Offshoring Strategies

Offshoring Strategies: Evolving Captive Center Models

Ilan Oshri
Copyright Date: 2011
Published by: MIT Press
Pages: 280
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  • Book Info
    Offshoring Strategies
    Book Description:

    In today's globalized economy, firms often consider offshoring when confronted by rising costs and fierce competition. One mode of offshoring has continued to grow despite the current global economic turmoil: the captive center. Captive centers are offshore subsidiaries or branch offices that provide the parent company with services, usually in the form of back-office activities. In Offshoring Strategies, Ilan Oshri examines the evolution of the captive center. He identifies basic captive center models, examines the captive center strategies pursued by Fortune Global 250 firms, describes current captive center trends, and offers detailed individual case studies that illustrate each model. His analysis highlights the strategic paths available to firms that want to maximize the returns offered by captive centers. Oshri outlines six models for captive centers that range from the basic wholly owned branch office to hybrids and joint ventures and identifies evolutionary paths along which the basic model develops. He analyzes firms' strategies during initial set-up, then tracks the changes as strategies evolve to meet different business needs. The case studies, all based on the Fortune Global 250,include the development of a basic captive unit into a complex hybrid structure; the evolution a captive center into a shared service center offering services to other international firms; the divestment of a captive center to a private equity firm; and the migration of a captive center to a location where costs were lower.

    eISBN: 978-0-262-29594-9
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-x)
    Michael F. Corbett

    As our economy continues its march toward globalization, companies are constantly exploring new and better ways to both reach local markets with their products and services and to leverage the skills, talents, and resources they find there to improve their own operations. Outsourcing, offshoring, and shared services are all part of this phenomenon.

    As a result of these experiences, the range of approaches available to companies today is extensive. But closing the gap between pursuing any particular approach and getting it right is quite simply the difference between success and failure.

    Captive centers are no exception. As Ilan Oshri points...

  4. Acknowledgments
    (pp. xi-xii)
  5. List of Contributors
    (pp. xiii-xiv)
  6. Synopsis
    (pp. xv-xvi)
  7. 1 The Emergence of Captive Centers: Why Captive Centers, and Why Now?
    (pp. 1-22)

    Throughout the past few decades, large multinational companies such as General Electric, Texas Instruments, and Motorola have established captive centers in various foreign countries, most notably India. Captive centers are wholly owned subsidiaries that provide services, in the form of back office activities, to the parent company from an offshore location. While traditionally they have kept most of their offshore tasks in-house, numerous information technology service providers that have emerged within the Indian marketplace have developed the capabilities to execute both simple and complex work projects—a few of the most recognizable companies being Tata Consultancy Services, Infosys, and Wipro....

  8. I The Fundamentals of Captive Centers
    • 2 Captive Center and Other Sourcing Models
      (pp. 25-48)

      Understanding captive centers as a sourcing business model should start by positioning this concept within the sourcing literature. Much has been written and said in recent years about sourcing, and the academic and business jargon has expanded to include such new terms asright-shoring, bestshoring, nearshoring,and many more. Nevertheless, the key sourcing models, such as outsourcing, offshore outsourcing, and offshoring (e.g., captive models), remain the most prominent sourcing vehicles. In the end, much of the sourcing discourse has focused on understanding the risks and mitigating strategies and capabilities for either outsourcing or offshore outsourcing.

      Since the end of the...

    • 3 Country Attractiveness for Sourcing
      (pp. 49-70)

      Deciding where to locate a captive center has never been so complex. In the 1990s, the straightforward decision was to offshore activities to India. Now, about 120 countries compete to win information technology (IT) and business process offshoring (BPO) contracts. Obviously each country offers a different set of advantages. Certain regions are perceived as centers of excellence for a particular business process service or IT support. In exploring the attractiveness of offshoring locations and considering where to set up their captive center, executives need to assess numerous factors and drivers, such as the comparative advantage of a particular location, the...

    • 4 Trends in Captive Centers of Fortune Global Firms
      (pp. 71-104)

      This chapter investigates some of the trends among Fortune Global 250 firms regarding their captive centers. These trends can be analyzed by asking three relevant questions:

      1. Which Global Fortune 250 companies have captive centers in offshore locations, what types of captive centers are they, and where are they located?

      2. Which key location choice criteria do Fortune 250 companies take into account when deciding where to locate their captive centers?

      3. Which Global Fortune 250 companies have expanded or migrated their captive centers, and to which locations?

      This part of the study focuses on the development of captive centers between 1990 and...

  9. II Captive Centers in Practice
    • 5 From Basic to Hybrid: The Case of GlobalSoftware
      (pp. 107-120)

      The hybrid captive center can be carried out in two forms: as hybrid insourcing or hybrid outsourcing (figure 5.1). In hybrid insourcing, services are provided on the client’s premises. Contracting consulting services, where the vendor’s personnel physically work from the client’s site, is a good example. In hybrid outsourcing, the work is outsourced to a local vendor and performed at the vendor’s site. This case describes both scenarios.¹

      The captive unit of GlobalSoftware, a worldwide leading software development firm, was set up through an acquisition in India in 1998. Today it is the second largest R&D and global services and...

    • 6 From Basic to Shared: The Case of ITConsulting
      (pp. 121-130)

      Companies normally turn their captive units into shared captive centers for growth purposes. In order to develop a successful shared captive, the basic captive has to develop certain abilities to attract external clients. Some parent companies consider the shared captive model a preliminary step to a subsequent divesture. This case illustrates the range of options available to the parent firm in this regard.

      ITConsulting, an international computer and consulting firm, decided to set up a captive center to support the four business functions of its global corporation in Hungary: human resources, financial services, accounts payable, and procurement. With its highly...

    • 7 Divesting the Captive Center: The Case of GlobalAirline
      (pp. 131-146)

      Our research revealed three types of captive center divestures: private equity, vendor/business process outsourcing (BPO) service provider, and joint venture agreement. In essence, the act of divesture in each of these models leads to the same result: the sale of part or all of the captive center. The process through which the sale happens is different in each case. This chapter examines the divestiture of the captive center to a private equity firm.

      As a former captive center of GlobalAirline (the parent firm), an international airline company, GlobalOutsourcer provides offshoring process services to the insurance, banking, travel, manufacturing, retail, logistics,...

    • 8 Divesting the Captive Center: The Case of AmeriBank
      (pp. 147-156)

      In the previous chapter, we looked at the acquisition of a captive center by a private equity firm. This section examines the acquisition of the AmeriBank captive center by a business process outsourcing (BPO) service provider.

      The former captive center of AmeriBank, one of the world’s largest financial services banks, was set up through a strategic acquisition in 1992 for handling security and leasing operations. In 1999 AmeriBank restructured the captive center into a publicly traded BPO responsible for corporate and consumer banking. The captive center managed customer call centers, document imaging, and information technology (IT) support for AmeriBank’s various...

    • 9 Divesting the Captive Center: The Case of ConsumerGoods
      (pp. 157-164)

      In the two preceding chapters, we examined cases of divestiture in which a private equity and a business process outsourcing (BPO) provider were involved. This chapter looks at a divestiture of a captive center in which a joint venture (JV) agreement set the stage for the change of ownership.

      The captive unit of ConsumerGoods, a worldwide consumer products company, was founded in India in 2003. ConsumerGoods India was set up as a back office for financial and accounting work for ConsumerGoods’s worldwide and Indian locations. Due to its arrangement as an independent profit center that adopted the service orientation of...

    • 10 Migrating the Captive Center: The Case of InfoTech
      (pp. 165-200)

      This chapter presents the case of a migrated captive center owned by a leading information technology corporation (InfoTech). The chapter is structured chronologically, and the historic development of InfoTech’s procurement is outlined to provide context for the eventual migration. The chapter then explains the migration of the captive center functions in detail.

      Prior to 2002, procurement for InfoTech was fulfilled separately by each individual country organization, with some overreaching coordination by global councils. The procurement encompassed all processes related to buying, from the company’s regular purchases to the exceptional expenses on project work. Roughly eight hundred people in more than...

    • 11 The Way Forward: Captive Center Capabilities and Strategies
      (pp. 201-234)

      Throughout the previous chapters, we have explored the reasons for offshoring, the vehicles for offshoring, and many of the challenges that firms encounter when they choose to move business activities to captive centers. The companies examined in this book provide a foundation for making some generalizations about captive center capabilities and strategies moving forward into the future. This chapter explores those capabilities and strategies in-depth using the research we conducted as evidence to support our conclusions.

      We begin with the basic captive center, which provides services to the parent firm. This center typically covers a line of business functions such...

  10. Notes
    (pp. 235-246)
  11. References
    (pp. 247-254)
  12. Index
    (pp. 255-262)