JV best BPO model: report

Bangalore | Updated: Nov 25 2004, 05:30am hrs
GEs largest captive BPO operations were recently sold out to become a third party vendor. Other large captive BPOs are rumoured to be looking in the same direction. Earlier, many small standalone third party BPOs were sold off to larger companies - Spectramind to Wipro, TransWorks to Birlas and Customer Asset to ICICI, Daksh to IBM.

The churn in the BPO industry is confusing to say the least, as far as the best model is concerned. How-ever, Prayag Consultings research report on BPO models concludes that the joint venture is the best model to have in most cases.

Finally, it all depends on the buyer, says the study conducted across industries and BPO models in the country.

Buyers could be either companies abroad looking to outsource BPO operations to India or companies who were outsourcers for customers looking at India as an offshore outsourcing centre.

The right offshore model could be one of three -the captive model, the third party or the joint venture, which falls between the first two.

A captive model offers companies high management control over the operations, can take up core and critical activities, business continuity risks perceived is low, data security is high. On the negative side, the pay back period is high at 4-5 years, initial setup costs are high, and lead time before outsourcing is high. This model typically suits large companies which need to operate on huge scales.

Large companies who need big scales, for whom data security is important and companies that need to have close control over processes, usually opt for this model.

Buyers would find set costs of independent third party service providers lower, payback period is usually six months to a year, exit costs are low and lead time before offshoring is short. But they also mean lower management control over process, higher business continuity risks.

The nature of work outsourced is typically non-core and non-critical, according to the study.

Companies typically go to third party BPO vendors to get around dealing with Indian government regulations.

Indias proven track record and the outsourcers own lack of offshoring experience also leads to more third party offshoring.

The joint venture partnership model is the one that is being increasingly preferred, according to Prayag.

The study believes that the partnership model combines the best of the captive and third party models and is hence appealing across buyer segments.

The partnership model is the most appropriate for all categories of buyers except the very large ones, says the study.

While initial costs are low, a partnership model is also a profit centre instead of being a cost centre as in the case of captive or third party centres.

Data security is high, management control over processes is also high, business continuity risks is medium, operational efficiencies are high (unlike the captive model).