Late to the Game of Offshoring? Take a Look at "Virtual Captive" Operations

In many industries, if you aren't taking advantage of offshore resources for certain business operations, you're already behind your competitors. I'm not talking about manufacturing operations that go offshore to produce goods. Rather, I'm talking about business services - the processes that allow your company to acquire, process, interpret, and report information.

The rapid pace of adopting offshore delivery models for services ranging from research and engineering to financial operations to human resources and information technology services is well documented. To date, companies that succeeded in using offshore talent either outsourced to a third-party service provider or relied on "captive" centers. But there's a third way, so-called virtual captive centers, that could prove the path to the future. I'll discuss those in a moment.

Captive centers are dedicated to the needs of a particular client. They may be owned and operated entirely by client employees, or they may leverage the local marketplace for contracted staff, but the economic leverage is the labor rate for the staff dedicated to the operations of a single client.

Outsourcing promises leverage across more than just labor costs. The outsourcing business model accrues benefits to the client through leverage of facilities, capital, management talent, research, and a host of other tangible assets.

I should acknowledge that a hybrid of the two has existed in many of the emerging destinations, and fueled much of its growth: That's labor-arbitrage contracting in which the people performing the work are provided by a third party, but the design and execution of the work itself is largely a responsibility retained by the client. This may not be evident on the surface, but check into the remedies and responsibilities for problems and you'll see who is accountable.

We've recently seen an interest in virtual captive solutions. To explain by example: A short time ago we helped a large U.S. bank establish a very ambitious operation in India that operates much like a joint venture but benefits from a partnership with an established outsourcing service provider. Management responsibility is shared, while the resourcing models largely leverage the established presence of the service provider.

For companies that are late to the game of offshoring, going the route of a virtual captive provides the potential to achieving scale and results much faster.