Captives expanding in India is good for us: Wipro

IT service major Wipro says the rise in captives expanding their operations in India is an opportunity that would help deepen relationships with clients and offer services and solutions at competitive costs.

India is witnessing a second wave of global firms looking to expand their captives and cut outsourcing to vendors such as Wipro as they look to build in-house capability in areas such as digital, analytics and cloud. This, they feel is core to their business which they want to retain instead of depending on third party vendors to deliver.

Wipro said they would not look at competing with clients when they set up captives in India to reduce dependency on outsourcing rather "supplement" them in ensuring the same customer experience and cost benefit especially where they co-create.

A lot of clients of Indian services companies such as Wipro, Infosys have of late started insourcing certain key technology services through their own technology units in India and the size of the market is pegged at $25 billion of $154 billion worth Indian IT-BPM services.

"When somebody comes to India it is a great story; irrespective of whether the company comes on its own (to set up captive in India) or comes through a service provider like Wipro. At some point of time they will realise that there is a step one to come to India and there is a step two to go to a service provider which can keep an offering, an outcome always with the market....Our ability to keep our costs at market, offering and solutions at market is incredibly high compared to a captive," said Jatin Dalal, chief financial officer, Wipro, in an interview.

Wipro has seen contributions from traditional business units such as communication reducing slowly to its overall revenue. It formed 6.5 per cent in Q2 last this fiscal, compared with 7.5 per cent of revenues during year-ago period.

This can be partly attributed to reallocation of the clients' IT budget towards setting up captives and insourcing a portion of the technology services, said analysts.

Dalal explains that more of its clients would work together with Wipro through their captives for its "ability to keep them ever fresh and competitive".

Business Standard reported in October last year on Infosys helping out Australian telecom major Telstra set up a captive in India to improve its insourcing capabilities.

The Bengaluru-based company, which has largely disappointed analysts with its July-September quarter numbers on the back of slow growth in traditional IT services business, pegged its October-December quarter growth up to 2 per cent (from Rs 13423 crore to nearly 13692 crore). Wipro reported 0.3 per cent growth in constant currency terms in Q2.

Wipro said that the experience of working for multiple customers and adapting best practices in delivering services helps them to be better partners for global captives.

"When you working with let's say a Fortune 500 customer, the customer gets the best practices of another 30 Fortune 500 customers. That is what in my view the customer pays for, you get knowledge, offering, team, which is used to working with that kind of customers. It is a different experience," added Dalal.

Industry analysts, however, said for companies such as Wipro a greater presence of captives appear may not be as promising as it reduces share of outsourcing for businesses.

"Both customers and IT vendors are balancing out with outsourcing and captive service delivery. Companies such as GE, Astrazeneca, and many are officially and unofficially reducing outsourcing. So, it is a challenge for companies such as Wipro even if their entry can be growth driver at a macro level," said Pareekh Jain, Senior Vice President, HfS Research India.

What makes Indian IT firms confident is the scope for captives to add new business opportunities generated out of India and "a portion of it can be passed on to them", added Jain.
 

Scope for more

• India is witnessing a second wave of global firms looking to expand their captives
   
• Global firms are looking to build in-house capability in areas such as digital, analytics and cloud
   
• Wipro said they would not look at competing with clients when they set up captives in India