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Western firms shutting shop in India, says Wall Street Journal

Many Western companies have recently sold or closed back-office facilities in India, reversing a decade-long trend as companies look to slash costs and eliminate headaches during the recession, according to the Wall Street Journal.

world Updated: Jun 08, 2009 11:30 IST

Many Western companies have recently sold or closed back-office facilities in India, reversing a decade-long trend as companies look to slash costs and eliminate headaches during the recession, according to the Wall Street Journal.

Citigroup Inc. and insurance firms AXA SA and Aviva PLC, among others, have sold offshore computer-programming shops and other operations to companies in India over the past year, the leading US financial daily said in a report published Friday.

Some have received hundreds of millions of dollars for their centres, while others have sold their sites for the cost of the equipment inside.

Almost always, the buyer gets a multiyear contract to provide the same services back to the seller. Other companies, including Delta Air Lines Inc. and UAL Corp., have shut down centres in India during the past few months, the Journal said.

In October, Citigroup sold its Indian information-technology operations to outsourcing firm Tata Consultancy Services Ltd. for $505 million, and awarded TCS a nine-year, $2.5 billion deal to provide the services back to it, the daily said.

Two months later, Citigroup also sold its business-process outsourcing operations to outsourcer Wipro Ltd. for $127 million, giving Wipro a six-year deal worth at least $500 million in exchange.

In late May, outsourcing firm Capita Group PLC finalised a deal to take over a 600-person captive centre in India from AXA as part of a 15-year, �523 million ($836 million) deal, it said.

The Journal cited a spokesman for AXA as saying the units it sold mainly serviced products the company no longer sells. Simon Pilling, chief operating officer of UK-based Capita, says the deal will help increase his company's India operations.

Smaller companies are also shedding their captive centers, often without receiving the kind of payout given to large companies.

In March, biotechnology company BioImagene Inc., Sunnyvale, California, transferred its research-and-development centre in India to outsourcer Symphony Services Corp. after deciding to replace most of its 50 overseas software developers with ones in the US BioImagene sold the India facility for the cost of the computer equipment in it, says CEO Ajit Singh as cited by the Journal.

The moves represent an about-face from earlier this decade, when companies raced to open so-called captive units in India and other countries where workers cost a fraction of those in the US.

At least 500 Western companies have such centres in India, according to estimates by several research and consulting companies. In the first quarter, four more companies opened offshore centers in India, says consulting company Everest Group.