Offshore captive centers; once upon a time termed as strategic move for a company, Now is the move aimed at growth or cost saving???
Many multinational companies set up captive centers in India in the mid-1990s, farming out tasks such as software maintenance and customer support. But 30% of the companies have switched strategies in the past six years, for instance; some decided to sell their captive center to outside customers, while others outsourced noncore tasks to Indian vendors to reduce costs. Still others sold majority stakes in their captive centers to improve the firm’s operations and financials. The researchers found four major ways of from which companies moved away from the basic captive center approach.
Hybrid Captive: 12.5% of the companies approach changed, a captive center performs core business processes for the parent company, but outsources noncore work which results in good amount of cost reduction.
Shared Captive: 11% of the companies adopted the shared captive strategy; a captive center performs work for its parent company and external customers, results in increased efficiency and optimum utilization of the offshore assets.
Divested Captive: Only 6.3% of them adopted this kind of approach, as this is the opportunity for an organization to exit an investment made in a captive center, usually to strengthen its balance sheet or raise capital to invest in the business.
Terminated Captive: The final 8.8% of the companies have terminated their captive operations and outsourced their less critical development operations to a local company in order to minimize their losses.
The research article also states that the objective for establishing captive center would play a significant role to make any strategic moves as described above.