Experts say management at General Electric Co. could face a number of thorny issues as the company spins off its Indian back-office processing business to a pair of private equity firms under a sale disclosed last week.
GE is selling 60% of its stake in GE Capital International Services to General Atlantic Partners and Oak Hill Capital Partners for a total of $500 million. The equity firms each will take a 30% stake in the business. The deal is expected to close in December.
One issue GE must resolve is who owns the intellectual property behind some of the methodologies and processes that GECIS uses in its business-process-outsourcing service-delivery model. GE is known for perfecting quality-control processes such as Six Sigma, and any questions over whether GECIS can now bring those processes to bear for external customers need to be resolved before the company begins marketing its services, experts say.
"Potential customers are going to need to know that there isn't anything that could come back to haunt them," says William Bierce, a New York City attorney who specializes in outsourcing law. GECIS would most likely have to license any company-owned intellectual-property rights from GE to continue using them, Bierce says.
Bhasin, GECIS CEO, will remain in that post after the sale of the company to the private equity firms.
Such issues are becoming more than academic. A growing number of large enterprises are facing the same questions as they spin off their business-process operations to improve productivity and reap the economic benefits of a shared-services model. Last month, for instance, insurance company Aon Corp. sold its claims-processing division to Singapore-based Scandent Group for about $110 million. Earlier this year, oil-services firm Schlumberger sold its IT services arm to Paris IT contractor Atos Origin for $1.2 billion, while financial-services firm Phoenix Cos. sold its software-development unit to Tata Consultancy Services for an undisclosed sum.
GE established GECIS in 1997 in India to centralize its back-office operations in a low-cost country. GECIS currently employs more than 12,000 staffers. Among its offerings are finance and accounting, customer fulfillment, business analytics, and E-learning services. GECIS also provides IT outsourcing and software-development services.
GE says it wants to use funds from the GECIS sale to invest in high-growth markets such as security technology, a spokesman says. GE also believes the unit will generate more value as an independent company. "They'll be able to compete in the market on an even footing," he says.
GECIS--there is, as yet, no new name for the company--now looms as an offshore powerhouse. "Right out of the gate, they become the largest business-process-out- sourcing player in the offshore market," says neoIT's Vashistha. The deal, he adds, could put other vendors with offshore business-process-outsourcing offerings, such as EDS and IBM Global Services, on the hunt for acquisition targets. "Otherwise," Vashistha says, "they won't have the scale to compete."