Fidelity Reportedly Selling India IT Operation - InformationWeek

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1/23/2009
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Fidelity Reportedly Selling India IT Operation

The recession is prompting many financial services companies to sell their India-based IT captives.

Mutual fund company Fidelity Investments is looking to sell its India-based IT unit, according to a report, the latest such sale in what's becoming a trend among financial services companies, despite the ongoing fraud scandal at Indian IT services company Satyam.

According to The Economic Times of India, Fidelity expects to get between $150 million and $180 million for its Indian IT "captive," with competitive bids coming from IBM and Infosys, while Wipro also retains an outside shot at the acquisition. IBM didn't respond to requests for comment in time for this article, while Infosys declined comment.

"As part of Fidelity Investments global business transformation strategy, we're exploring options to optimize our technology delivery model in India," said a Fidelity spokesman. "We're evaluating sourcing options with leading global tech service providers that will help us maximize the value we can offer our customers and employees in the long term. It's too early in the process to talk about specific details, but Fidelity remains firmly committed to leveraging the talent in India."

Earlier this week, Citigroup finalized the sale of Citi Technology Services, the bank's India-based captive provider of IT services, to Wipro for $127 million. As part of the terms of that agreement, Citigroup also agreed to purchase six years of infrastructure services and application development and maintenance.

Citi Technology Services had ballooned to 1,650 employees after only three years of operation. "This transaction is consistent with our efforts to improve our operating leverage while we focus on our core banking competencies," Don Callahan, Citi's chief administrative officer, said in a statement announcing the sale.

The recession is likely one of the biggest things to blame in the sudden divestiture of Indian-based IT captives. "When financial services companies were printing money, the captive seemed like a great idea," Eugene Kublanov, CEO of outsourcing consultancy NeoIT, said in an interview. "You control the resources, you control what they do, and money is not really an issue. However, today, this is a fixed cost you cannot easily ratchet down as your financial situation dwindles and becomes more pressured and severe."

Typically, when companies sell their Indian-based IT units, they'll get a chunk of change in return that may add up to a few years of free service. In addition, they'll also see savings because they're now simply paying for services instead of competing for Indian workers and having to manage the workforce themselves, Kublanov said. In exchange, the buyer is typically buying into a multiyear client relationship that typically comes with these purchases.

In October, Citigroup had announced the sale of Citigroup Global Services, the company's India-based captive business process outsourcing business, to Tata Consultancy Services, for $505 million. Lehman Brothers (pre-collapse) and Aviva also sold their India-based IT arms last year.


If you want to hear Satyam's side of the story, InformationWeek's Editorial Webcast: "Offshore In India: What's Next?" is now available on demand. Editor in chief Rob Preston and a panel of top executives -- including Som Mittal, president, India's National Association of Software and Services Companies; Kiran Karnik, new Satyam board member and former president of Nasscom; Kris Gopalakrishnan, co-founder and CEO, Infosys Technologies; and Pradeep Kar, founder and chairman, Microland -- discussed the scandal and other issues. Go here to register.

This article was edited on 1/23 to include comments made by Fidelity Investments.

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