British Insurer Aviva Sells Indian Back-office Operation

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British insurance company Aviva has sold its back-office subsidiary in India and Sri Lanka to WNS, a BPO (business process outsourcing) company in Mumbai that already provides back-office services to Aviva.

Aviva sold Aviva Global Services for £115 million (US$227 million), the company said Thursday. Aviva has also entered into a master services contract with WNS to provide offshore services to Aviva's U.K., Irish and Canadian businesses for the next eight years and four months.

The sale by Aviva reverses a move last year by the company to absorb about 5,000 staff from Indian contractors and rely more on its Indian subsidiary to deliver back-office services to the company.

This change in strategy may be linked to setbacks in its insurance business, particularly after floods in the U.K., according to sources. "As is typical in such situations, the company has decided to focus on its core business," a source said. "The obvious attraction was that it was able to sell the operation at a premium to WNS, while ensuring that back-office services were not disrupted."

Aviva thought it would save money and have better control over operations by having its own subsidiary in India, said Sudin Apte, senior analyst at Forrester Research.

Contractors are, however, better able to hire and retain staff than subsidiaries, benefit from economies of scale and spread costs over a number of customers, according to Apte. Some contractors have now set up practices with industry-specific expertise and intellectual property that can be leveraged across many clients, he added. Forrester said last year that it is cheaper for multinational companies to turn over software development or business processes to an outsourcer in comparison to setting up a subsidiary in India.

Aviva's sale of its Indian subsidiary to WNS is in line with the strategies of other multinational companies like British Airways and GE Capital, which spun off their Indian back-office subsidiaries, as service providers in the country become more mature and the need for direct control over the operations is reduced, said Siddharth Pai, a partner at outsourcing consultancy firm Technology Partners International.

Private-equity firms and other investors are also showing interest in the BPO sector, presenting an opportunity for multinational companies to monetize their investments in back-office subsidiaries, while still getting the same quality of service from third-party providers, Pai added.

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