Tesco's USA Fresh & Easy Neighborhood Market Outsourcing its IT, Finance, Payroll and Personnel Functions to India Subsidiary

One way Tesco's Fresh & Easy Neighborhood Market retail operation in the U.S. is cutting costs and saving money is by outsourcing virtually all of its information technology (IT) functions, finance, payroll, personnel and other departmental operations to a subsidiary, Tesco Hindustan Service Centre, in Bangalore, India.

"Tesco in India is playing a major role in Tesco in the U.S.," Meena Ganesh, CEO of Tesco Hindustan tells India's Business Standard publication in tomorrow's issue. "There (Fresh & Easy Neighborhood Market in the U.S.) for the first time, Tesco has deployed an operating model which has been planned, installed and supported out of India," Meena says. This model integrates functions such as finance, payroll and personnel, on top of which sits the information technology layer, he told the Business Standard.

Tesco Hindustan also has set up a test lab for point-of-sale and product ordering operations, and eventually plans to handle those functions from India for Tesco Fresh & Easy Neighborhood Market in the U.S., as well as for other Tesco retail operations in Europe and elsewhere around the globe. Tesco is the number-three retailer in the world, with sales of nearly $47 billion a year.

The India outsourcing operation currently has 3,000 employees--1,600 in IT, 500 in finance, and about another 500 working in areas such as Tesco.com, the retailer's online product ordering operation, and store design, Meena told the Business Standard. Tesco CEO Sir Terry Leahy calls the India operations "the heart of Tesco's international operations."

Read the full story, "India arm helps Tesco take on Wal-Mart in the U.S.," to be published in tomorrows's Business Standard.

This outsourcing news isn't likely to make Tesco's Fresh & Easy Neighborhood Market critics in the U.S. too happy. In California and Nevada, the retail clerks union is trying to organize Fresh & Easy store-level workers into its union. Nearly every supermarket chain and most larger independent grocers are union shops in the two states, especially in California.

Additionally, a coalition of neighborhood groups in Southern California is asking Tesco to sign a pledge that the retailer will locate more Fresh & Easy stores in low-income areas, pay its employees higher wages per-hour, give them better health benefits, and follow a number of ethical and environmental guidlines in the communities where the retailer currently has stores and plans on building future stores.

Outsourcing, especially to India, is a hot topic in the Western USA, especially in California where it's become a common practice in places like the high-tech Silicon Valley. It's also a hot topic with the U.S. Congress in Washington D.C. In particular, outsourcing is associated with immigration issues. Also, with unemployment growing rapidly in the U.S. as the country gets closer to a full-blown recession (some say it's already here), the notion of outsourcing jobs is becoming an even hotter issue; and will get even more heated as the unemployment rate contimues to rise.

Outsourcing also is a major topic in the American news media. Lou Dobbs, who host a nighlty one-hour news program on cable channel CNN, devotes at least some time on his show every night to the issue of outsourcing. Dobbs is perhaps the most vocal critic of the practice in the U.S. news media, although there are numerous other critics as well.

For grocery chains, especially those with "neighborhood" in their name, the concept of providing local jobs is a key issue among government officials and consumers in the U.S. Finding out Tesco is outsourcing to India what would be its most professional and highest-paying back office jobs in its U.S. operations isn't likely to sit well across the board with these folks either.

For Tesco's Fresh & Easy, the outsourcing of these functions and departments to Tesco-India back office operations, helps explain a bit why the retailer is able to keep its retail prices so low in its 43 Fresh & Easy grocery markets operating in Southern California, Arizona and Nevada. Supermarket chains like Safeway Stores, Inc. Kroger Co. and others, which maintain these functions at their U.S.-based corporate offices for the most part, pay high wages to the professionals in IT, personnel, finance and the like.

Clearly, based on prevailing U.S. salaries and benefits for these types of positions, Tesco's Fresh & Easy in the U.S. should be realizing some substantial operating cost savings by outsourcing the various back-office functions to its subsidiary in India.