How Effective Are Captive Services?

Captive Services have been a popular means of business process outsourcing for some companies. In this, companies wholly own their BPO units rather than using a third party outsourcing firm. Companies opt for captive services to have complete control on the operations of their business processes in other countries. Again, the main driver is cost effectiveness. Companies tend to shell out more than they would have to pay a third party vendor however a lot less than what they would have to pay in their own country.

Most financial and telecommunication companies prefer having parts of their business processes outsourced in this manner. For example 3 Global services have their captive contact centre in Mumbai, India. Lehman Brothers also had their captive unit in India. The objective of having a captive unit is just to have tighter control and better regulation and functioning of the unit. There are a lot of long drawn legalities around liaising with a third party vendor.

The quality of work can be controlled only to a certain level and the framework of vendor may not be compatible with the company. Hence, using captive services has been an option for companies wanting to outsource since the 1980’s. Some of the companies who spearheaded this movement are British Airways (Captive later known as WNS Global), General Electric (captive later known as GECIS /GENPACT) and AMEX who have their captive units in Delhi and surrounding regions in India. The service arms of Dell, HP, IBM and Accenture have also set up shop in India.

On the other hand, the employees of the captive centres stand to benefit from this sort of a setup. When an employee is working for a BPO, they are indirectly employed by companies that have outsourced their work to them. They may be doing exactly the same work, putting in the same hours and producing the same kind of end product, however they are paid a lot lesser than their counterparts in the west. In a captive service, people are directly employed by the companies and get the same kind of benefits the employees of the company may get in the west. There may be minor differences in their pay scales as compared to the employees in the west; however they pay much better than third party vendors.

The global economic meltdown has not helped these captive setups. Companies like Citibank, Merrill Lynch, BT, Lehman Brothers etc have been forced to shut shop, face bankruptcy and cut down on jobs in many of their captive units. Others have been forced to sell their captives. For example, TCS bought out Citigroup Global Services. In the recent years companies have been forced to rethink their outsourcing strategies as the rising costs have diminished their returns on investments. With most captives attaining maturity and cost effectiveness being a challenge in the face of increasing competition, the future of captive services doesn’t look promising.