Capgemini buys majority stake in Unilever's India BPO, scream the headlines all over. For starters, business process outsourcing (BPO) is the leveraging of technology or specialist process vendors to provide and manage enterprise processes and applications, both critical and non-critical. Common examples include the likes of call centres, human resources, accounting and payroll outsourcing. Generally speaking, business process outsourcing may also involve the use of off-shore resources.
The Unilever India Shared Services (Indigo), is a captive BPO company set up by Unilever in India with around 600 employees in Chennai (India) at its development centre. The captive centre carries out finance and accounting-related processing for Unilever companies in 45 countries. Paul Hermelin, CEO of Capgemini, says that he would look at acquiring the remaining stake at a later date. While the cost of the acquisition (sellout?) was not known, it is expected that since the deal includes the price of acquisition of the stake and a revenue contract for future business, the total cost may not be very high.
Indigo had revenues of Rs 22.3 crore for the year ending December 2005, with the average per head revenue of Indigo at e20,000 (Rs 17.4 lakh). Since captive BPO units are primarily cost centres, revenues or earnings are not likely to be the relevant benchmarks in valuing the deal. Instead, the valuation is likely to be based more on land, building and other infrastructure. The news also said that Capgemini and the Unilever group have also entered into a seven-year agreement to deliver the full range of BPO F&A services to all the Unilever companies, which Indigo currently serves.
As I see it, many are looking at this as a strategy beneficial to CG for scaling up in India. I would also urge readers to look at it through a different lens – that of HLL; unarguably India’s corporate icon and Unilever’s crown jewel would not have taken such a decision without working out its near and medium term benefits. Its likely the case that HLL must have thought that sustaining a captive BPO center may not be the best option available in front of it – seen from an expertise, economics, and scaling up perspective. I like Lever's approach - unlock the value/renounce management control where the operational challenges cannot be managed with its existing core competency.