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Corporate India warms up to outsourcing

Surajeet Dasgupta

• DuPont, the US chemicals major, wanted to cut costs and keep the head count under control in India. So it hired Help Desk, a Delhi-based company, and farmed out the company's administrative functions including office purchases of stationery, housekeeping, and dispatch administration to the agency.
• Pharmaceuticals giant Ranbaxy plans to farm out marketing of some of its products. It's also outsourcing a contract field force.
• Bangalore-based Lucent Technologies, which has a large requirement of office space and property all over the country, is in talks with CB Richard Ellis to outsource the entire business of property management.

It's a new and growing mantra for corporate India. Confronted with recession and the need to keep both head count and costs down while concentrating on its area of core competence, Indian companies are farming out their non-core areas to specialised companies.

The range includes areas as diverse as payroll and pensions' management, office administration, marketing, property management, housekeeping and travel, car leasing and maintenance, etc.

Du Pont, Ranbaxy and Lucent are just part of the growing numbers of corporates which are outsourcing various kinds of functions.

The list also includes Pepsico, IBM, Siemens, Cadbury's, Oracle, Seagram, American Express and McKinsey, to name a few.

Industry estimates that the outsourcing market could be worth around Rs 2 billion, though there are no firm estimates.

Says Jagdish Kumar, general manager (finance) of DuPont India: "Outsourcing is becoming a new trend as companies cut costs and keep head counts in check. It also helps companies to deploy their personnel in key areas of competence, leaving the rest of the work to specialised agencies who provide them the same work more efficiently."

DuPont also plans to hire out its payroll administration to a specialised company and expects to make a saving of 10-15 per cent on costs as a result of the decision.

Explaining the rationale behind outsourcing a contract field force, a senior executive of Ranbaxy says: "We are trying to identify a company which has a force of about 150 medical representatives to market Ranbaxy products on a shared profit basis."

The field force will be trained by the company but they will not be on its payrolls, thereby helping Ranbaxy to reduce costs substantially.

K Prasanna, property manager at the real estate division of Lucent Technologies, says hiring out property management to a third party is part of an international trend.

"We expect to save around 10 per cent through this process and it will also reduce our head count."

C B Richard Ellis' job would include identifying property, completing the transactions, managing the office space effectively and its maintenance.

Companies are looking at outsourcing even areas like travel management and maintenance of cars for employees.

Pepsico, for instance, has tied up with Cox & Kings who have set up dedicated travel desks in Pepsi offices all over the country, manned by their own employees.

"It is a business they know better than us. There's no point in dedicating one's own staff there," says a Pepsi spokesperson.

The soft drinks major is also talking to some car fleet management companies like Lease Plan India, which provides companies with a complete package-from leasing, claiming insurance to maintenance of company-owned cars.

The advantage: companies get cars cheaper because Lease Plan which buys in bulk gets more attractive discounts plus all other problems related to maintenance are also taken care of.

Areas that require a large infrastructure are also being farmed out. American Express has outsourced its entire response administration to phone queries for potential new credit card members to an agency.

Says the official spokesperson of the company: "This function is not our core area of competence. So we outsource this work to a company which has specialisation in this area."

The new requirements have also seen the mushrooming of specialised companies, catering to the specific needs.

Bangalore-based IndiaLife, for instance, offers payroll and pension services. The company has seen phenomenal growth-from servicing 35 customers and 75,000 employees to about 150 customers and 185,000 employee records in just about a year. The company's large customer base includes the likes of Nokia, ICI and Intel, among others.

Says Anup Kumar, vice-president (operations): "The value proposition for employers is creating a focus on core business, crystallisation and reducing costs, while e-enabling a core business process within eight weeks."

The savings on head count and costs are significant. Kumar says that in their business model, the numbers of a payroll department in a mid-sized company falls from an average team size of three to zero in most cases. The cost savings, as a proportion of overall HR costs, could be as high as 40-50 per cent.

Gurjot Bhatia, CB Richard Ellis' head of project management (South Asia), says the typical savings for a company from farming out property management jobs is between 5-7 per cent. Better services are a bonus.

Help Desk, which provides housekeeping, dispatch and stationery administration services to companies, has also seen business booming.

Says Ritu Grover, company partner: "More and more companies come to us because we provide them services at a cheaper price than if they had to do it in-house."

Help Desk is able to provide stationery to clients at prices 15-20 per cent cheaper because they buy in bulk directly from the manufacturers for all their clients together.

As for the clients, they have no reason to complain either.

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