Setting up a captive center

In an interconnected global economy, companies explore offshoring as a strategy to manage escalating costs and intense competition. Setting up captive centers has emerged as a popular strategy where companies offshore subsidiaries or branch offices that deliver services. Such centers are evolving into essential enablers of organization-wide success while demonstrating the ability to create synergies between local and global business strategies.

Captive centers achieve this by performing critical tasks efficiently and cost-effectively. This frees up resources at the central unit for strategic initiatives. Additionally, they bridge the gap between local market knowledge and global business goals. Thus, companies can tailor strategies for specific regions while maintaining a unified approach.

Strategic Imperative

The decision to set up a captive center is driven by strategic considerations that align with broader organizational goals that prioritize long-term growth and include:

• Cost Optimization: Lower labour costs in certain regions lead to significant cost reductions for back-office operations. Centralizing operations in a captive center enables economies of scale, further enhancing cost efficiency.
• Innovation and Agility: These centers tap into diverse talent pools with specialized skills, fostering innovation and agility. Organizations promote cross-functional collaboration and innovation by facilitating knowledge sharing between headquarters and the captive center.
• Enhanced Control: Businesses better protect their intellectual property and sensitive data by maintaining direct control over operations.

• Enhanced Customer Experience: By establishing Global Capability Centers (GCCs) in various time zones and regions, businesses can ensure round-the-clock coverage and support. This diversification of risk leads to a significantly improved customer experience.
• Greater Flexibility and Scalability: GCCs offer businesses the flexibility to adapt to market changes and scale operations as needed. This agility allows organizations to respond effectively to evolving demands and opportunities.

Key Considerations

From talent acquisition to risk management, the challenges and opportunities presented by captive centers are multifaceted. The key considerations that organizations must weigh before embarking on this journey of setting up a captive center in India, the Philippines, or other emerging economies include: 

Strategic Alignment

Prior to establishing a captive center, companies must clearly define strategic goals. By identifying the functions or services to be centralized, cost savings and efficiency gains can be properly anticipated. Other key considerations include listing the primary objectives for setting up the center, the potential for enhanced control over business processes, and how the center aligns with the company’s long-term vision.

Geographic Strategy

The location of a global organization can be a game-changer. It influences access to talent, innovation, and resilience. When selecting a location, factors such as cost, ecosystem maturity, and market conditions should be carefully evaluated.

Regulatory and Compliance Framework

Adherence to local regulations is crucial for the successful operation of a global center. A comprehensive plan outlining clear guidelines for compliance with labor laws, data protection regulations, and other legal requirements specific to the center’s location is critical. 

Talent and Leadership

In a world untethered by borders, companies can pursue global talent without restrictions. By outlining the team structure based on their business goals, businesses can determine if they prefer a top-heavy or bottom-heavy approach and create a talent pyramid detailing the various roles. Assessing the availability of talent and prioritizing scalability are important aspects of this exercise. Establishing a sustainable talent pipeline may also require institutional support, partnerships, and government initiatives.

Value Proposition and ROI

A recent NASSCOM survey predicts that by 2025, India will witness a surge in MNC-established Global Captive Centers (GCCs), with the number reaching at least 500. While cost arbitrage remains a key advantage, MNCs increasingly expect captive centers to contribute beyond cost savings. 

Enhancing automation, driving process innovation, and adopting new technologies are becoming essential performance metrics. In many cases, these centers are even expected to spearhead product innovation. This shift underscores the growing importance of GCCs in driving strategic value for parent organisations.

Case study:

ANSR’s deep knowledge of setting up capacity centers and finding top talent was leveraged for growth by a global payments company. Using our huge network of 1.5 million tech professionals, we carefully selected a workforce that aligned with its business requirements.  Our skills in finding top talent, setting up operations, and prioritising cost efficiency helped Visa create a world-class team of developers in India.

As companies constantly seek innovative ways to thrive in a competitive environment, captive centers, once viewed solely as cost-saving operations, are evolving into strategic hubs driving organizational success.

Setting up a captive center in India and elsewhere requires careful planning, a commitment to talent development, and a clear vision for how it will contribute to the organization’s future. 

At ANSR we can help you from blueprint to launch. To explore how a captive center can help your business thrive and achieve better service quality, agility, and cost efficiency, get in touch with our team of experts.