OFFSHORING & FUTURE OF CAPTIVES IN INDIA

                  OFFSHORING & FUTRE OF CAPTIVES IN INDIA

                Times are changing and the big question is will India still remain the 1st choice for MNC to setup off shore IT captive center?

over the past five years, outsourcing industry experts predicted that the offshore captive center model is no more an attractive affair for the American and European business center But, according to latest trend I have seen in an around southern part of India specially in cities such as Bangalore and Chennai  the captive model is thriving.

Most large-scale captives continue to operate and have grown both in terms of scale and the complexity of services they provide. For example take captive for Bank of America,BA Continnum, has only grown in number and have successfully  delivered the off shore service for “BoA”  . Last year, ten new captives were opened and 13 captives expanded, while just two were sold, according to the report and one of them I can recollect is Volvo IT which was sold off to HCL ( I can convincingly say that since , VOLVO IT and we are in same IT tech park and within the same building)

I believe that captive will continue to play major role in offshoring for the foreseeable future for two reasons, "First, it is a large part of the market, representing about 25 percent of delivery within India. Second, the model is different from third-party models and that is not widely understood. A captive can not only deliver the typical services of a [third-party] service provider, but also many other services which are just part of the normal business. In effect, a [captive center] is a corporate campus which happens to be based offshore."

The IT captive center in India dates back to the 1990s and was led by technology and financial services companies that set up shop on the subcontinent (see box, below). At that time, the primary motive was to attain low cost while maintaining or increasing quality, says Simonson. Some companies were also spurred by interest in expanding their businesses in the region.

The History of Captive IT Centers in India dates back from 1980, which started with Texas instrument, GE and British airways.

The latest one in news is Shell (Oil and GAS) and AbinBEV (World’s largest brewers) who have setup their captive in Bangalore.

 By 2006, captive operations delivered about $8 billion worth of IT and business process activities,. And even as some industry watchers suggested that the model was no longer viable, captive center activities grew at a compound annual growth rate of 10 percent, to reach $10.6 billion in 2009.

Those captive centers that were shut down altogether tended to be newer that struggled to setup strong operations and hire & retain talent in an increasingly competitive market, but with "reverse brain drain" in last 5 years, we are seeing a big flux of IT professional returning to India , who could be tapped to for the off shore captive

While captive offshoring success was defined in the past by meeting cost reduction goals and managing data privacy and legacy proprietary data, going ahead this has to be complemented with effective service delivery combined with unmatched quality,

While India remains the center of the captive universe, the model will be even more important in other offshore locations. "For example, large high-tech companies will see China captive operations as important for a combination of localization of products for east Asia, providing back-office support to other east Asian geographies, and supporting the domestic China market," Simonson says. "Due to the diversity of languages, industry knowledge, and domestic market business opportunities, the use of captives outside of India is more precisely defined."

There are predictions that the captive center could shift to other Asian countries including that to China or could even move to other cheaper place across Europe, such as Poland or South American countries such as Brazil

Captive operating out of India needs to be Vigilant, work around adding  values and focus on timely delivery for their business to survive

Prashant KUMAR