If you have a captive centre in India, you probably opened it to reduce costs and access a seemingly endless pool of IT talent while retaining control of your operations. But now, as you compete for local resources with established service providers, you might find that real estate and labour cost an arm and a leg, the appreciation of the Rupee is eating into your savings, and that once-promising talent pool seems dryer than a summer in Phoenix.
So how do you turn this situation around? This is the question many organizations are asking as they reevaluate their captives — a.k.a. internal shared-services centres in low-cost locations. One way, as evidenced by recent newsmakers like Citigroup, is to sell off some or all of your captive to a service provider or private equity pursuer.
In fact, India’s largest BPO service provider, Genpact, itself started as a GE captive that was spun off in 2004. This exit strategy, however, assumes that your captive is an asset, which isn’t always the case and therefore isn’t often a viable strategy.
Truth be told, the big-name exits are well-publicized minorities. Today, there remain more captive centres operating globally than before, with annual growth projected at 30 per cent. EquaTerra estimates that less than five per cent of buyers plan to terminate their captive operations or bring work fully back in-house, based on a recent assessment of future ITO and BPO investment. Instead, many captives are leveraging offshore resources to deliver services in a different way, making their operations more productive, efficient and cost-effective.
How?
One increasingly common way is to partner with — instead of competing against — one or more outsourcing service providers. Whether a captive is in India or another market such as Russia or China, an underlying delivery challenge is the maturity of the service provider market, which creates stiff competition for increasingly scarce and expensive resources. With local-market savvy, strong institutional knowledge and flexible geographic models, service providers almost always have the advantage. But that service provider maturity, which may be the very bane of your captive centre, can also work to your advantage in the form of a partnership.
Partnership models
There are many types of partnerships on the menu, all aspiring to improve captive performance while keeping buyers in control. In one partnership model, providers deliver complementary services from their own locations, as part of an overall service chain.
In other “hybrid” or “virtual captive” models, service providers are brought in to perform some or all of the work in the captive centre itself. It comes down to structuring a partnership that leverages local expertise and resources to drive innovation and continual process improvement, while at the same time reducing costs. As such, an organization’s offshore delivery models tend to evolve over time; there isn’t necessarily a clear line between one model and another.
Fortunately for buyers, venerable players like Motorola and Texas Instruments have already blazed a trail of partnership models, so you can take a lesson from the early movers without 20 years of trial and error.
For example, if you already have an offshore captive and want to improve performance, consider carving out some kind of partnership with a local service provider. If you’re thinking about starting a captive centre, consider launching a virtual captive out of the gate.
Here are some of the options:
External partnership: Service providers have the local resources and expertise to deliver non-core activities and, if necessary, they can modularize business processes and distribute them to global locations. These competencies can help captives develop intellectual property — in the form of processes, technologies, products and disaster recovery systems — often more effectively than they could do independently.
A Boeing R&D captive in Russia, for example, leveraged more than 40 third-party partnerships to design parts of the 787 Dreamliner while maintaining control of, and even enhancing, its own IP. And now Boeing reportedly is evaluating a new captive in India, which may involve business process outsourcing, knowledge process outsourcing, manufacturing and engineering in support of its defense-aviation business.
Also in India, Microsoft and Cisco are using outsourcing partnerships to augment their captives. Some pharmaceutical companies, meanwhile, are leveraging Indian service providers for much of the IT systems and R&D activities involved in clinical trials. Hybrid partnership: Rather than leveraging a service provider’s external services, you can do what multinationals like Deutsche Bank, Verizon, Alcoa, Aviva and Standard Chartered Bank have done with their captives: bring third parties directly into the centre to provide IT infrastructure, HR services or back-office process management.
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