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As India Captives Struggle, Nearshore Providers Could Fill a Major Gap

NSAM STAFF REPORT

iStock 000002667965XSmall 300x2251 As India Captives Struggle, Nearshore Providers Could Fill a Major GapA new report indicates that the glory days of Captives in India may well be a thing of past, opening the door for more opportunities in the Nearshore region. India-based Captives are facing serious issues and it will be hard for them to readjust their business models in order to capture sufficient value to go forward, argues the report, gathered by global KPO firm Evaluserve (EVS).

Over 60% of Captives studied have faced major operational hurdles and many of them have already closed doors. Although many of the larger captives have still managed to stay afloat, most of the smaller captives have shut down. In fact, third party service providers have accelerated their footprint in the region, taking over struggling Captives in a variety of industries.

EVS studied 100 captives including KPOs, BPOs, and IT segments that have been in operation since January 2006. As the company was carrying on its study, UBS, a global financial services firm, sold its captive in India to Cognizant Technologies. EVS believes this is another indication that the honeymoon period for Captives might well be over in India.

Apart from the above mentioned examples, Citigroup sold its BPO arm, Citigroup Global Services, to Tata Consultancy Services and its technology captive, Citi Technology Services Ltd., to Wipro Technologies. If the trend continues, EVS expects about 34% captives to either remain stagnant or scale down in the coming years.

Smaller captives with fewer than 500 employees are likely to face the greatest challenges in the years ahead. They will have trouble with issues such as employee retention, sporadic support system, stagnation in size, and various hidden costs etc., claims the report.

Recession’s Impact

According to the report, the global recession in the past few years has also quickened the end of honeymoon period for Captives. Also, third party service providers are performing better than Captives with advantages such as the ability to expand into new areas with differentiated offerings. The EVS report quotes a recent report by the India Brand Equity Foundation (IBEF) and Ernst and Young, which state that IT and ITeS firms have been expanding aggressively in search of newer markets.

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It’s not as if the Captives have no future in India, claims the study. The point is that only those captives with a well-defined growth strategy and excellent management focus will survive in the coming years. In the future, EVS expects many companies to retain high-end core activities and move everything else to third-party service providers.

Nearshore third party providers should study this trend closely for a couple of reasons.

  • Employee retention continues to plague India Inc. and both third-parties and Captives are feeling the pain. As a result, Nearshore providers in stable economies have the ability to “sell” low employee churn rates as a major benefit in attracting clients unsure of whether to set up a Captive site or use a third-party.
  • Competency Centers. Industry specialization is an important area of growth for Nearshore providers if they wish to attract the interest of Captive players. Knowledge in areas of HRO, FAO, ITIL and Six Sigma are important benchmarks in vetting qualified third-parties to acquire  Captives.
  • Frustration with time zone differences is another issue that continues to arise in re-thinking the proposition of basing a Captive in India. Naturally, Nearshore players have this advantage, but how they use it to help them win and sustain business are the key questions.

About Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.
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