Sheltered Services Offers ‘Goldilocks’ Option

Sheltered services is an approach that has long been standard practice in the manufacturing industry, but now it’s becoming more of an option for customers of IT and BPO services too. Because of time zone alignment, the sheltered model can be particularly effective for customers of Nearshore providers – especially for North American customers of providers based in Mexico.

Sheltered services can remove much of the painstaking due diligence and commitment involved in setting up a captive center. Likewise, since the execution of core services and value creation rests with the buyer, substantial cost savings can be achieved. Those advantages make the sheltered option worth considering by small and medium-size enterprises (SMEs).

Offshoring often involves the multimillion-dollar question – whether it is better to outsource or to go it alone. Working with an outsourcing vendor can be less of a hassle, particularly in hard-to-maneuver and unfamiliar markets, but concerns over data security and operational excellence continue to push some enterprises to open their own captive centers. The sheltered services model is a third option: neither completely outsourced, nor completely captive.

This is the sheltered model in a nutshell: The buyer works with a partner on the ground that sorts out all or most of the things needed to get the operation up and running. This includes finding the right facility, getting the ICT connections, and most important, recruiting the right talent. From there, the buyer takes over and manages the team directly as it would any other department onsite, focusing on its core business. The difference between this arrangement and a captive operation is flexibility. As the needs of the buying organization change over time, the sheltered services provider works to adjust certain aspects of the operation, including the size of the office space, the number of staffers and their capabilities, and other needs.

Attractive for Smaller Businesses

The sheltered model is quite novel in the space of professional services. Nearshore operator Vangtel adopted the sheltered approach after seeing it in action in the manufacturing space. Opening its doors in 2006, Vangtel focuses on contact centers, IT and BPO services, and now coordinates close to 1,000 employees out of its facilities in Hermosillo, Puebla, and most recently Guadalajara.

“Our success has come thanks in part to the growth in the number of small to mid-sized companies getting turned on to the idea of offshoring,” says Arturo Rodriguez of Vangtel. The reason the sheltered model is so compatible with the SME market tier is ultimately cost and flexibility. Setting up a captive center is not cheap, and requires the kind of critical mass and commitment that most mid-size companies do not have. Likewise, going with one of the full-service outsourcing providers is also more expensive, because you’re paying for technical and operational expertise.

Working with a sheltered service provider (SSP) takes these two things out of the equation. It drastically reduces initial start-up costs, and it eliminates the brand-name premium that the larger multinational organizations typically pay for working with the bigger full-service providers.

The sheltered model can also be ideal for organizations that need scalability across different functions. Augmenting your team with five to ten junior .NET or Java developers at a cost savings of upwards of 50 percent is a strong value proposition. That same company can leverage the SSP to build out a customer contact operation capable of handling level-1 customer and tech support. A prime target for sheltered services might be a web development firm based out of the US that has about 200 clients.

Nearshore Suited for Sheltered Services

Because the sheltered route requires direct management of your offshore team (providers like Softtek and TCS do most of this work for you), being able to communicate and work in real-time is that much more important, particularly for certain functions. Customers that buy into the sheltered model do find themselves traveling to their offshore facilities more often, but with the rapid spread of videoconferencing technology the need to travel has been minimized. “Many of our clients hold daily videoconferences with their teams in Mexico,” says Rodriguez. That’s similar to what you would expect with agile software and web application development. That level of interaction would clearly fall short with a 12-hour time difference. Likewise, when travel is needed, catching a one-hour flight from Phoenix to Hermosillo beats an over-night flight to Bangalore.

Where the sheltered model might fall short is in its ability to deliver longer-run value through innovation, which might otherwise be harvested via continuity and critical mass. Since the different company teams in a sheltered facility work independently of each other, you don’t get a culture of optimization that you would see with a full-service provider, working across different customer needs. At least in theory, full-service providers keep all of their best practices in-house working from customer to customer, learning and applying new approaches as they move forward.

Similar to captive arrangements, the sheltered model tends to be a top-down process when it comes to process improvement. This might make it more suitable for organizations looking to supplement their teams with added savings from an offshore team, but not for larger enterprises looking for a long-term global delivery partner. However, innovation and value creation is not always what the buying organization expects. Sometimes the offshore journey is all about cost savings.