Virtual Captives - MicroSourcing

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.

  • Long Setup Process (6 to 9 months)
  • Large Capital Expenditures
  • Long-term Commitments & Sunk Costs
  • Initial Inefficiencies take time to optimize
Offshore Outsourcing
  • Much Higher Operational Costs
  • No Ownership
  • Heavily Reduced Operational Control
Virtual Captives
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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

Your Company
Operations Management
Operations Management
Your Offshore Staff
Your Company
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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.