There are two main offshoring models: 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 third party outsourcing model, a company contracts an external party to handle an entire business process end to end. The execution responsibility and most of the delivery risk are moved to a third 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.
Many of our clients use our Virtual Captive services to incubate their offshore operation. It is the quickest, low-cost, and 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 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.
Some of our clients need to partially or completely own their offshore operation. The most common reason for this is because they want to have it as an asset in their books or they need to comply with the rules set by their clients which may prohibit outsourcing work to a third party. If you need to own your offshore operation, we offer two variations on our virtual captive model: the Joint Venture and the Build-Operate-Transfer agreement.
Setting up a captive (wholly-owned local subsidiary) requires a lot of investments in terms of due diligence, infrastructure, and consultancy fees. By leveraging the knowledge and resources of an existing provider, you can enter a market without any capex. Furthermore, virtual captive rates are generally a lot lower than third party outsourcing rates because much of the operational delivery responsibility and performance risk still reside largely with the client.
Setting up a captive center in an unknown geography can be very risky. How much do you really know about the Philippines and its legal and regulatory systems? By operating under the umbrella of a local partner, you can learn more about the new geography before deciding to operate there independently (Build-Operate-Transfer). Furthermore, since there are no long-term investments, the overall risk of the entire operation is greatly reduced.
|Quicker Time to Market||
Setting up a captive center takes a long time (6-9 months on average). A local provider like MicroSourcing already has the infrastructure, management, overhead, and processes in place to be up and running in a matter of weeks.
|Risk vs Control||
For many companies, virtual captives can provide the right balance between risk and control. The client would retain full control over the entire operation including its people, infrastructure, and processes. Much of the operational risk, however, will be shared with a third party provider. If you will weigh risk vs control vs costs then the virtual captive model strikes the perfect balance.
Our streamlined process leads you from initial contact to hiring your own virtual staff in the Philippines.
Virtual Captives can vary greatly in scope and complexity and there are a number of pricing models we can apply to our services. For smaller scale virtual captives, we will use the pricing model of our Offshore Staff Leasing services. For more complex operations, we will create a transparent pricing model based on:
Direct Personnel Costs - These include the total costs of the base salaries, taxes, and benefits of your staff. These costs will be openly shared with you and you can directly budget and control all these personnel-related costs.
Infrastructure Fees - These are the fees we charge for providing all necessary infrastructure and tools including office space, workstation hardware and software, servers and networking equipment, telecommunications, and other facilities.
Services Fees - These are the fees we charge for providing management and support services. These operations typically include management, IT and technical support, manpower acquisition, human resources management, finance and accounting, legal support, facility management, security, etc.
Naturally, all these costs will depend on your exact requirements and the resources we will provide your virtual captive with. In general, you can expect to save at least 70% on manpower and shared service/overhead costs. Infrastructure fees will generally be 40% lower except for telecommunications, which is typically more expensive in the Philippines than in most Western countries.