New wave of IT suppliers buying captives from customers

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IT service providers could be going through around of buying the offshore IT captives of their customers. These departments, known as captives, used by big businesses including many of the big bank.
 
Lee Ayling at KPMG told me yesterday that he is currently working with a couple of suppliers on deals to acquire customer captives. There was a bit of this during the height the financial crisis when the banks were offloading some of their assets. Citibank and UBS sold captives in India to Indian services firms.

Lee couldn't talk about the specific deals for obvious reasons but he said it could be becoming a trend.

The advantage to the business that owns the captive is the capital that it gets from the sale as well as service improvements as the supplier invests in improving processes. The cost of service could reduce if the supplier provides services to other customers through the former captive.

Professor Ilan Oshri from Loughborough School of Business, says businesses will always sell captives on after a few years because they start to lose their advantages. He says recent months have seen a few examples of divestments.

According to Oshri divesting captives enables them to expand to become more effective and bring costs down.

"They cannot keep investing and getting growth because they do not have the global footprint to tap into new markets. They can sell it to a supplier with a good brand name which can do a better job with the captive. The business will benefit from the methodologies and delivery systems that the supplier introduces. And costs will come down.

There is an interesting article about selling captives here on SSON: Captive Spin-off: Interview with Michael Whiting, Vice President - Global Delivery, CoreLogic.

CoreLogic sold its Indian captive shared services operations to Cognizant and SSON asked Mike Whiting, VP of global delivery, why?


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This page contains a single entry by Karl Flinders published on February 17, 2012 10:39 AM.

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