The Future of Outsourcing

An exclusive look inside GE's back-office machine.

There is a buzz at the ground-floor cafeteria of Gecis, the back-office operation of General Electric just outside Delhi. About a dozen people are gathered round a corner, and more are forming a queue. “Have you got your free drink?” a woman in a green sari asks a colleague, lifting a can of Red Bull in her hand. The energy-drink maker is giving free samples of a new flavor. It’s nearly 4 p.m. in India, the beginning of the workday for many at Gecis, and they can use the energy boost. By the time their U.S. colleagues clock in, they will have done a fair amount of tasks for GE worldwide, from underwriting insurance and collecting delinquent accounts for its finance businesses, to performing cost analysis and tracking inventory for its industrial operations.

This is the world of offshore business-process outsourcing (BPO), where corporations farm out routine office functions to developing countries to take advantage of lower labor costs and higher productivity. It’s the little sister to the phenomenon of manufacturing and IT-services outsourcing — only 3 percent of overall BPO spending is currently spent offshore, according to research firm Gartner. But offshore BPO is catching up, be it in the form of companies setting up captive back-office units abroad or contracting out the work to third-party providers. Either way, the trend may rattle the global labor market yet again. In its World Investment Report 2004, the United Nations Commission on Trade and Development argued that offshoring of corporate service functions could become “the next global shift”.

Currently synonymous with call centers, offshore BPO is becoming commonplace, especially in India, by far the most favored BPO location. Gartner estimates the market there will soar from US$3.6 billion last year to US$24.3 billion in 2007. Based on 2004 revenues, Nasscom, the industry lobby group, says a third of all BPO work are in the area of customer care, followed by finance, administration, content development, payment services, and human resources. India already houses captive units set up by multinationals from American Express and HSBC to Dell and IBM, doing mostly standardized tasks such as general accounting, records management, and transaction processes such as accounts payable.

The tasks being remotely processed are now going up the value chain. You no longer have to imagine a company whose finance team in the United States is made up of only the controller, treasurer, and CFO, with their staff in India. This is already happening. What you need to still imagine is what happens when headquarters, unburdened by the rigors of running a factory and the tangles of accounts collection, is left only with the core tasks of selling products, developing new ones, and mapping growth strategies. This scenario may be way out on the horizon right now, but it is worth pondering how far it can go — and how it can change the way CFOs run finance.

The Way Forward

For a hint of where offshore BPO is headed, look no further than to its pioneer. Since 1997, Gecis (pronounced jekis) was the back-office captive of U.S. conglomerate General Electric (GE), the world’s second-largest company by market capitalization. With revenues of US$152 billion last year, GE’s extremely complex financial operation encompasses 11 global businesses from consumer finance, commercial finance, and insurance, to transportation, healthcare, and energy. Gecis is the back-office hub to 17,000 employees in India, China, Hungary, and Mexico.

Discuss

Your email address will not be published. Required fields are marked *