Captive 2.0: It is all about Value Offshoring

Somewhere down the line, we have seen many of the early multinationals who came to India by setting up their own offshore BPO facilities in Indialike British Airways, SwissAir, GE, Citigroup, and AOLdeciding to get out of this by either selling these captive units to third parties or making them independent commercial entities handling multiple clients, as they became independent. Anyway, many of them had started running them as virtually independent units with stringent SLAs and contracts. So, by and large, we did not see too much hiccups in transition. While two of the former captives are now among Indias largest BPO companies, others have nicely integrated with their new owners.

Most of these captives were set up because there was no availability of third party suppliers. So, they were modeled on third party suppliers and often were actively benchmarked against them to match the metrics. When growth became an issue and the third party companies had better scale advantage, it was a logical step not to run them as captives.

For many, that signaled the end of the road for the captive model. But far from it. In the last three years, we have seen more and more captivesmaybe not with those thousands of numbersbeing set up in India. Interestingly, many of them already have outsourcing relationships in India. And many others are creating those relationships while simultaneously setting up the captives.

What explains this dichotomy? Why this second coming?

A look at what they are doing can offer a good explanation. While the first set of captives tries to imitate a third party, focusing on efficiency; the newer ones are doing work that have traditionally never been outsourced/offshoredwork that is beyond simple SLAs and metrics. They are working on product development, marketing, R&D, design and such areas. In fact, one of the common models that we are seeing is that these captives are almost independently working on emerging market entry strategies of their parent companies, creating products/services/solutions, testing them in the Indian market and then doing iterative changes to create new mature products that could be taken to any other emerging market.

In short, here is how they are different from their predecessors.