If you are an enterprise owner, chances are that you want more for less. So you opted for a third party offshore outsourcing with the sheer intent to reduce capital investment. You managed to accomplish this goal but unfortunately, the goal was marred by a limited scope. Moreover, many outsourcing businesses were oblivious of the complexities that they encountered while handling outsourcing relationships in other countries. These situations have gave rise to new ideas, which called for innovative approaches to running the business.
From a captive service model to offshore resources, enterprises have transformed their business ideology. Enterprises are now pursuing offshore partnerships not only to reduce costs but also to improve quality of services and to acquire skilled talent with least amount of liability. Besides, few enterprises are preparing to leverage offshoring by developing captive service centers in countries where costs are comparatively low.
Which model works for you would depend extensively on your management model. Do you necessarily need to control your business back office? How does increasing your profit margin sound and feel? Do you need your own offshore captive or would you rather partner with a third party to run your captive virtually?
So, if you are exploring your offshoring possibilities, it would be useful to consider some vital characteristics of the available options.
In an outright offshore the work is executed according to the customer’s preferences, while considering the terms and conditions. In the captive center model, the service operation is fabricated from scratch right from building the infrastructure, securing all necessary commercial licenses, to hiring human resources. The captive center setup is usually time consuming and capital heavy since they are built from the ground up and hence, obtaining results can take some time.
A more viable option is the virtual captive model, if neither captive nor full outsourcing can fulfill your business requirements. In this model, an offshore third party vendor offers a captive center to the parent business including infrastructure, assets, dedicated resources, and office resources along with human capital services such as recruitment and training.
In this model, the third party vendor assumes complete responsibility of screening the daily operations without the parent company losing control over the management, processes and technology. In summary, virtual captive model is a cooperative process between the provider and the business.
Virtual captives therefore claim the least amount of liability, as compared with offshore outsourcing and captives.
Let’s have a quick look:
Offshore Outsourcing
The terms "outsourcing" and "offshoring" are often used almost synonymously in much of the popular literature today. However, there is a technical difference.
When a company outsources, it buys from a third party a part or service it used to produce itself. This does not necessarily mean that the product is outsourced abroad, although it can be. When a company offshores, it shifts the location of the service or production to a location abroad.
- Reduces cost
- Shared liability between the business and vendor
- Human resource is a responsibility shared between the client company and the service provider
- Helps building core competencies and new capabilities
- In a globalized economy, it fosters a multicultural business culture
Captive :
A physical office where the organization maintains complete control over processes and delivery.
- Larger set up cost
- Higher liability
- Talent recruitment & retention is a challenge
- Time consuming to set up and maintain
- Dealing with foreign regulations, tax compliances, and labor laws etc
Virtual Captive:
It is an amalgam where a local, third-party vendor will set up a captive centre on behalf of a company, and managing processes for them.
- Lower set up investment
- Minimal liability
- Talent management is vendor’s responsibility
- Not time intensive to set up
- No long-term commitment
- No hassle of dealing with local commercial regulations
With time and innovation, enterprises are inclining toward virtual captives owing to the benefits. At e-Zest we pride ourselves in serving as a virtual captive for a number of leading worldwide businesses. If you would like to know how e-Zest could help set up your virtual captive, please write to us at info@e-zest.com
