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Offshoring Operations: Should you build a captive team or Outsource to a local partner?

The term outsourcing takes on a new dimension when it comes to ‘off-shore’ outsourcing as opposed to near-shore or on-shore. One key question that needs to be asked right at the beginning of this exercise is “Should we do it ourselves by setting up a Captive Off-Shore Center or ‘outsource’ it to a third party?
Like in all business scenarios, there is no one right answer, and is much easier for larger corporations (upwards to 200 member teams off-shore) to make than Small and Medium Enterprises.

Based upon the experience of observing a large number of captives succeed as well as fail, one can come up with the following key factors to be deliberated upon before going captive.

Administrative Overheads

Smaller the team, less compelling is the business case for ‘Captive’. This is because of the ‘organizational’ overheads in terms of support infrastructure and teams – Administration, HR, Finance & Accounts, Process & SQA – that need to be in place for any independent facility, no matter what the size is. And if technical leaders are given the above responsibilities, it is unfair both to the people as well as the function.
Right Leadership for Offshore Center
Finding ‘good leaders’, especially in a foreign culture, is a huge challenge. And a good leadership is the cornerstone of any successful organizational endeavor. It is very expensive to have a bad leader, especially during the formative years of an organization, and one normally figures out only after 6 to 12 months that a bad choice has been made. This elapsed time can be hugely expensive.
Information Security Management
Business Domain / Intellectual Property concerns are one of the primary considerations. This dimension can be addressed in both the captive as well as an outsourced model through the means of putting in a proper people structure in place. Some of the steps that can be taken to mitigate this risk are : Hire the right kind of people in the off-shore location; Move some experts from your current team to the off-shore location for a few months for knowledge transfer; Put a structure where the domain knowledge comes from the team close to the market and technology expertise is brought in by the remote team; Dealing with a company (in case of outsourcing model) that has a credible track record of respecting IP issues and having good Information Security practices would be advisable. In the case of going in for a Captive facility, a team with a clear appreciation of these aspects is very critical.
Communication
Frequent Communication between the parent and the off-shore entity is an absolute necessity. It is better to err on the side of over-communication than inadequate communication. Towards this, a conscious investment of frequent travel of key resources on the two sides of the fence, video conferencing etc become a necessity. Is this better done in a Captive situation or a Third Party situation? A question to be posed!
Accountability
Lastly, ‘accountability’ is far easier to enforce in a third party contract as opposed to having a captive facility.
Keeping all the above points in perspective will enable the right decision to emerge. Both the options could go wrong if executed badly. Finally, it not just about the idea – it is about the execution!!!

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