Outsourcing - Captive Centers and Third Party Outsourcing

Captive model, now known as Global-in-house Center, had attracted much of controversy in the outsourcing sphere.  There were rumors during the recession period that the captive model was dead, and many expressed doubt about the continuance of the model in the light of the thriving business by third-party service provider model.  At the same time, there were Analysts who supported the view that Captive centers were growing and maturing to form a different and more important component of organizations’ global sourcing model.  

Currently, there is an estimated 750+ global captives accounting for US $ 10.6 billion in revenues and employing 400,000 professionals.  The revenue contribution is estimated to be over 20 per cent of outsourcing industry export revenues and employment as of now.  Such captives operate across all service lines - BPO, Engineering and software product development.  There are more than 100 BPO captives in India accounting for 20-25 per cent of exports and 12-15 per cent of employees.

Recently, National Association of Software and Services Companies, (NASSCOM) convened the first ever summit representing only the captive companies in India in March 2011. NASSCOM observed that the captive sector in India is maturing and is being characterized by increased depth of services.  In the meeting NASSCOM acknowledged that the Global captives have experienced the fastest growth in India and have played a stellar role in shaping the emergence of global outsourcing as a phenomenon, establishing best practices, proof of concept and delivery methodologies.  Captives have led to the development of India as a global hub for ER&D services.


There are reports which mention that many Global-in-house Centres were established with lesser planning in a hurry without getting full commitment from the parent organization. Many such captives struggled, and ultimately their operations were either outsourced or brought back in-house and such Captives created such flutter in the market.

According to a few Analysts, the sell out in the captive segment happened not out of failure but due to the attraction of selling such Captive to third party providers. The report says that the third-party service providers — e.g., Genpact, WNS and EXL — wanted to buy Captives to secure an accelerated growth and to increase their customers in different geographies.  This will be true in the light of thriving business by such third party providers in the recent past and obviously such companies accumulated enough fund to buy out such Captive centers.

It is difficult to rate one model as a “winner” in the “battle” of captives versus third-party outsourcing; the reality is that both models may co-exist.  But, most of the sell outs happened in pure play BPO than the technology sector.

As far as the parent organizations have a definite plan on its Captives it continues to exist.  The plan from parent organization comes out when there is a return for its investment.

Outsourcing Partner International - You will be automatically redirected to EXL Service website in the next five seconds

One more outsourcing website has been re-directed now.  EXL Service which was founded in India in 1999, and now listed with NYSE has taken over another giant in outsourcing – Outsourcing Partner International (OPI).  OPI was founded in 2002 through the merger of a big four accounting firm's business process outsourcing (BPO) division.

There are some commonalities between the two companies.  Both are pure-play BPO providers with FAO and analytics capabilities, and serving financial services clients.  Everest Global, an outsourcing analyst firm has given a warning note to other players  saying that now Capgemini, HP, Infosys BPO, TCS, Wipro, and WNS – need to sit up and take note of this acquisition.  There is now a new kid on the block with the scale and capability to give them a run for their money.

Is it going to be true?

Will this acquisition tempt buyers more towards the combined entity? 

As far buyers are concerned their ultimate goal is to get value for money.  In pure-play BPO, the selection of a Buyer is no way better than your selection of a restaurant for your lunch.  As far as your get value for the money with good ambience combined with good taste, you continue to go to the same restaurant.  Sometimes you look for variety and look for nearby restaurants also.  Unlike in software outsourcing where the buyer ultimately gets tied up with technology and its complications, pure-play BPO is more of temp jobs.  This is the true vagary of this segment.  In pure-play BPO, buyer is not concerned about the volume of your business but looks for the value of the money spent.

It almost looks like that the investors of OPI has abandoned the outsourcing trend initiated and now look for better value of their investment elsewhere.  There is a remote possibility that the increased scale will tempt buyers to go for a provider in pure paly BPO segment.  If the combined entity could have increased its portfolio of services definitely it would have increased the market value.  All looks like a Gay marriage.