Virtual Captives

Comparing the Offshoring Models

There are two main offshoring models: the captive and offshore outsourcing. A captive is a wholly owned subsidiary established as an extension of the parent company in a new geography. In this model, the parent company retains maximum control. However, setting up a captive center takes a long time and requires large initial investments and long-term commitments. In the 3rd party outsourcing model, a company contracts an external party to handle an entire business process end to end. In this model, the execution responsibility and most of the delivery risk are moved to a 3rd party provider. However, this typically comes at higher costs and loss of operational control. In the diagram below, we compare these two models and introduce a new optimized offshoring model: the virtual captive.

Captives

Long Setup Process (6 to 9 months)

x
Research has shown that it takes an average of 6 to 9 months for a company to establish their offshore corporation in a new geography. A lot of this time is spent talking to legal and accountancy firms and understanding the rules and regulations of managing the foreign-based corporation.
Large Capital Expenditures

x
Starting your own offshore corporation entails a lot of initial investments in terms of office space, workstation infrastructure, networking and telecommunications equipment, and other assets required for your operations.
Long-term Commitments & Sunk Costs

x
All your investments are going to be sunk costs that will be hard to recover in case you want to shut down your offshore corporation. You would have spent a lot of time and money before your first day of live operations, forcing you to make a long-term commitment to your offshore operations.
Initial Inefficiencies take time to optimize

x
Research has shown that captives typically go through quite a lot of growing pains before they reach their optimal production capabilities. These are due to the usual teething problems associated with operating in an unknown, new geography where it takes time to get used to the people, and the working environment.
Long-term Cost Savings

x
The long due diligence process, the large capital expenditures, and the start-up inefficiencies typically mean that captives operate at a higher cost than third party outsourcing solutions. In the long run, though, a captive will definitely be cheaper than a long-term outsourcing arrangement. The need for the outsourcing provider to generate a good margin will make this option more expensive after a few years of operations.
100% Ownership

x
Your captive will be 100% owned by your company, meaning that all the assets are in your books. The flip side on this ownership is that of course you will also bear full legal responsibility for this corporate entity and will thus need to learn the laws and regulations of the new jurisdiction.
100% Operational Control

x
You have 100% ownership over your offshore corporate entity and thus will also be able to exercise complete control over its operations.

Offshore Outsourcing

Short Setup Process (1 to 2 months)

x
It will typically be a lot faster to establish an agreement with a third party outsourcing provider than to establish your own offshore company. Depending on the scale and complexity, it may take anywhere from 1 to 6 months to get a good contract in place.
No Capital Expenditures

x
You will not need to invest in any assets, although most larger scale outsourcing contracts will have a one-time setup fee in them. This fee is often deducted over time from the monthly invoices of your provider, though. Overall, you can expect your initial investment to be none, very small or deductible over time.
No Long-term Risk

x
Most outsourcing agreements will be for a multi-year term after which you are free to shut down operations. Since you did not make any large initial investments and do not own any assets offshore, you can freely terminate without any sunk costs or risks. Larger scale outsourcing contracts may have penalties for early termination, though.
Established & Optimized Local Practices

x
Your offshore outsourcing solutions provider is likely to be specialized in the processes you contracted them for and they have been operating within the chosen geography for a long time. So you can expect them to bring in a lot of know-how that you would have had to build up internally had you chosen to start your own captive instead.
Much Higher Operational Costs

x
Your outsourcing solutions provider will need to make a healthy margin to make their contract with you worthwhile. They will claim that their economies of scale should still result in overall lower costs for you but in reality, you are likely to be capable of operating at lower operational costs in the long run with your own captive.
No Ownership

x
You will not own your outsourced offshore operations. This means that this operation is not in your books and is of no real value to your company. If your company is looking to maximize its value for the purpose of an investment, merger or acquisition then the value of an offshore captive will be many times higher than the value of a third party outsourcing agreement.
Heavily Reduced Operational Control

x
Third party outsourcing companies will have their own processes and ways of doing things. It will be hard for you to impose your standards, your policies, and your corporate culture upon your third party provider. Your provider will furthermore prefer to keep their operations a black box to make sure you do not question their pricing and margins.

Virtual Captives

Short Setup Process (1 to 2 months)

x
MicroSourcing already has all the assets and resources in place to establish your offshore operation. Depending on the scale and complexities of your offshore operation, we can have you up and running between 1 and 3 months. In our experience, the bottleneck is mostly on our client side and especially in making their operations ready for onshore-offshore delivery processes.
No Capital Expenditures

x
MicroSourcing will provide all assets. We furthermore never charge any type of one-time setup fee. Even for large-scale virtual captives, we go straight into our monthly billing cycle which, in most cases, in many months after the setup process has started.
Lowest Possible Monthly Costs

x
Our pricing will be the lowest when compared to starting your own captive or third party outsourcing. The reason for this is simple: we will be able to apply economies of scale, enabling us to charge a very low price for our overhead and support services. At the same time, we do not take on full delivery responsibility like a third party provider would do so with lower risk comes much lower margins. When you do the math, you will find out that both on the short-term and on the long run, our pricing will beat any captive or third party outsourcing alternative.

No Long-term Commitments

x
Our contracts are highly flexible, enabling you to ramp up fast or shut down on a relatively short-term notice and at no costs. There are no investments from your side so any shutdown of operations will come at no risk or cost to your organization.
Optimized Local Practices

x
MicroSourcing has been operating in the Philippines since 2004 and at that time, we have established many highly effective offshore operations. You will still know best how to operate your business and how to perform your workflow processes but we can provide the input needed to make that these processes work in an offshore setting in the Philippines.
Transparent Pricing Structure

x
Our transparent pricing model will let you know exactly how much your offshore staff is earning in terms of salary and benefits. This single-handedly eliminates the largest conflict of interest in the offshoring industry and gives you great insight and control over the costs of your offshore operation and it keeps our margins in check.

Optional Ownership

x
We offer a number of ways in which you can take legal ownership of your offshore operation. Through a Joint Venture, you can claim partial ownership while still retaining MicroSourcing as your strong local partner. In a Build-Operate-Transfer agreement, you can even take over the entire operation including all manpower and assets if you need to fully own your offshore operation.
100% Operational Control

x
We will fully comply with your company standards, culture, processes, and policies and we will adapt our environment and policies to match yours. Clients who wish complete operational control can obtain this by putting their own operations managers in place. We really pride ourselves in our ability to establish virtual captives that operate from within MicroSourcing but by all means and purposes are part of our client's global company.

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The Virtual Captive as the Optimal Offshoring Model

The virtual captive model, also known as the synthetic or hybrid captive model, combines the strengths of both the captive and offshore outsourcing. In the virtual captive model, your company will leverage the resources and local presence of MicroSourcing to establish a custom-built offshore operation in the Philippines. MicroSourcing will provide all the necessary manpower, assets, and support services in the same way that an offshore outsourcing provider would. The big difference lies in the operational control which will be 100% in your own hands. You will be free to dictate exactly how the offshore operation is managed, how the workflow processes are executed, which IT assets and tools are used, and who will manage your day-to-day operations. Every single aspect of your offshore operation is customizable and will be procured exclusively for your use. This can even include the office space which can be custom-built to meet your exact requirements. The diagram below explains what your offshore operation in the Philippines will look like.

Your Offshore Organization in the Philippines

Services

Operations Support

x
Our Operational Excellence Department consists of seasoned professionals who specialize in process engineering, workflow optimization, best practices, industry standards and certifications and compliance. They can assist you in optimizing your processes, identifying KPIs and metrics, and driving the overall performance of your offshore team.
Recruitment

x
Our Manpower Acquisition Department is capable of finding the very best talent available in the Filipino labor pool. We have a number of web-based recruitment tools developed in-house such as our resume database, MicroResumes.com, and our employee referral portal, MicroRefer.com.
Human Resources Management

x
Our Human Capital Strategy & Delivery Department takes care of all aspects of manpower management including compensation and benefits, organizational development, training, compliance to company and client-specific policies, labor relations, employee satisfaction, and HRIS administration.
IT Consultancy

x
Our IT Business Solutions Group consists of seasoned IT professionals who can assist in identifying, deploying, and maintaining the best system for our client's workflow requirements. We have been enabling onshore-to-offshore workflow processes for a long time and can definitely advise you on which systems best match your requirements.
Technical Support

x
Our Technical Support Department operates 24 hours per day, 7 days per week, and 365 days per year. Unlike many other providers, we do not outsource our technical support but instead use purely in-house resources for our level 1 and 2 technical support engineers, system administrators, and networking specialists.
Finance & Accounting

x
Our Finance Department takes care of all our accounting and bookkeeping needs. For you, this means that your staff will get paid on time and that all expenses of your offshore operation will be billed to you every first week of the month without delay and with 100% accuracy.
Facilities Management

x
Our Facilities Department manages all our facilities which are guarded 24/7 by our own security guards and we furthermore secure our premises using CCTV cameras and network-controlled access devices. We also have a team of janitors and maintenance staff to make sure that our offices are clean and in good working condition.
Client Services

x
Our Client Services officers take care of the needs of visiting clients, prospective clients, and expats. We offer a wide range of concierge services including hotel and flight bookings, condo rentals, local transportation, dinner reservations, golf outings, and out-of-town trips.

Your Company

Operations Management

Your Offshore Staff

Assets

Corporate Entity

x
Your offshore operation will run within MicroSourcing Philippines Inc. which is our corporate entity in the Philippines. All manpower will be employed by us and all assets will be procured, owned, and managed by MicroSourcing Philippines Inc.
Office Space

x
We will provide the office space which will house your offshore operation. We have multiple Office Locations consisting of multiple segregated Working Areas. For bigger clients, we can offer custom fit-outs wherein we build a brand new office following their exact specifications.
Office Furniture

x
We use a system furniture line that enables us to customize the work space of your offshore staff. We can adjust partition height, install overhead cabinets, add pedestals and drawers, and customize our workstation clusters in a variety of ways. Our standard workstation is 120x70cm in size.
Workstation Hardware

x
We will provide all the workstation hardware needed for your offshore staff. We can fully customize the specifications of your workstations to, for instance, include multiple or larger LCD screens, more RAM, more hard disk space or add hardware peripherals such as tablets, printers, and scanners. Our standard workstation is a Windows PC but we can also provide Mac, Linux or thin client stations.
Workstation Software

x
We will provide all the workstation software needed for your offshore staff. Our standard package includes Windows 7 but we can easily change this to any other operating system and add software packages by MicroSoft, Adobe or any other software vendor.
Networking & Connectivity

x
We will provide your offshore staff with redundant, high-speed internet connectivity. Our network has been designed according to Cisco standards and is fully redundant on every node. We are furthermore PCI-DSS compliant and have a host of security measures in place to protect our network.
Servers & Workflow Systems

x
We will provide you with whatever server hardware you may need to support your workflow. We have multiple server rooms all equipped with state-of-the-art facilities and multiple redundancies on air conditioning, electrical supply, and connectivity.
Peripherals & Tools

x
We can provide your team with any kind of hardware peripheral they may need such as printers, scanners, laptops, overhead projectors, pen tablets, etc. All these assets will be procured and maintained by MicroSourcing.

MicroSourcing

Your Company

Joint

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The Virtual Captive as Offshore Incubation Model

Many of our clients use our Virtual Captive services to incubate their offshore operation. It is the quickest, low-cost, low-risk way of testing the waters in the Philippines prior to making a larger scale, longer term commitment. Many of our clients may use our services thinking that they will want to one day transfer it over to their own Philippines-based corporation. After they start operations, they soon realize though how wonderful it is to work with a strong partner like MicroSourcing that enables them to focus solely on their operations and not worry about any of the overhead of complexities of managing a Philippines-based corporation. As such, many of our Virtual Captive agreements are intended to only run for a few years but end up being extended indefinitely.

Ownership Options within the Virtual Captive Model

Some of our clients have a need to partially or completely own their offshore operation. There can be many reasons for this need to own their offshore operation and the most common one is that they want to have it as an asset in their books or that they need to comply with the rules as set by their clients which may prohibit outsourcing work to a third party. For clients with a need to own their offshore operation, we offer two variations on our virtual captive model: the Joint Venture and the Build-Operate-Transfer agreement.

Advantages