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

Source: RedSeer Call Center Services

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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 Billion in 2008 It has grown with a 34% CAGR between 2005 08 Services considered in BPO market are by Nasscom:

Revenue Distribution Indian BPO Market (2008)

Third Party Vendors (60%) Captive Back Office (40%)

F&A (13%) HRO (4%) Customer Interaction and Support (42%) Procurement & Supply (2%) KPO (9%) Vertical Specific Services (27%) Others (3%)

Total =USD 10.9 Billion

For the purpose of this analysis, vertical specific processes have been merged with Customer/Tech Support, F&A and Manufacturing Support

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

Source: RedSeer Call Center Services

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

Back Office Captives in India by Employees (2008)

Number of Employees (in Thousands)

Employee Distribution between Back office Captives (2008-09) 160000

19% 100%
140000

67%
120000 100000 80000 60000 40000 20000
67% of the headcou nt is with 1000+ FTE sized centers

500 to 1000 (7%)

200 to 500 (3%) 100 to 200 (1%) 50 to 100 (1%) 0 to 50 (2%)

More than 1000 (67%)

7% 2%
0
0 to 50 50 to 100 100 to 200 200 to 500 500 to 1000

1%

1%

3%
1000+ Unacco Total unted

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`

Source: RedSeer Call Center Services

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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)

100% 90%

For 145 Centers

9% 12%

125,000 Employees
5% 11% 9%

Percentage by Industry Verticals

80% 8% 70% 60% 50% 40% 30% 20% 10% 0% By Number of Centers Manufacturing1 Hi-tech BFSI IT/ITES 28% 23% 19%

Findings based on the analysis of the 145 company database:

Manufacturing1 companies have the highest number of back office captive centers BFSI vertical accounts for 19% (27 captives) of the captive centers and 47% of the overall headcount

47%

20% 7% By FTE Split 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

Source: RedSeer Call Center Services

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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:

45 40 35

Companies Setting-up Back office Captives

Illustrative For 65 Centers
39

Number of new captive centers have come down drastically in last 2 to four years This is primarily because of two reasons 1) Increased maturity of third party vendors hence increased reliability 2) Global slowdown in last 1.5 years As a sign of increased confidence in the capabilities of Indian vendors, lot of companies have sold their stable captive centers to the Indian Vendors Selling of the back office centers have helped MNC in reducing the cost by 20% to 40% and focus on the core business The upcoming captives typically have two rationale:

Number of Captives Started

30 25 20 15 10 5 0 1990-95 1995-2000 2000-2005 2005-2009 3 14 25

Years

IP and data security issues Vertical specific complex

process

Source: RedSeer Call Center Services

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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)

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% By Centers NA
1

For 145 Centers

8%

125,000 Employees
2% 13%

24%

85% 68%

By Headcount EUROPE
2 ASIA

Source: RedSeer Call Center Services

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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

Cities

Tendency of a captive center to choose

HYDERABAD 21

PUNE

20

Bangalore ahead of NCR is higher when compared to third party vendors. This is due to presence of higher number of MNCs and support ecosystem

CHENNAI

18

Based on the Nasscom report, 24% of the

overall BPO headcount is in Bangalore when compared to 21% of NCR and 15% of Mumbai

OTHERS 0

10 10 20 30 40 50 60

Number of Back office Centers

Source: RedSeer Call Center Services

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

Back Office Captives in India by Employees (2008)
Findings based on the Analysis of 55 captive centers:

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, vertical specific processes likes claims have been included in the F&A Technical and customer support is the second most common function at 43%. It included the voice and non voice operations, level-1 technical support (NOC) HRO is not commonly outsourced to the back office because of relatively lower volumes of work and constraints with outsourcing

Technical and Customer Support (43%)

Finance & Accounting (48%)

HRO (4%) Sales and Marketing (3%) Procurement & Supply (1%)
Total ~115,000 FTEs

Manufacturing support activities (1%)

Source: RedSeer Call Center Services

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Capability Mapping of Indian Back office Captives

Capability High Med Low

1
a b c d e f 2 a b c d e f g h i j k

Technical/Customer services
Customer Data acquisition General Query Handling Customer surveys and satisfaction Customer Interaction and Support strategy Post sales/Product services support Other Technical support (Low level Infrastructure Management Services) HRO Employee data Management Payroll Benefits Administration Compensation Recruitment and Selection Training and development Global Mobility Regulatory and Compliance Performance Management Employee Relations Human Resource Management Strategy

3 a b c d e f g h i j k 4 a b c

Finance and Accounting Accounts Payable General Accounting Accounts Receivable Tax Fixed Assets Regulatory Reporting and Compliance Management Reporting and Analysis Capital Budgeting Budgeting/Forecasting Internal Audit Finance and Accounting Strategy Procurement & Supply Transactional Procurement Spend and Category Management Procurement and Services Strategy Comments

5 b 6

Sales and Marketing Sales and Marketing services Manufacturing support activities

Source: RedSeer Call Center Services

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10

Illustrative Acquisitions

Companies
Aviva British Airways EDS Serco Group AOL Citibank e-serve ICICI Onesource GE- Consumer Electronics GE- Healthcare

Acquired by /Spun off

WNS WNS HP InfoVision Aegis TCS FirstSource Genpact Genpact

Vertical
BFSI Aviation IT/Ites IT/Ites IT/Ites BFSI

BFSI/Telecom
Manufacturing Manufacturing Services BFSI

Travelport UBS

Intelenet Cognizant

Source: RedSeer Call Center Services

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Thank You!
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2010 RedSeer Consulting Confidential and Proprietary Information.

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