Captive Center

Captive centers are now gradually fading in the offshore field because more and more businesses have been turning to outsourcing as an effective option in dealing with their non-core activities. But why have captive centers lost its way over outsourcing? Typically, captive centers are more vulnerable in facing technical and management challenges and we are going to find what are these through this article.

Management issues. Managing a captive center in an offshore area is never easy. When a company chooses to outsource their non-core activities, the management is able to concentrate on their core activities, hence giving them a competitive advantage. But in captive centers, the parent company is the one who manages the offshore business. The captive centers therefore must adhere to the parent company’s policies, procedures, systems and processes but this is not applicable at all times because of some cultural differences between the two countries. And when the offshore captive center is not managed properly, this will demand a greater management attention on non-core activities.

Human Resources Challenges. This is a major concern for captive centers as third party suppliers have more advantage in recruiting skilled and talented manpower. Some of the problems in human resources are lack of on-site opportunities, lack of defined career path, high attrition level, and insensitivity of the parent company’s different culture to local working environment. These HR challenges have a significant impact on cost, quality and productivity of the captive centers.

Setting up in the Wrong Location. Choosing the location where you will establish a captive center is vital to your company’s success. If you choose a wrong location, the captive center will quickly become a disadvantage. Thus, you must select a country and a particular city where there is rich supply of right manpower and the cost of operations may turn high.

Governance Challenges. Since the parent company will be dealing with staffing, new working styles and formal/informal information systems, captive centers must require an effective governance by developing policies and practices to incorporate a more flexible approach to labor allocation. This is not an easy task because the management must ensure the alignment of objectives, contracts, delivery models and measurement. In addition, managers should develop and disseminate best practices for achieving project success, cost savings and quality assurance

Update on Technology. Captive centers are practically run by technology. They are either directly involved in technology/maintenance activity or involved in business processes whose backbone is technology. Since technology evolves at a fast pace, captive centers must therefore be able to keep pace with the changes in technology. Otherwise, they will be left behind in the market competition.

There are still many other problems that captive centers face and will continue to encounter. When considering to set up a captive center, the management must realize that this is more than a cost optimization exercise. Since the captive center is an extension of the organization that is established to prosper, this business strategy must therefore be given the appropriate levels of support.