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.

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In this article the author defines in detail about the offshore outsourcing services and its benefits. In the author’s terms Offshore outsourcing means that a company will be hiring another company to work on their business processes. The primary reason why companies today are now outsourcing their business processes is to reduce their development costs.

The writer emphasizes on Significant cost savings by outsourcing, because offshore companies particularly in developing nations, charges only a fraction of the amount to get the job done compared to developed countries. Developing nations that usually offers outsourcing services are China, the Philippines, Mexico, and India. In India companies like Aspire Systems & many others help such companies in cost saving.

The article also mentions that companies can concentrate on their core business by outsourcing part of the company’s workload to offshore companies. The author concludes by illustrating few real time situations in the software industry.

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“Offshore product development market expected to shrink”, Here is the popular comment by all the top players.

Here is an article on an outlook of the overall Indian OPD market. The experts predict the offshore product development market to consolidate, the smaller companies likely to be targets for acquisition.  The writer also throws light on most of the MNC’s strategy, to sell out their captive centers. Captives having 20 to 25 people reported to have low productivity, and it is not worthwhile for the parent company to run them.

The article also forecasts another significant cause as slowdown in the US, if prolongs for more time, might affect the Indian OPD industry. Finally The writing highlights few measures the companies tend to take during slowdown but not specific to the OPD industry.

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In this article, the author firstly differentiates outsourcing & offshore outsourcing, but in recent times, this trend is changing rapidly. ISV’s are increasingly using offshore development centers as their primary workplace to build new products and applications. There are several risks to be addressed while offshoring as bulleted in the article.

The article highlights & explains in detail seven techniques for successful offshoring:

1. Ensure developers understand business requirements.
2. Definition of “Code Quality”.
3. Develop automated build.
4. Technical team to visit customer sites
5. Test continuously.
6. Separate development and support teams
7. Reward Innovation

The writing illustrates in detail about the above techniques. The author suggests the companies to choose & work with the right partner who can show you visible cost savings.

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Here is an enlightening article about Malaysia the next destination after India for offshoring, is regarded by analysts as an emerging market for business process outsourcing (BPO) and thus, competing with the Philippines.

According to Industry reports, the local shared services outsourcing (or SSO) industry in Malaysia is worth around $300 million and growing 30 percent annually. This growth is driven by multinational companies like Shell, DHL and HSBC that have set up their own outsourcing facilities in Malaysia.

Reports also predict that by year 2012 Malayisa’s Outsourcing / Offshoring industry would peak up to $2billion high.

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Here in this piece of news talks about the Aditya Birla Group and its expansion plans. The group’s BPO division Aditya Birla Minacs Worldwide Ltd (ABMWL) plans to acquire captive arms of financial services firms engaged in niche segments such as asset management, credit risk analysis and others. This $150Million investment is aimed at “turning around the India business faster and saving on cost of training and acquiring skilled manpower,”

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Here is a white paper by Aspire systems on captive centers. The white paper highlights the primary motives behind the ISV’s to operate R & D Centres in India.

The writing highlights the different strategies of ISV’s in their Global resourcing approach. To initiate these strategies, ISV’s have to either set up a captive offshore development center, or partner with a specialized outsourced product development (OPD) company. Though the benefits of these two distinctly different global resourcing models are well established, ISVs need to decide as to which model would best suit their business strategies in the long run.

The objective of this white paper is to guide ISVs in understanding the merits and demerits of these two successful models, which will help in achieving their business goals.

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Here goes yet an another acquisition BMC Software has signed a definitive agreement to purchase BladeLogic, the leading and fastest growing data center automation company, for $28.00 per outstanding share of BladeLogic common stock in cash or approximately $800 million, net of cash acquired.

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The Author highlights here the significant trends in establishing cost centers & profit centers and the various business models followed by MNC’s to set up operations in India. Outsourcing methodology & captive units are the two most popular business models. Here in this write up both the advantages and disadvantages of both the business models are compared and then author finds that 60% of captive centers are struggling to survive.

The article also brings out some crucial points as to why this trend is arising? and considering the outsourcing, the author mentions about the scalability issues, also compares large MNC’s and small companies in detail.

The author also makes a point to differentiate Product managers vs Project managers and describes in detail about the product companies, captive product development centers and the challenges by them due to lack of product engineers.

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Here the latest challenges & trends in OPD sector are highlighted with the opinions of one of the industry veteran Mr. T.M Vijayraman, Senior VP (technology) of Persistent Systems. In an interview he talks about the fast growing OPD industry in India, the Challenges that the Industry will face moving into next level of evolution, the measures to overcome these challenges and also talks about the latest trends in OPD Industry.

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