Captive Center vs. Third-party Outsourcing
Both approaches will deliver benefits in terms of improved focus,
optimization of processes, reduction of operational costs, faster
time-to-market etc. But companies must thoroughly evaluate each option
to identify one that represents the best fit for their specific
requirements, business culture and strategic goals.
Selecting an appropriate delivery model is a crucial aspect of developing company's outsourcing strategy. Businesses are evaluating multiple options in order to gain maximum advantage, retain flexibility and mitigate risks. The most common approaches nowadays are either working with a third-party outsourcing provider or establishing captive operations in lower cost locations.
Both outsourcing and captive operations have similar driving forces (cost reductions and competitive pressures in the first place) and particular advantages, but main factors for choosing one or another vary.
The table below provides the comparison of main strategic and operational factors that usually facilitate organization’s decision in favor of third-party outsourcing or captive model.
- Guaranteed long-term specialized resource requirements
- Predictability of growth and retraction
- Decision to deliver any of core services using remote resources
- Desire to reap true cost benefits of having own operations in lower cost locations
- High levels of IP and business knowledge sensitivity
- Desire to have direct control over remote team
- Need to build and retain specific domain knowledge
- Existence of strong delivery processes in the parent organization
- Readiness for internationalization and localization of business management
- Preparedness for the capital investment
- Commitment to putting effort into managing team of the captive center and integrating it into the organization
- Desire to gain long-term efficiencies not only for software development but also for support, maintenance and other functions
- Regulatory constraints that prohibit outsourcing of processes
- Irregular but on-going projects or one-off projects
- Carefully and extensively defined requirements and deliverables
- Readiness to invest time in clarifying specifications and managing change requests
- Gain operational flexibility (quickly free up internal and ramp-up or ramp-down external resources)
- No or insignificant IP and business knowledge sensitivity
- No long-term commitment
- Access to specific technology or domain expertise and best practices that are not available in-house
- Desire to have external vendor manage non-core or non-critical activities
- Little to no specific infrastructure requirements
- Low learning curve is required for the activities to be performed by remote staff
The approach selected will depend on whether the primary driver is short-term cost savings or whether the company has long-term vision for nearshoring and wishes to retain control over processes and intellectual property.
Why Establish Captive Software Development Center in Ukraine