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Offshore Captive Centers Gaining Traction again in 2015

by: Karen Cayamanda

Friday, May 29, 2015 |

According to H Karthik, partner and leader of the global sourcing research practice of outsourcing consultancy and research firm Everest Group, the offshore captive center was deemed "dead" in the last 10 years, but this delivery model is seen thriving once again this year. Also, it is expected to post continuous growth, propelled by organizational preferences and not with the model failing to meet expectations.

Offshoring captive centers take up 25% of the global services market

Captive centers form 25 percent of the global services market worth $150 billion in 2014. The delivery model is suitable for processes that involve critical or complex tasks and/or those that deal with sensitive information. Karthik said since a captive center is in effect part of the business, it can work well in processes where context and familiarity of the business are necessary.

Based on an article published at www.cio.com, Everest Research said captive centers are being utilized by firms from industries such as technology and manufacturing, distribution, and retail (MDR). Social, mobile, analytics, and cloud computing are likewise adopting the captive center setup. According to Everest, Fortune 500 companies get the lion’s share of the market. More than half (61 percent) of captive center parent organizations posted revenues worth $10 billion or more. Also, 64 percent of these centers have more than 500 employees. Larger firms may be dominating the captive center space, but Karthik said a growing number of smaller firms are adopting the delivery model.

When it comes to locations firms prefer for offshore captive centers, India takes the lead. Half of global in-house centers choose the country for competitive costs and the volume and scope of work that it can handle, said Karthik. On the other hand, countries such as the Philippines, Poland, China, Malaysia, Costa Rica, and Romania are seen as potential options. Businesses choose these destinations for different reasons. For instance, companies go to the Philippines to set up contact centers. Poland is known for their banking and financial services. Malaysia is an expert in providing Asian language support, while Romania is a nearshoring destination for companies based in Western Europe. Karthik added that companies with presence in India set up in other locations as well to lower the concentration risk.

The captive center market shows signs of growth, and it continues to evolve from a way to reduce costs to a business solution that improves value and performance. Karthik said global in-house centers go beyond cost savings. They are leaning towards improving process effectiveness and efficiency, expansion of scope of their offerings, and transitioning to offer more complex tasks.

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