Partner and Director, CaptiveAide

After months of work sorting the legal and infrastructure areas of your captive entity in India, the least problematic ought to be that of hiring staff, right? After all, the industry has been around for a long time and there are experienced professionals available for hire as are 2.5 million young graduates who stream out of colleges annually, of which, over a million have engineering qualifications. hiring in India isn’t so simple.

Hiring of experienced staff as lateral movements has the attendant risks of fitment, culture and cost associated with it.

As for young blood (fresh from campus), not much is readily employable as is. Nasscom, the technology industry’s representative body, has found that unless trained after they graduate, about 75% of tech grads are not employable. The reality of staffing your captive center in India isn’t pretty – but careful and strategic planning will help in a big way.

Mixed Bag

The best path to take when you’re hiring for your captive center is the middle path. Obviously the post right at the top will not depend upon age or even knowledge of the technology in depth but someone who understands the nuances of working with global in-house centers and is comfortable in managing stakeholders within the parent organization.

Depending on the nature of work (processes) the traditional pyramid structure may work, where the base is made up of young staff – and the more experienced, older employees/managers making up the middle and the top.

 Train Gain

Hiring the right peope alone is not enough. From the outset, invest on training programs for every single person joining the captive. This will provide a good base for employees to understand the organization they are being hired for, its customers,overseas counterparts they will interact with and so on. While Skype is cheaper (even free!), I would rather have a few senior managers meet the new employees face to face. It’s a great way to forge work bonds and build trust.

Culture mash-up

There’s every likelihood of one side misunderstanding the other even in the work environment where you’d expect clinical efficiency. And that’s because office environments differ hugely depending upon the geography they are in. One thing that is a must do are culture workshops that need to be held on both sides of the ocean. Additionally, I’d suggest having a cultural mash-up between the captive and parent, wherein employees engage in discussions, exchange stories, fables, have meals together and so on. Being horrified before the work begins in real earnest is better than rude shocks once deadlines loom.

Go Local

Offshore captive centers have to make sure they deliver the goods to the parent, but the parent needs to be nurturing as well. Take stock of local holidays; if you still need employees to work on an important local holiday, think of rewarding employees in a way that they feel motivated enough to sacrifice that holiday.

Partner and Director, CaptiveAide

Let me be the first to acknowledge this: the support infrastructure in India isn’t always great. I will even admit that in smaller cities and towns, infrastructure may not be that good.

But before you turn away, know that the new government is committed to making India a great place to invest in. Indians have put huge faith in the current Prime Minister Narendra Modi, and his actions so far have justified their trust in him and his policies.

In a few months, we will witness business-friendly policies, huge investments in physical infrastructure, and dozens of smart-city projects getting off the ground. The government’s aim is to have 100 smart cities but that will obviously take some time. If you want to be located in one of those spanking new smart cities of the future, the time to be in India is now.

What will you do before you take up space in a future smart city?

Build your brand: Think big but begin small. This is the time for a first-timer to do their brand-building. You want the best brains in your tech space to work for you, right? Do they know about your company? Do they desire to work for it? Get the word out, set the buzz among the young, make them yearn to be part of the dream team that you are looking for. Use social media extensively, visit universities, set up scholarships or rewards for innovative designs and solutions. You will thus be building the base of a great infrastructure yourself!

Office space: Decide whether you want a ready-to-move-in, plug-and-play office within large business parks or (if smaller) a well appointed office in the city CBD– that will make it easier to move out into the smart city when it’s ready.

Roads, public transport and traffic: Yes, it’s a problem. For now, do what most IT companies do to get around this problem: have an employee car-pool or provide busesto pick up and drop employees from their residences and back. With internet speeds being super-fast in large metros, you could even offer flexi-time or “work from home” as an option, once you have adequate safety and security built into the system.

Hire those with fire: Employees who believe in the future of their work with your company are the right ones to hire. Do offer them stock options and a good career growth path and they’ll readily move into that smart city when it’s ready.

As for IT infrastructure itself – believe me, it’s already world-class.

Partner and Director, CaptiveAide

Like all things, your Global Inhouse center / offshore captivehas a Life Cycle. While this may not come as a surprise, let’s understand the broad nuances…

You have researched and debated the need and ROI for sending work to another center, going offshore, engaging a third-party vendor who has expertise in the field, or having your own entityto serve your needs. If you have decided on taking the captive route, this is for you.

Let’s get candid: going captive can be more hard work (depending on your entry strategy) than hiring a third party service provider (SP). That is because a service provider (SP) has an existing set-up that will be expanded or refitted to suit your needs. You could begin to put your entity together through the many entry methods – some are explained on the CaptiveAide site – let us assume that you mean to start with a clean slate and write on it what you want and how you want.

Set up: Jump-start your Set-up phase while your entity is being formed through incubation or warehousing, both of which are a quick and easy way to get going. This is possible today because expert consultants can get your project up and running.

Build: This phase includes Learning & Transition. As employees begin to troop in, you will go through the learning and transition phase. Training sessions, cultural exchanges, work-ethic sharing, process transitions/ project set up…all this sharing to generate alignment, a sense of belonging and ownership and set up the center for success.

Run: Production/ delivery in full swing: Process tasks, or projects are now being done at the captive center. Employees are restless to do more as they gain confidence and knowledge about their work and contribution in the overall scheme of things. Productivity may slide if the bar is not raised at this stage – I’d put this stage at about nine months to a yearafter start up.

Stabilize: This phase is all about Consolidation: The ship stays steady for about 24 to 36 months, if everything stays constant. This period could be shorter if different processes/ Lines of business are sent to the entity, decisions on technology changes or inorganic growth create an upheaval. Employees will look to handle a larger share of the pie, would want to contribute in a more meaningful manner and will definitely have toough questions about their careers and where they are going.

Transform: Like a gardener who needs to repot and replant at regular intervals, you will need to renew the mandate of the center; rehaul your operations model. systems, people, technologies and ideas if further growth is desired.

Chug-along: This is an alternative stage to transform, where things are expected to run along familiar lines. Beware of this though, for we believe this will lead, at some point, to a phase called Decline, and this isn’t what you would want. Talk to us and we will ensure it doesn’t happen.

Partner and Director, CaptiveAide

Believe it or not, technology outsourcing to India began with a captive center back in 1985. When Texas Instruments set up its development center in Bangalore, little did anyone know that it was the first step that would disrupt the way business would be done – forever!

Several countries have followed the model since, and several other models of business have emerged  – but Captive centers have remaineda reliable and stable form of outsourcing in India.

In the three decades since TI India’s debut, practically every industry with technology needs has had a brush with India. Some have established a base stronger than others, making it easier for others to follow.

By far the largest number of captives in India belong to the “chip design” or semiconductor industry. The TI captive center was indeed a trail blazer for others to follow. Every major semiconductor company in the world has a presence here and for new companies, that makes life very easy. Talent is easily available, employees have a long history of working with multinational firms; they are used to a certain work ethic, certain rigor of design requirement, and are comfortable in the well-established ecosystem that has sprung up.

Some other sectors in which the captive center culture is well-entrenched are the following:

• Analytics: A large number of mathematics graduates have flocked to the IT industry, making sure that the world’s analytics mysteries are easily solved.
• Biotech: India’s scientific institutions were until recently set up by the government, and they employed huge numbers of talented scientists. Science grads are populating labs by the hundreds, researching and finding biotech solutions in the area of vaccines, clean fuel and anything that can be prefixed with “bio”.
• R&D: India’s pharma sector is strong in churning out generic drugs, but new research in captive centers is playing catch-up, cutting down costs and time to market for new formulations of global pharma companies.
• Retail, finance solutions: These two unlikely candidates for captive centers are actually thriving in India. Large retail chains have saturated the market in developed countries and need to spread themselves in emerging markets. The same story holds true for the banking and finance sector. What better place for a captive than one of the largest emerging markets itself?

India is also suitable for companies doing or seeking animation, textile/jewelry design, automobile engineering/design, specialized electronic designs and many more. Write in if you want to know more!

Partner and Director, CaptiveAide

So you have set up your captive center and think all the hard work is done – all the compliance issues, infrastructure, hiring the people you want, vendors are on board, your transitions have begun. But, how do you keep your people?  The crucial factor for the center to do well your team and now is when the hard work begins.

Some ways you can get the best people to work for you are obvious –  pay them handsomely, promise them stock options so they have a long-term stake in the company, give them attractive work designations, ensure they get a decent amount of travel opportunities to other centers and so on.

There are other, less tangible ways in which bright people will want to work with you rather than for the competition.

Challenging Work

Physical proximity to headquarters should not be the criteria for sending across only back-end development work. Understand the team’s skills and engage them in doing challenging project work, give them a sense of being valuable, seek their opinion on issues. In short, forget that they are “offshore” and give them complex tasks.

Trust Them

Your offshore colleagues may not have education qualifications from your country, but the language of technology is universal! By giving them complex tasks and projects, you show them that they have your trust. Believe me, the best employees are those who want to surpass all your expectations and deliver far beyond the challenge you have laid before them.

Cutting Edge Projects

It would be a poor show all around if you hire well-qualified people and expect them to just follow instructions. Trust them to go all out and do a great job with cutting edge technology – and the best in the field will come looking to be part of your team. Experienced hires can jumpstart your captive quicker than you might imagine, bringing with them a work ethic and sense of responsibility that younger, fresh graduates can emulate.

Respect their time

This is a sensitive issue and there was a time when Indian (or any other offshore) employees were available on call at any time of the night for discussions, after working through the day. The best employees have earned their right to a good night’s sleep and undisturbed holiday breaks – and if you respect that, I guarantee you the attrition rate at your captive will be among the lowest in the industry. The best people will attract other good people and your virtuous cycle can continue undisturbed.

Partner and Director, CaptiveAide

When the economy hit a low a few years ago in the US, some analysts predicted the demise of the offshore captive centers. The reasons they furbished were: falling salaries in the US because companies were downsizing, availability of talent because companies were downsizing, increasing costs in India because salaries were rising, scarcity of talent because too many companies were hiring.

It’s been a few years since that prediction, and no, it didn’t come true.

On the contrary, the number of captives has gone up and so has the quality of work being done in India.Research firm Everest Group found (in mid 2014) that Global In-house Centres (another name for Captives) deliver 30 to 70% savings. While 70% may be a rare statistic, savings are a reality. And will remain so for at least the next decade.

Fast company

Having been around for over two decades now, the art of setting up an offshore captive center is well documented and the setting up can be done by experts in the shortest possible time. These experts have previously headed captives themselves or set up a series of them. What to do, and what not to do, is now in their DNA. They have a network of people they can tap at short notice, and an ecosystem that will deliver goods and services practically off-the-shelf. Hence, new captive centers will be set up far more quickly in the near future than ever before. I don’t have to tell you this: if you save time, you generally end up saving money.

Multi-location choice

In about five years, we will see the emergence of several smart cities in India and there’s no question that they will all be IT friendly and IT dependent. They will be young and vibrant, attracting talent from all across the country to work and live there. Those with captives already in India will find this a great opportunity to extend their scope and reach by either moving to a new location or setting up one more captive unit. Those looking to arrive for the first time will have far more choices of location than they do today.

Cloud, it’s clear

Companies are relying on cloud technology to store data, whether it is in the form of voice, video, audio, images, making it as dense as data centers once used to be. Since this virtual world can be managed, operated and accessed from anywhere, offshore captive centers in this sector will thrive.

Partner and Director, CaptiveAide

After two decades of robust offshore outsourcing, organizations have begun to pause and contemplate whether it really is an ‘all or nothing’ strategy.

Corporations use the services of offshore outsourcing firms because it reduces cost, accelerates the execution of tasks, gives companies a 24X7 presence otherwise not possible – or possible at great expense.

Offshore outsourcing lent itself successfully to processes that were mature, repeatable, standardized (or could be) and matured to levels where partners did more complex work beyond the cost arbitrage model. De-risking, at the time, meant having multiple partners to outsource the work to.

However, as offshore outsourcing models have matured, organizations find that knowledge and skills for those processes have died out in their organization, they have little control over people assigned to their account, they have little or no control over results(A 2012 survey by Deloitte indicated that better controls was one of the top 5 reasons for insourcing). They grapple with issues around IP, working methodology and sensitive processes, paucity of innovation, not exposing their own leaders to a global experience, de-risking from too much exposure to outsourcing.

And yet, the imperatives of offshore outsourcing – access to talent pools, geographical de-risking, follow-the-sun models, cost and intellectual arbitrage – continue to be emphatic lures

The simple answer to “having your cake and eating it too” would be for you to set up your own In-house global center (or Captive as more commonly known). Your entity would be prime for work that is sensitive, where knowledge and IP need to remain within the organization, where controls stay with you. Work that is strategic, work where the contract terms or reputational risk necessitate greater oversight are front runners for your entity to manage while leveraging all the benefits of offshoring

If setting creating a business plan to set up a global entity, ensure the right location, to scale, employ specialized talent, comply with local laws and regulations seem like a deal-breaker, we would be happy to help

This is just the beginning of the journey. More questions and more discussions will follow. If you have any questions, please do ask.

Director, Global Vendor Governance Services -Alsbridge

Offshoring remains a big-ticket spend item, with offshore outsourcing contracts typically consuming large chunks of an organization’s total vendor spend. And while cost reduction is usually cited as the primary reason for going down the path of offshoring, the actual savings achieved have oftentimes been well short of the targeted savings that originally made the business case.

As existing outsourcing contracts come up for reconsideration, the eroded cost savings model is being reviewed in a variety of ways, discussed below.

Why is Insourcing considered?

In existing outsourced relationships, especially where there have been service delivery or customer satisfaction issues, whether real or perceived, the option of bringing some or all of the work back in-house may look attractive, if the premium to do so is reasonably low. Insourcing is especially a preferred approach when existing relations with outsourcing providers have been consistently poor, or the ability to suitably govern the outsourcing relationships has been a constant challenge. Or, companies that have “over outsourced” certain activities over time may decide they would either like to de-risk or be better off retaining those highly customized functions that are unique to their operations and not easily commoditized.

Sometimes the answer is not blanket insourcing, but by “tower”, or type of service, where a company may continue to outsource those services for which providers can deliver greater efficiencies—usually through a shared support or center of excellence model that would be costly for companies to replicate individually.

In this model, the insourced activities are completely removed from the scope of the service provider. This usually requires the contracted scope of work and the associated terms and provisions to be renegotiated, with special care taken to ascertain that resulting hand-offs between newly insourced and remaining outsourced functions are well defined and no ‘grey’ areas of responsibility remain.

Despite the potential benefits, insourcing has its own set of planning and transition overheads and risks, so the decision must be weighed carefully. Its success relies on the cooperation of the previous provider for termination assistance and the company’s ability to attract and retain its own key resources.

Most insourcing strategies require moving the work back to the home country and re-establishing processes and operations therein. This is fraught with risks and costs. Quite often these processes are substantially different from when they were offshored in the first place.

Secondly, getting similar skill sets in large numbers in the home country can pose its own challenges.

Nevertheless, the reasons for insourcing can be compelling. Hence companies may wish to look at an alternative that could address the primary reasons to insource as well as reduce the transition risks associated with this move. And that is to go the Offshore Captive way.

Retain Offshoring benefits when Insourcing

The use of captive offshore centers was pioneered by a few household name multinational companies and has been occurring since the 1980s. While the primary objective is to reduce costs, this model has also offers companies the mechanism to retain and protect key processes, data and skills that give them a competitive edge. The model also enables companies to own the strategic direction of their operation, rather than depending on a third-party’s leadership, for example, to make future strategic investments.

There have are some examples of extremely successful captive centers, yet many other companies have found it challenging to compete with global outsourcing providers to hire labor for their captive shared service offshore centers and to provide matching efficiency and quality of service. As a result, the captive units sometimes fail to keep up with demand or provide a quality service to their parent business units that is comparable to that of outsourcing providers.

Companies such as CaptiveAide (www.captiveaide.com) have emerged to assist clients with establishing their own captive units through a combination of consulting and operational services They act as a seed team and provide a local management layer, as well as a seed operational team, until the unit takes off and is able to operate on its own. In addition, they identify transformational opportunities for more mature captive operations that can result in increased value for the parent organization.

Importantly, they de-risk the many risks associated with setting up, running and scaling a captive entity and help achieve insourcing goals at optimal costs.

While this model may not work effectively for very small-scale operations, it is well suited when anticipated increases in future demand provide the offshore unit room to grow. It is also an attractive model for multinationals that have plans to establish or grow their marketing presence in the offshore location and is a great way to absorb the business culture of that geography into their own operations.

Conclusion

If the benefits generated by your outsourcing are coming into question, insourcing should be evaluated, alongside other options to de-risk, repair and improve the outsourcing option. Each option presents its own set of potential benefits and risks and must be considered carefully based on an organization’s overall needs, scope of work and business culture.

Partner and Director, CaptiveAide

Those who do not know this would be surprised to hear that there are over 750 companies (Source NASSCOM) that have set up their own IT and/or shared services operations in India over the last decade or so employing in excess of 500,000 professionals.

The fact of the matter is that India is the largest destination for outsourcing of a variety of software, infrastructure and business process services. Business process services themselves have such a wide range of areas and functions and range from the very basic voice based services to more complex knowledge services.

Over the last several decades the Indian market place has evolved in almost every sphere relating to business. The collective and truly globalized experience of the intellectual talent over these years coupled with the significant liberalization of policies and frameworks related to doing business, creation of world class infrastructure along with a hugely successful telecommunications industry, have been key contributors to the establishment of these global in house centers (or captives as they are colloquially called).

Is it really for everyone though? There continue to remain so many scenarios and situations wherein traditional outsourcing is the best method to get one’s returns. Besides, having outsourced all these years the benefits that now accrue may not be easily reproduced by a new captive operation.

Yet there could be strategic reasons why a company could decide to go the captive route. It could be because a company seeks Innovation from its offshore teams, it could be for developing a global talent and leader pool, it could be because the work itself is very strategic and so on.

How does a company go about determining the right path for itself? What are some of the metrics and considerations that it must take into account in making such a decision? Just like a build vs buy decision that companies make so often it’s a captive vs outsource decision that needs to be made.

And even if a company decided that captive was the right way to go how do they ensure that they get it right the first time around, risk free?

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