MNC captive centres fail to click

More than 60 per cent of the captive centres in India are struggling with their operations. By 2009, companies will increase their dependence on third-party markets for services, especially product development, says a newly-released Forrester report that analyses captive centre strategies.

The Forrester report titled 'Shattering the Offshore Captive Centre Myth' states the reality of captive centres differs from perception.

Sudin Apte, senior analyst & country head (India), Forrester Research said, "During the past two years, more than 300 North American and European companies started their own offshore set-up to lower the costs of product development or back-office operations. But we clearly see over 60 per cent of them struggling due to spiralling costs, skyrocketing attrition and the lack of integration and management support."

The report advises that firms having captive centres should coldly assess the turnaround strategies that suit them the best. To this end, Forrester recommends some options. Firstly, 5-10 per cent of the captives should shut their captive operations and offshore work simultaneously. The second option is to embrace a hybrid approach, whereby third parties augment and take over the work that becomes less strategic over time in conjunction with the captive set-up. The third option that has emerged over the past 18 months is the termite strategy, which 40-50 per cent of the captives will adopt, according to the analyst firm. In this scenario, the provider hollows out the centre, hiring and augmenting the existing staff with its own employees. For larger companies, all that remains with the employees is the project management office (PMO) or India oversight office, which offers a unique combination of close monitoring and low-cost execution.

According to the research firm, 10 per cent of the captives would sell out and go for outsourcing. For instance, British Airways, GE and Phoenix Life sold their business process outsourcing (BPO) centres. Ericsson and AFS (an Air France subsidiary) sold their product development and BPO facilities to TCS and are now clients.

The report also asserts that captive problems would not be unique to India. "Firms thinking that they can short-circuit the problems in India by using other countries such as China or less obvious locations such as Malaysia will be disappointed. Our latest research on China shows similar attrition and wage inflation pressures.

And the cultural idiosyncrasies of locations such as Malaysia and Brazil tend to make the staff much less amenable to travel and shifting work hours to better align with the parent country's time zones," concludes the report.