Captive offshore centres vs outsourcing

The options for offshoring are growing

Cost savings and retaining critical work internally are usually the main drivers for setting up a captive IT centre offshore as opposed to outsourcing to third parties, but a fast maturing industry is changing perceptions, say experts.

Business models are evolving and companies will change from captive to using outsourcing, or move to a hybrid model depending on their strategy, said Rajiv Vaishnav, vice president at Indian IT association Nasscom.

“A company may prefer having strong controls over its IT, but once it starts gaining confidence in India and the global delivery model, it’s likely to start exploring how it can work with third-party experts,” said Vaishnav.

“This could be done as small sections of the captive testing processes with suppliers, or as a larger strategic shift to work entirely with a supplier. It’s purely a decision of the management and often reflects its comfort levels with India,” he said.

Running an IT services organisation is not always easy and sometimes this is best done by a supplier with good market knowledge, said Mark Kobayashi-Hillary, director at the National Outsourcing Association.

“The market is far more developed than it was at the turn of the decade. It’s really possible to find very competent suppliers in most business sectors now, so there is less imperative to explore the DIY business case,” he said.

“Going captive can still work for some organisations ­ especially where they have other operations in the country, such as a bank that also offers a retail banking product in that region ­ but I think we have seen the end of the rush to create offshore captives just to save cash fast.”