GE to Sell "Outhouse"

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Here's a quiz for Fools out there:

• What do you call paying someone to do something you used to do yourself, cheaper than you used to do it? "Outsourcing."

• What do you call it when that someone lives in Bombay or Beijing? "Offshoring."

• And if they live in Little Rock instead of Bombay? "Onshore outsourcing."

In light of those answers, let's examine the situation with one particular company. General Electric (NYSE: GE) used to do something in-house and onshore. Then the firm moved it offshore (to India) to cut its cost but kept it technically in-house. Now GE wants to keep it offshore but sell it off so it is no longer in-house. We'll call this phenomenon (drumroll please) "outhousing."

According to The Wall Street Journal, GE, a pioneer in the Indian offshoring phenomenon, intends to sell off its Delhi-based call centers to any bidder that can come up with the $1 billion asking price. GE Capital International Services (GECIS), a subsidiary, employs 12,000 persons at four locations in India and another 5,000 in offices in Hungary, Mexico, and China, and last year it did $400 million in business. Not bad for a business that didn't even exist 12 years ago. If GE gets anywhere near its reported asking price (the company declined to comment on the sale), this promises to be an excellent return on its Indian investment.

The deal also offers GE the chance to further streamline its operations and capture additional cost savings. While it's all well and good to move operations to a country where you can save 80% on employee salaries, after a while a company has to start wondering how it can squeeze even more money out of these guys. GE's apparent answer: Spin them off, remain their largest client, and use your size to extract price concessions.

GE interviewed potential buyers for the Indian unit; private equity funds as well as Indian outsourcing firms such as Wipro (NYSE: WIT) and Infosys (Nasdaq: INFY) might all be interested. Indeed, GE reportedly revealed that it would guarantee to keep sending GECIS work for only 18 months after the spinoff -- at which point it would put the work up for competitive bidding.

Fearless of the flames, Foolish writers carry on the offshoring/outsourcing debate in the following articles:

• Weighing Outsourcing's Impact
• Energy Crisis Spurs Outsourcing
• Outsourcing to the Heartland
• Thoughts on Offshoring and Outsourcing

Fool contributor Rich Smith owns no shares in any company mentioned in this article.