CAPTIVE
CENTRES
ORIGIN OF
CAPTIVE
OFFSHORIN
G
PRODUCTION OFFSHORING
IT-ENABLED SERVICES
OFFSHORING
INNOVATION OFFSHORING
PRODUCTION OFFSHORING
BENEFITS HINDRANCES
Patent laws are not strict
Low cost of production because there is always a
Economies of scale due to larger possibility of the production
volumes. systems getting copied.
Lesser control due to
Low cost of production due to low
geographical.
wage rates.(Specially in highly Logistics & Supply Chain
populated countries) Maintenance.
Cheaper production facilities and
lenient environmental regulations.
IT-ENABLED SERVICES
OFFSHORING
Major Factors
• Development of the telecommunication and Internet.
• Large pool of English speaking technically proficient manpower.
Key
• Finance Sectors
• Accounting • IT Infrastructure
• HR • Application Development
• Legal • Engineering Support
• Call Centres • Product Design
• Marketing • Research and Development
• Sales Services • Analytics.
INNOVATION OFFSHORING
• Innovation and R&D services are provided to the parent
company.
• It has the potential to “cut costs” or even “shorten product
lifecycles” which leads to shorter times for new products.
• Heavily relies on the availability of technically proficient
personnel at offshore locations.
• Needs heavy capital investment.
CAPTIVE CENTRE
It is a wholly owned branch office or subsidiary, used mainly for
business process outsourcing such as IT support, back office data
processing, call centre operations, software development, R&D
or in an onshore, near shore or offshore location.
These services are provided to the parent firm
WHY CAPTIVE CENTRE
• It allows businesses to significantly cut costs and
increase capitalization
• Allows retaining full operational control & ensures
long-term value creation and minimizes intellectual
property and data security risks.
• Provides access to new markets.
• Gives control over operations.
• Knowledge transfer and retention is possible.
TYPES OF CAPTIVE CENTRE
TYPE OF CAPTIVE CENTRE FUNCTIONALITY
Basic captive Provides services to the parent firm.
Shared Captive Provides services to both parent and
external firms.
Hybrid Captive Outsources part of the activities to a
local vendor.
Divested Captive The parent firm divests part or the
entire captive to a third party
SOME STATS TO GET OFF THE
HATS
• India has more than 750 captive centres, highest in
the world.
• 350 engineering captives .
• Half of the US captive centres in India are financial or software
services.
• R&D account for $10 billion, & forecast of $45 billion by
2020.
• Companies offshoring to India have achieved savings that
average from 20 to 70 %.
• 58% of Fortune 250 global firms have one or more captive
centres around the globe.
S.W.O.T Analysis
• Backing by the parent • Expansion in local
company. market.
• Availability of technological • Global expansion
advancements. of the company.
• Loss of IP is prevented. • Increase in Profit
Opportunit
Strength
y
• Far away from • Domestic players at the
parent time of penetration.
company. Weakness Threats• Cost to company due to
• High attrition mis-management.
rate. • Mind-set of working
• Loss of skilled managers
manpower.
BASIC CAPTIVE CENTRE
• Provides services to its parent firm.
• Its sole objective is to give support function to the company.
• It is a cost center and does not act as a profit center.
• Facing a gradually decline all over the world.
• World leading organizations have realized the true potentials of
these centers which is beyond cost savings.
HYBRID CAPTIVE CENTRE
• Gradual extension of Basic Captive Centre.
• Continues to perform core business processes for the parent
company.
• Outsources noncore work like HR tasks in the offshore location.
• It invest more time and money in higher-profile work, as well as
cut costs
• Local vendors are generally cheaper because overhead costs are
lower and the specialize.
DOWNSIDE
• The outsourced processes are of low priority and sometimes the
vendors fail to provide good support leading to dissatisfaction.
SHARED CAPTIVE
• It provides services to both
the parent firm as well as
external clients. If competition is driven by
• It is the best when the local cost, local vendors may have an
market is of importance to CHALLEN
advantage. Hence shared
the company for expansion. captivesGEshould also look for
• The strategy is to target the clients internationally.
offshore market as well as the
region around the offshore
market.
• Becomes more efficient and
valuable because it uses
existing assets for multiple
projects.
ACCENTURE INDIA
• IT Consulting
• BPO
• Call centre
• Started as a support to the parent company in USA.
• With time it started services for clients in INDIA.
• Now offers IT Consulting & BPO services to varied sectors &
industries.
• Earn profit for the company.
SHARED CAPTIVE CENTRE
DIVESTED CAPTIVE CENTRE
• Its an opportunity to exit an investment, usually to strengthen a
firm's balance sheet or raise capital to invest in the business.
• The captive centres with a shared strategy has the best chance
of being sold for a profit .
• They have the scale and scope to attract potential buyers, in
particular local vendors who are seeking to grow and enter new
markets.
• There was a sharp increase in divestures around 2008,2009, but
there has been sharp decline since then.
CONDITIONS TO DIVEST
INTENT :
COSTSAVING
LOCAL MARKET
IS DEVELOPED
INCREASE THE SCALE
OF THE CENTRE
DIVEST & MAKE
PROFITS
CONDITIONS TO DIVEST
INTENT : STRATEGIC
GROWTH
& MARKET IS
UNDERDEVELOPED
WORK AS SHARED
OR HYBRID
FIND MORE
INTERNATIONAL CLIENTS
PROBLEMS WITH CAPTIVE
CENTRE
• 50% failure rate in the world.
• 60% of the captives still struggle to meet financial criteria.
• Captive centres are looked upon as a cost to company and not profit
making units
• Gradual evolution of Captive Centres isn’t there.
• High Attrition rate which leads to reduction of domain knowledge.
• A large number of 3rd party service providers have matured to give
the advantage, hence companies switch from captive to 3rd party
providers.
LEVERAGING FACTORS
• Large human capital at comparatively low cost.
• Sophisticated education at all levels.
• Low language barrier, high English speaking population.
• Special Economic Zones by the government.
• Local Market Growth
BRITISH AIRWAYS
• British Airways (BA) started World Network Services (WNS) in
Mumbai in 1996
• Selective outsourcing of some IT services and Business Processes
BA.
• Cost savings in the order of 40%-60% from offshore outsourcing.
• Initial investment of 1 million GBP.
• BA reported it could hire more highly qualified staff in India for
approximately 20% of the total remuneration cost of similar staff
positions in the UK.
• The first business process was passenger-revenue accounting.
• Allowed BA to exercise greater control.
BRITISH AIRWAYS
• British Airways pursued offshore contracts with
Indian companies NIIT Technologies and TCS.
• Freed up the internal IT department to focus on core
strategy.
• Lower-level application development work and
programming was given out to vendors.
Became HYBRID CAPTIVE
BRITISH AIRWAYS
• The success of WNS attracted interest from other airlines that
outsourced similar functions
• Expanded the scope by taking on BPO work from other
companies in the travel sector.
• Started making profits from the India center.
Became SHARED CAPTIVE
BRITISH AIRWAYS
• Opportunities to “monetise” the value that it had created.
• British Airways took the opportunity to sell down a majority
share in WNS when private equity was flowing in from US.
• British Airways retained a 30% stake in WNS Global Services
and continued as a major customer.
Became DIVESTED
CAPTIVE
GE CAPITAL INTERNATIONAL SERVICES
(GECIS)
• Started in 1990s as the (BPO)
company of General Electric.
• It is the pioneer of BPO in
India and the largest BPO
Company in India.
• For the first time tried out
voice operations out of India.
• Started providing am array of
services such as Financial &
analytics over a period of
time.
DIVESTING
• In 2004, GE sold off their 60% stake in the company to two
equity companies and became GENPACT.
• The price was equivalent to almost 2 years of revenue.
• GE is a client to Genpact where it extends many services like
customer services, Finance and Accounting and also Analytics.
GE (John F. Welch Centre)
• Collaborates with GE's three other R&D facilities to form GE
Global Research team.
• Conducts R&D and engineering activities for all of GE's diverse
businesses worldwide.
• It is the first of its kind outside the USA.
• Facilitates real–time global interaction with GE's businesses,
technology centres, customers and suppliers.
DIVERSIFIED RESEARCH
• Development in the areas of mechanical engineering, electronic and
electrical system technology, ceramics and metallurgy, catalysis and
advanced chemistry, chemical engineering and process, polymer
science and new synthetic materials, process modelling and
simulation, power electronics and analysis technologies.
HYUNDAI HYDERABAD
The R&D Centre will support all back-end operations like CAE
&CAD
• Helps in developing vehicles which includes their styling, design
engineering and vehicle test & evaluation.
• Provides engineering & design support for Hyundai models in
EUROPE.
• Aimed at NEW PRODUCT DEVELOPMENT &
ENGINEERING SERVIVES.
• Enable Hyundai to respond even more quickly to changing
customer needs and ever changing technology.
• The first product was the Hyundai EON developed in the R&D
plant.
OFFSHORING STRATEGY
• Doing something different from what the competitor does to
achieve sustainable advantage.
• The focus “only” on cost savings and labour cost savings can
lead to short term growths but it doesn’t always mean
competitive advantage because this advantage will be sooner or
later gained by the competitors
OFFSHORING STRATEGY
• Offshoring enables to reconfigure the value chain and
acquire new capabilities and competitive strengths.
• It gives an opportunity to rethink the business by
leveraging from other firms as well as increasing the range
of strategic options and implement organizational
innovations.
• The sum of all these helps in building a real competitive
advantage to the captive centre which enables in
sustainable development.
Thank
You
