Businesses are made up of both benefits and risks, and offshoring outsource operations is not an exception. Caution is needed in acquiring outsourced services, and there is even a much greater risk in delving into offshore captive centers for your company. Before diving straight into action in getting offshored services, you might want to spend more time thinking on it again.

Choosing Between Setting Up an Offshore Captive Center and Outsourcing Services

Remember that there is a difference between setting up a captive center and acquiring outsourcing services. Having your own offshore captive center would require you to spend lots of time and money to build and set it up. This is also a strategy that is meant to be for long-term operations. If what you require, however, are services that will not be taking a long time to complete, such as creating a program or software for your company, then it is greatly recommended that you just get the services of an outsourcing personnel. There are pros and cons to both of these strategies. Be aware of them and think clearly which one will best serve your business.

Make Sure You Have Disaster-Recovery and Backup Plans

It’s always better to be safe than sorry. That’s why whenever you venture into something new in business, it’s always recommended to have a backup plan. Of course, there will still be risks in business. But if there is a chance that you can minimize mistakes and avoid any future disasters, then do so. Fortuitous and unstoppable events like natural disasters are also not unheard of to affect businesses when they happen. Storms, flooding, earthquakes and other natural calamities should be prepared for. This is especially true when your offshore captive center will be set up in the Asia-Pacific region where typhoons and natural disasters have been known to occur.

Have a Well-Researched Corporate Offshoring Strategy

Offshoring is not a simple investment or strategy. This move requires a lot of research first before even introduced as a major proposition for the company. As stated by many, offshoring is not a strategy for every business. You have to know whether it is the right move for your company or not. And when you have considered the pros and cons of offshoring, then make sure that the corporate offshoring strategy that you create will have considered both positive and negative consequences the move could have on the company. Yes, you should also look at the negative consequences. Your corporate offshoring strategy will help you in preparing everyone on the project for the many big changes that will happen when you go through with offshoring.

Whether your choice is to set up an offshore captive center, or to get outsourced services instead, there is still a great amount of thinking to do. Outsourced operations are hard to keep tabs on due to the distance of your company and the offshore center. So to get into business with offshoring means lots of strategical thinking.

Some predicted that the offshore captive centers would slow down and eventually die out. These business ventures were only good for a short period of time, and would be dumped after a while. They were wrong, however, as we can see that captive centers and outsourcing companies are still alive and growing today. There are more than 500 captive centers in India itself. Add to this the other countries that are competing in this business sector, we can imagine just how much offshoring and outsourcing have grown.

The reality is that when the others have observed as the offshore captive centers dying, there is actually just an evolution going on. Offshoring and outsourcing evolved. Strategies and expansion has allowed this to be so, and as a result this industry is actually even bigger now than it was years ago. Most captive centers created years ago are still operating and have expanded their services. There are also new captive centers cropping up to join and compete with the others. And as word of the success of the captive centers spread some more, more and more of them will enter the market and more businesses will be out to invest in them.

There are two main reasons why offshore captive centers will not fade away into history just yet. For one, captive centers are already a large and established part of the industry. A sector that has contributed a great deal to a country’s economy and has benefited a foreign company is not just going to be set aside. Another reason for the continuing presence of offshoring and outsourcing is because the captive centers have expanded their services to more than what they normally give. When once a captive center was only expected to provide customer help, now captive centers provide a variety of IT solutions and virtual assistance.

There are more factors that has contributed to the offshore captive centers’ ongoing popularity and continuous activity. Financially speaking, captive centers remain to provide a less costly alternative to companies looking for cost-effective and efficient ways to operate. It was the main reason why captive centers came into existence, after all. This purpose still haven’t changed even when business strategies and captive center models have evolved through time.

True, there are captive centers that are closing down but these would be the ones that were small and unsuccessful in penetrating the market. This is to be expected in any niche. Offshore captive centers that already have a hold on the market, however, and especially those with backing from companies or owners abroad are still growing strong.

Multinational companies and big time businesses from America and Europe are still looking to offshore captive centers for IT services and solutions. Setting up these subsidiaries usually provide the companies a more cost-effective way in expanding their operations. It provides the companies with the services that they require while also getting big savings from the low cost of labor and rates in the captive center’s country.

Time was the offshore captive centers were just for less expensive non-tech support, such as customer service representation and online marketing. But more jobs and services were seen to be sufficient enough to be relegated for the captive centers to take care of instead of the parent company. This move meant that the company can focus more on their core jobs while the captive centers would take care of the support jobs. These jobs included virtual assistance, website maintenance, online marketing, programming, and other IT-related tasks. Most captive centers today have staffing that specialize in computer and information technology, and are hired to work on IT-related issues. Now offshore captive centers are not all about assistance and customer support. They have expanded to providing companies and clients IT services and solutions.

The parent companies of the offshore captive centers also found their expansion to their benefit. In regulating more jobs to the captive centers, not only can the parent company focus on their main jobs at the core center of the business, they also save more money and more time. The staffing of the captive centers have lower labor costs and expenses and so the parent company can guarantee themselves huge savings. And they’ll be able to have more time in focusing on doing their jobs with the captive centers taking over the support jobs. It really is a win-win situation for both sides.

Today, setting up and using offshore captive centers is still considered a cost-effective strategic move by multinational corporations and big companies. Of course, this strategy is certainly not for every business out there. Setting up captive centers in another country is not small thing. There are lots of factors you have to consider before proposing to move into the offshoring business. Starting a captive center is just like starting another branch, only in a foreign country with lower labor cost and acceptable investment rates. But for businesses in need of a less expensive way to expand on their IT-related jobs, offshore captive centers are the answer.

So you and your company decided to put up an offshore captive center in another country. The research that led to this proposal (that led to its approval) would have told you that you will have to exert more effort and put in more time in order to properly manage you captive center. Here are a couple of tips that can help:

Be Patient In Setting Up Your Offshore Captive Center

With less costs and big savings as a purpose for companies to set up their own captive centers, it sometimes flies out of their minds that setting up a captive still needs sufficient resources (including financial resources) and time to be finally completed. One thing that every businessman should bear in mind always is that if you do not want to waste any more time and any more money on expanding your business, you better do it right. And in order to do it right, you shouldn’t hurry the processes in building your offshore captive center.

Participate Actively In the Negotiations

Legal counsel in the negotiations for your offshoring venture is important. But so is your participation as the owner and leader of the negotiations. As the leader in the offshoring project, it should be you who should lead the negotiations, and the lawyers and the advisory team should stand by as support. If you want your offshoring project to proceed as smoothly and as speedily as possible, it’s better to participate in the negotiations and the processes as much as possible.

Apply a Continuous Sense Of Responsibility By Being Visible

Just because you’re sending work offshore and relegating some responsibilities overseas to another country does not mean that you can discard your responsibility as the leader of the company. When you get lax in your responsibilities, so do your people. This is even more so when you are not exactly making your presence felt among them. Being visible can help in keeping your personnel on their toes and continue to be diligent and hardworking. This also applies to the ongoing management. Just because you have an offshore captive center to take care of now does not mean you will be lax on your responsibilities as the owner of the company.

Clarify the Roles and Responsibilities of the Personnel of Your Offshore Captive Center

Managing personnel and staffing in your offshore captive center, miles away from where you will normally be, is going to be complicated and difficult. Yet this is one task that you must take to heart to minimize any clutter in the management of your captive center. This is especially serious when you are still in the strategic phase of building the captive center. Without an organized management and clear chain of command, there is a greater chance of a smoother flow of operations. This is also a given for the roles and responsibilities of the management and staff you hired.

These tips may seem like you should have already known about them before you even read this article. This is true. However, many businessmen fail to remember these, and forgetting about them usually led to mistakes. Keep these in mind when have set up and are managing your own offshore captive center.

Asia has long been a favorite for destinations for offshoring and outsourcing centers. Among the many countries in the continent, four countries have made their mark in the business of offshore and outsourcing staffing.

India: India is in the lead when it comes to offshore services and outsourcing centers in Asia. The country has established itself strong in both IT and non-IT outsourcing areas, and also has an attractive rate in scale and cost of labor. It has a very large pool of labor and manpower, and the employees are trained to meet the demands of a market bent on technology and telecommunications. Foreign investors looking to set up an outsourcing center in India will only have to expect infrastructure problems and inadequate local and international connectivity. There is also the issue of privacy and security laws, as India lacks breach notification requirements and privacy legislation that equal that of the laws of U.S.

China: China is not likely be left out in this business of outsourcing centers. The country is proving to be competitive, too. Its labor size and costs is competitive relative to other offshoring destinations. There is the problem of language barriers, however, and sometimes investors have to pay a premium to get hold of personnel with English-language capabilities. There is a lack of English fluency in the country that makes it difficult for Americans to conduct their business. Other problems that foreigners have to contend with in setting up outsourcing centers in China are the country’s copyright laws and intellectual property rights regarding IT software, and the inner-country competition (wherein you cannot trust what one province has to say about another province because most probably they are just badmouthing each other).

The Philippines: The archipelago can give India a run for its money when it comes to English fluency and labor cost. With the Philippines’ history with the Americans, the Filipinos have become familiar with the American language and culture. English is considered as the county’s second language. The Filipinos are also attuned to the modern culture of the U.S. Aside from the people’s cultural compatibility, the Philippines also offers effective BPO and is constantly improving in the field of technology. If not for the political instability, crime and corruption, and social unrest in the country, the Philippines would be the ideal destination for offshoring and outsourcing centers.

Vietnam: Vietnam is the latest Asian country to emerge among the top destination for offshoring and outsourcing centers. The country has low labor costs and also has a young and educated talent pool for staffing. The problem in choosing this country lies on the lack of language comprehension and English fluency. There is also a lack government support when you’re looking for guidance in investing in the country. Vietnam businesses may also be lacking when it comes to the standard business practices and operating norms of the U.S.

The growth of these countries in terms of technological applications and telecommunications only gives more strength to them becoming top destinations for outsourcing centers. Foreign investors only need to consider the pros and cons of these top four countries, choose among them, and start their own outsourced company in the country they have selected.

After we have discussed the first phase in building your company’s offshore captive center, we will now go over the elements to be considered in the second phase of the SEO for offshore captive centers. In this next level, the strategies and plans you made out in the beginning will be put into action.

E is for “Establish,” and this is the next phase in the SEO of building your offshore captive center. In this phase, your company’s strategy from the first phase is put into fruition. Proper channels and regulations should be recognized in this plan of action. With your captive center strategy laid out, it’s time to make your plans and operations more detailed and clearer.

Assign roles and responsibilities in the management of the operations. The team for the project should employ good governance and stick to regulations for the center. With the organizational responsibilities established, there can be a solid chain of command for the operations and processes. This will allow for the smooth flow of directions and procedures. It will also minimize any mistakes or miscalculations on the project.

With the management structure in place, it’s time to go down the organizational chart and take care of other details such as the infrastructure and staffing of the offshore captive center. With the infrastructure, make a detailed plan for office space. Don’t forget to consider sufficient office space, workstations, conference rooms, etc. You may also want to think about where to put the rest rooms, and maybe also a pantry for the employees.

Probably one of the most important processes in establishing your offshore captive center is hiring and staffing. It is a given that your staff needs to be competent and well-informed in their job descriptions. It is up to you to find key leaders and personnel for the captive center. Consider well when choosing personnel for the administrative and financial departments, for they will be at the center of the operations of the offshore captive center.

Once you have the manpower and the personnel, you can proceed to carry out the processes for captive center management as well as project management, human resource management, etc. Make sure that these processes and job descriptions are clearly defined in the organizational plan. Part of the captive center management would also include knowledge transfer between your company’s onsite team and the offshore management. Training the offshore team and executing a project with them would be a great start in building the offshore captive center and its relationship with its parent company.

In this phase, you will be solidifying your presence in the country you chose. The processes involved in this phase firmly starts the operations of your offshore business, which will be discussed further in the next phase o the SEO of offshore captive centers.

Business models of offshore captive centers have their own SEO when venturing into this line of business. This process is practically the basis of companies when they set up their own offshore centers on foreign countries like India and the Philippines (two of the leading Asian countries when it comes to outsourcing and offshore staffing). SEO means “Strategize, Establish, and Operate.” In this article, we will discuss the first phase of SEO, which is to strategize when starting your offshore captive center.

In making your strategy for putting up your company’s offshore business, you first have to consider if this plan is the best move for your company. There are companies that have not turned to offshore businesses because they thought that it would not be a feasible move on their part. Make it a point to go over the pros and cons of putting up an offshore staff before you venture out or your own offshore captive center. When you do make the decision, then the first step you have to make is to plan out and strategize.

Part of the strategy in setting up your company’s offshore captive center is selecting the right country and city for the operations. India is one of the top countries for offshore businesses, but other Asian countries, most especially the Philippines, is also gaining a reputation in this industry. In choosing a location, it would be wise to study the country’s economic growth (especially pertaining to the telecommunications industry) and the resources available to the company (especially the manpower and competence of the offshore staff).

Other factors to consider when strategizing include the making of the business model of the offshore captive center. Will the center be treated as a branch or subsidiary of the parent company? What processes and operations will be offshored to the center? What are the costs and expenses? How much will be allotted for the captive center?

It is clear in this phase of the SEO that your company needs to have a project plan and a clear strategy to help smooth the process of building your offshore business. Having a projected plan and operational timetable help keep the costs and expenses to a minimum. It also helps your company manage time and not waste any more resources than you have to.

The bottom line of this phase of the SEO of offshore captive centers is that you have to make a strategy that will cover every detail of the business. Think of it as a typical business plan, only your location would be in a foreign country and the manpower you need will be miles away from your company. You will also be taking a closer look at your finance and resources, in order not to waste any.

You may have heard of SEO, and what it generally means to online businesses. For offshore captive centers, however, SEO does not generally mean search engine optimization and online business promotion. For them, SEO refers to the three high level phases in establishing the business of a captive center. Putting it more clearly, SEO is elaborated as “Strategize, Establish, and Operate.” This is practically the basis that companies use to build and grow their offshore captive center.

S for Strategize

You can relate this process to making any ordinary business plan. The priority here is whether or not an offshore staffing will be beneficial to the parent company and the formulation of the business strategy when it is proved that an offshore captive center would prove profitable for the business. In this phase of strategizing, the phrase “location, location, location” still rings significantly true. A significant part of your strategy will be affected by the country and city that you select as the place for your captive center. You have to consider the country’s economic status and its stance regarding foreign investors. You also have to consider the country’s resources (manpower, equipment, etc.) that you can use for your business.

E for Establish

The second phase of the SEO process is establishing the offshore captive center in the location you have chosen. This includes putting up organizational and management structures and assigning roles and responsibilities to key leaders and selected personnel. This phase also includes making a detailed plan for the office space, or the infrastructure of your captive center. Then, of course, there is the hiring and staffing of your offshore captive center. Your staff will mostly be made up of the locals of the country, and so you may want to set up regulations and qualifications for your management to base on when hiring employees. Trainings, knowledge transfer, and projects will also be part of the second phase of establishing an offshore captive center.

O for Operate

In this third and last phase of the SEO process, there are two operations that you have to keep an eye on. These are quality management and performance monitoring. If you have been in business for a long time now, then you know that quality and performance are very great factors in keeping a business alive. For your center’s operations to be profitable and beneficial, it should proved good results bred from great quality services and optimal performances.

Once you’ve undergone these three phases of establishing an offshore captive center, then it will be certain that your business is definitely on its way up in the industry. All it takes is three steps, and three letters to make it easy for you: SEO.

Companies utilizing Captive Center Outsourcing has grown exponentially.

A survey made by Infosys on companies having outsourced captive centers states that an increasing number of Fortune 500 companies have started using captive centers as part of their business strategy in recent years. Many of these companies have even started utilizing captive centers as far back as more than 10 years ago when captive center outsourcing wasn’t that well known.

These companies come from varied industries ranging from IT, Telecommunications, Retail, Financial services and Software as some of the examples. Companies have exercised almost absolute control on these centers. This may have been because at that time, the technology of countries where captive centers were established weren’t at par with the parent companies from the US and Europe.

However, in recent years, countries where Captive Center Outsourcing was established have slowly matched the technology of their US and European counterparts. Along with this development, the Strategize, Establish and Operate (SEO) system of establishing captive centers is slowly giving way to the Build, Operate and Transfer (BOT) model.

This is a positive sign for countries having captive centers. This means that not only are their technologies at par with the rest of the world, companies are starting to trust them with Information Security (InfoSec). Information Security is very important in the modern business world as a single breach could bankrupt a whole company in a matter of hours.

Another development is that before, only non-core operations were delegated to captive centers. But now, there is a massive increase of core operations being processed by outsourced captive centers.

The greatest development in my opinion is that captive centers are being sold by their Western owners to Asian companies. An example is the financial giant Citi which recently sold its captive center to its Indian counterpart. This means that Asian countries can compete with the best in the world in terms of information technology.

In summary, technology has the tendency to evolve in leaps and bounds. With these new developments, the evolution of technology clearly favors the Asian countries. It is but natural for these Asian countries to take advantage of these developments and establish themselves as the world leader in terms of Information Technology.

What is a captive center? A captive center is generally defined as: An operation that is owned by an offshore company. The activities are performed offshore but are not outsourced to a third party.

Why do companies operate captive centers? The answer is simple: to cut down costs. The global recession has forced many companies to seek solutions to a decreasing influx of cash against a rising demand for products. The business model that was widely accepted more than 5 years ago was Captive Center Outsourcing.

In this model, Western companies can take advantage of massive cheap labor in Asian countries as well as the cheaper cost of infrastructure which these countries offer. Another advantage is that trade secrets are given security since the said companies still own the said captive centers.

During this time (5 years ago), the technology of Asian countries were deemed “inferior” compared to their Western counterparts. The Western companies also wanted as much control as possible in order for them to maintain their “edge” over their hired manpower.

They also developed a 3-phase strategy for establishing captive centers. These are: Strategize, Establish and Operate or (SEO).

In the Strategize Phase, Selecting a Location is given priority. After this has been done, the companies would then determine what applications and processes would be offshored to the center. Executive decisions are made as to whether the centers were to operate either as a branch or a subsidiary of the parent company. Then comes the the consideration of issues related to the cost and operations of the center. And finally, the bosses would then create a detailed plan for deliverables and operational timeline.

The next step is the Establishment stage. What they basically do is that they create a framework for every aspect of the center. Roles and responsibilities are clearly defined. Infrastructure details are planned and implemented. Knowledge transfer from the onsite team to the captive center team is done step by step. And finally, test projects are started to determine the efficiency of the Captive Center.

The Operation stage is practically the fine-tuning stage in the life of the Captive Center. Quality management protocol is set up and tested. And lastly, Performance monitoring or all key elements in the performance is systematically monitored.

Many international companies have indeed jumped on the bandwagon of Captive Center Outsourcing. Many of them have experienced success with this business model. Profits have been increased; and productivity has been established.