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BPO vs. Captive Center: Five Decision Factors

by: Karen Cayamanda

Tuesday, March 23, 2010 |

Extending Operations Through Captive Centers

Business process outsourcing (BPO) refers to the process of transferring the management and/or execution of a specific business process to a service provider. On the other hand, captive center refers to the extension of business operations on a low-cost offshore location, with the parent company maintaining full control over the business processes.

As with all other things, both BPO and captive center have their own share of advantages and disadvantages. These solutions will enable companies to reduce costs and focus on core competencies, but what are the things to take into account to ensure that you have chosen the right outsourcing solution?

Steve Kopp, Partner and Managing Director, CFO Services - Americas of TPI, the world’s largest sourcing data and advisory firm, enumerated five key decision factors when it comes to choosing between business process outsourcing and captive center.

1.    Internal bias - According to the report, highly customized processes, type of industry, and cultural aversion are factors that make companies avoid outsourcing business processes. TPI said that it is necessary to determine the level of internal bias by conducting an internal change readiness assessment.
2.    Scale to build a global service delivery model that rivals outsourcing providers’ cost and delivery structure

3.    Availability of capital -  A company which is considering to put up a captive center needs capital for buying or renting office space, infrastructure, consulting fees, tax fees, and human resources. On the other hand, there’s a transition fee involved when the company chooses to outsource. This is about 10 to 20 percent of the outsourcing fees for the first year.

4.    Time and patience - Establishing a captive center obviously takes a longer time than BPO. Financial payback will take about 24-30 months in setting up a captive center, unlike in BPO where you can expect payback in 15-18 months.

5.    Talent retention - In BPO, employees work for the service provider, whereas employees in a captive center are your own personnel. Employee retention is a business concern and must be taken into account to ensure that the company can still meet its goals and adapt to changes in the economy.

These five decision factors can be really helpful for companies that are looking at two different processes - BPO and setting up a captive center. Keep these in mind and seek help from people who have captive centers or outsourced processes.


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