MNC's CAPTIVES FEEL THE PINCH

MNCS' CAPTIVES FEEL THE PINCH
Reema Jose, BangaloreThe Financial Express

Even as the Indian IT industry is on course by showing a strong growth path to achieve its set target of $50 billion in revenues in the current fiscal, it is the multinational firms that have set up captives in the country that are feeling the pinch. The reason: With burdening costs of labour and operations, some of the firms have even been forced to shut shop. Over four MNC players including Apple, Pervasive, Accelrys and most recently Riya (Like.com) have had to fold up their Indian operations, while Sonim Tech, Healtheon Software and some BPO operations of Dell and Sykes had already moved out of the country citing employee-related issues.

A recent study by Bangalore-based research and consulting company Zinnov showed that high employee turnover (attrition) and wrong offshore models were the other reasons forcing these captive units to close its Indian operations. "The captives coming to India and especially, Bangalore have reduced significantly. It was at its peak in 2005, but now we get hardly any enquiries," Zinnov CEO Pari Natarajan said. He said the main reasons behind the captives moving out of India were because of low productivity from the Indian centres. "

This was mainly due to lack of project ownership, dependence on the US or the UK team for decision-making or lack of access to end customers," Natarajan said. According to Matt Simons, chief people officer at US-based software company ThoughtWorks, offshoring involves huge amount of travel and sometimes, slow project speed, causing shrinkage in projected cost differentials. "With rising costs, margins shrink further. If your captive is not in India for value propositions other than lower costs, you would start thinking whether it's worth being here any more," he said.