Q: What are captive sites?

BT: Captive sites are offshore centers that are set up by companies in low cost locations (e.g. India, the Philippines and Romania), without the help of a third-party provider. In these centers, companies employ local workers to carry out various outsourcing functions such as finance and accounting and IT. They are run solely by this company and in some instances are treated as a branch/legal entity of the onshore office.

Q: How much of the current market is captive?

BT: Our data indicates that in BPO, about 60 percent of dollars are spent on captive sites. This is not to say that third-party providers are not offering services to companies anymore, but corporations are seeing the captive market as an alternative to traditional outsourcing initiatives.

Q: Why are companies choosing captive sites over working with third-party providers?

BT: The reasons are varied, but one choice is control. When a company sets up its own captive center it can control the resources, staff selection and security measures. This gives the company greater freedom to create its own boundaries. Another reason is risk management. The only entity responsible for the performance and viability of the captive center is the company itself. The risks that it takes in developing the captive center will have no effect on any other entity because it is acting as its own contractor. Speed is also an important determining factor. Companies want to set up a site that will function efficiently and productively. A well-researched offshore operation will aide in the amount of time it takes to set up the captive center and begin the work there.

Our research also suggests that providers have failed to add value to outsourcing strategies for companies looking to outsource. We’ve learned that they often employ quick fixes to issues while sidelining the quality of the deal and meeting and/or exceeding the expectations of the company.

Q: Other than traditional BPO functions, are there any other business operations going captive?

BT: A lot of research and development functions are going to captive sites. There is a great pool of talent in these low cost locations, and companies are realizing that in order to stay competitive and cost-effective they need affordable professionals that are available to do the groundwork on developing new products.

Q: What are ways that captive sites can go wrong?

BT: There are a number of reasons that captive sites could cause problems, rather than success. Incorrect licensing, for example, could lead to a captive center becoming inactive. Sometimes companies fail to get proper documents from a country’s government and later find out they do not have the right to set up a site there. The laws and customs are different than in the United States, so proper research is essential for starting up these offshore operations. Bad management can also be costly and counterproductive to a captive site. If the home management thinks the site can run itself without properly training workers then there could be problems with production.

Another major concern is the cultural differences that exist between the onshore unit and its captive center. Things that may seem standard in the U.S., like working hours, holidays and language could pose potential problems if an effective cross-cultural plan is not put in place.

Q: What are the best practices for companies that are considering a captive site?

BT: Companies need to understand three main points.

1. Scope. What processes does the company want to put into a captive center? Understanding what functions are no longer needed on shore is at the discretion of the organization, so in order to move forward they must analyze their situation.
   
2. Location. They should thoroughly research the area they want to build their captive center, especially understanding various government laws and customs of that particular place. Additionally, they should take in account the accessibility of the location so their home management can assist in the development.
   
3. Configuration. After they have found a location for their site, they should configure the center by creating a corporate culture that is aligned with their goals as well as those that will be working there. This includes setting up hours, establishing protocols and interpreting cultural differences.