Captive IT centers - Real Life Analysis

Implications: Companies are going for Captive IT centers in India to leverage the cost advantage and implement the corporate control. The Cost Advantage is around 1:3.5 and the control is 100%. There are lot of success measures for the same and also in reality issues as well.  The captive center carries the brand of the corporate and so overtime all the corporate structure and benefits need to extend to them. Though the cost of production is almost the same as the outsourcing scenario, the captive center becomes an asset as well a liability for the corporate. Verticalized captive Center is the recent trend. It offers domain expertise as well as technology competency to an employee. Companies also become better equipped to handle IT consulting vendor in terms of price negotiation.

Analysis: More and More companies in North America and UK are going for creating their own captive centers - an Insourcing Model. It separates out their core competency and non-core competency yet ensuring full corporate control. In case of a Captive Center Cost per hour of productivity in India varies between $18 to $30 depending the utilization factor. Out of $18, $10 is the cost of infrastructure which becomes an asset for the company and the company can get the benefit of depreciation.

In reality when a corporate creates a low cost captive center, it does not realize that it is diluting their brand among employees / workers by creating different sets of benefit structure and standard among low cost and high cost centers. It creates a level difference between the executives at the  two centers; on average there is a level / salary grade difference of 2 levels between a low cost and a high cost center. A VP in India Captive Center is on an average at the grade of a Senior Group Manager or a Director at the high cost center / head office.

Captive Center replicates the politics of the parent company.

The average quality of man power hired by a captive IT subsidiary of a Multinational Company is of lower competency (in case of most NON IT Captive companies, such as Retail IT, Pharma IT) compared to the IT services / consulting organizations and Software Product R&D companies.

Verticalized Captive IT centers is the latest trend in this category. Retail companies such as Target, TESCO, SuperValu have created centers in India. Target established the India Center in 2005. Target included the BPO operations in later 2006.

For a prospective employee, the captive center offers something unique to them. It offers the domain knowledge (otherwise impossible to acquire) along with the regular technical competency.

Captive IT centers also provide the knowledge of actual cost of production to the companies whereby they become better equipped to do price negotiate with IT solutions providing vendors.