 captives across cities and they together employ nearly one-fourth of the 4.3 million workers in the $191-billion IT-Business Process Management sector.

“We have seen a 50% jump in captive search. Our records show that searches have gone up in March and April. Enterprises are searching for captive monetisation, those with poor financial performance and low cash to burn in the near term,” Vishwakumar Nandagopal, head of India Operations at global technology research and advisory firm ISG, told ET

Consulting firm ANSR, which has helped more than 50 captives set up shop in India, also said there had been a surge in enquiries for captives.

“Of the top 10 IT services companies we have spoken to, six of them reached out to us asking about captives,” said Lalit Ahuja, chief executive officer, ANSR.

The renewed interest in captives – just as during the global financial crisis of 2008 – can be attributed to reasons such as the unprecedented economic crisis, challenges of getting visas and softening of demand, Ahuja added.

“For us, merger & acquisitions is clearly in strategy and carve-outs and captives have always interested us. If there is an opportunity, we will definitely engage and have a conversation,” CP Gurnani, CEO, Tech Mahindra, told ET.

India’s largest technology services exporter TCS said last month that it would look at some strategic acquisition opportunities, without elaborating.