As you and your company decide to send your back office processes and customer services off-shore for its obvious gains (such as reduced labor costs), you might choose between contracting a business process outsourcing (BPO) service provider to handle these processes (”to go native”) or establishing your own captive off-shore operations (”to go captive”).

Let’s examine the advantages of each approach to determine which can serve your company’s interests best.

Advantages in Outsourcing to a BPO Service Provider

Outsourcing a core business project to a BPO service firm requires little startup capital to establish. In an industry where there are plenty of competitors, BPO firms can offer attractive deals and client service packages. However, there can be significant costs in knowledge transfer, onsite training and process management — even for simple projects.

Outsourcing to a BPO service provider overseas transfers a large part of the hassles in acquiring facilities and equipment, obtaining government permits, complying to local tax policies, recruiting staff and controlling costs from your company’s sphere of responsibilities.

Western firms with captive operations facilities can be charged more for non-IT inputs than local business firms and are also vulnerable to “extortion” by local government where corruption can be rampant or by other malefactors. The extent of extortive costs would be linked to perceptions of your company’s ability to pay up. Outsourcing to a reputable BPO service provider can often mitigate this risk.

Outsourcing can provide your company cost projections and other relevant for the feasibility of captive operations and facilities. Your service contracts with your BPO service provider can include provisions for hiring out the local staff in the event that your company decides to establish your own captive business operations.

Your company’s personal networks and the investments in professional training that was formed during an outsourced pilot project are resources that can be retained when your captive operations facility gets established.

Advantages in Operating Own Captive Facilities

Economies of Scale are possible for your company if you locate both your research/production facilities and customer service in the same city where industrial/IT economic zones are set up, allowing for certain leeway and exemptions in local tax and business policies. Your company can make the most of its investments if it caters to both Western and local clients from the same offshore operation center.

Risk mitigation and cost control are more manageable in captive facilities. Your company can implement proper on-site supervision, training and personnel policies to minimize security risks, employee turnover, excess capacity and other costs.

The Present Trend

Business Week reports that a number of companies who have offshore captive operations in India are outsourcing the management of their facilities to Indian IT specialized-firms in order to gain from these firms’ mastery of process improvements and innovation.

The recent deal is the USD 228-million sale of British insurance leader Aviva’s 5000-capacity South Asian off-shore operations Bangalore, Pune, Chennai, and Colombo, Sri Lanka to WNS Global Services of Mumbai. For this, Aviva agreed to pay WNS USD 1 billion for operating its account setup, accounting, claims processing and other customer services in an 8-year span.

This is due to captive operations doubling their workforce to a size that’s difficult for the parent company to manage efficiently as well as increasing regional business costs that have outweighed even labor cost reductions.

It is estimated that more than 150 companies have shifted from managing captive off-shore operations to a fusion of internally-run and outsourced operations. It is expected that 80 to 100 more companies would follow the shift by next year.

Outsourcing Solutions, Inc. – your outsourcing partner!



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