Indian Captive BPO Market to Sustain Growth as Mature Players Seek Roles beyond Delivery

Research study from Everest Group provides deep-dive into Indian captive landscape and insights on their evolving value proposition

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Dallas — October 8, 2010 — The market for "captive" Indian outsourcing services provider continues to grow, with mature buyers articulating their commitment to the model, one of several research findings that underscores the vibrancy of the Indian captive landscape and its evolving role in global sourcing portfolios, according to a new research study by Everest Group, a consulting and research firm for global services.

The Everest Group study, "India Captive Market Landscape: Challenging Common Myths and Charting Future Role," provides an in-depth analysis of the captive landscape in India based on Everest's proprietary captive database, challenges common myths and provides insights into the captives' evolving role and value proposition.

The Indian offshore services market is estimated by Everest Group at $44-46 billion, with captives accounting for about one-fourth of the market at $11 billion. As also reported in Everest Group's Market Vista quarterly reports, the captive market has witnessed four consecutive quarters of robust growth that began in Q4 2009, indicating that captives remain an important component of sourcing portfolios of companies.

"Due to the recent economic crisis and maturing supplier landscape, there is a strong perception the captive model is under threat," said Eric Simonson, managing partner of Research. "But, on the contrary, we expect the Indian captive market to sustain its current growth momentum."

Simonson said that the study's finding indicate mature users are strongly committed to the model and continue to leverage captives as an important component of their sourcing portfolios. "Additionally, our discussions with global sourcing leaders of large companies reveal imperatives underway to expand the role of captives and their value proposition," he added.

According to Amneet Singh, vice president of global sourcing at Everest, captives are often thought to be significantly more expensive than third-party suppliers, have difficulties retaining talent and are increasingly being divested. But he asserted that these "common myths" are often not true.

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"While overall operating costs for third-party service providers tends to be 5-15 percent lower than captives, best-in-class captives have achieved similar cost structures as third-party service providers," said Singh. "In addition, parents of captives consider their India centers as an integral component of their global operations, contributing significantly towards the global talent pool, thereby providing attractive career options for captive employees."

While select divestments occurred over the last two years, these need to be viewed against the backdrop of the economic crisis and global sourcing optimization measures undertaken by these companies, Singh said. "On an overall basis, the set-up and expansion of captive centers has far outpaced divestments," he added.

Salil Dani, senior research analyst with the consultancy, added that captives are increasingly feeling the need to evaluate the type of value and impact they can drive to meet their parent organizations' business objectives. "Mature captives are playing broader roles beyond delivery as enterprise knowledge centers on sourcing, managers of third-party service providers and drivers of product innovation by leveraging knowledge of domestic and emerging markets."

Most large organizations are leveraging both captive and third-party sourcing models to maximize value from their outsourcing programs, said Dani. "It is overly simplistic to view the sourcing model decision as being entirely captive or third-party."

Key findings on the Indian captive market landscape indicated in the report include:

  • Although the Banking, Financial Services and Insurance (BFSI) vertical continues to lead the Indian captive market in terms of employee headcount, the last few years have witnessed increased adoption in verticals such as Manufacturing, Distribution and Retail (MDR) and Telecom.
  • The majority of Indian captives serve companies based in the United States. At the same time, over the last two years adoption is increasing among companies in the United Kingdom and mainland Europe.
  • Captive centers in India support a broad spectrum of services, with recent set-ups indicating preference for sourcing high-value services including engineering services/R&D and knowledge processes from captives.
  • New captive setups prefer established tier-one cities in India, with Bangalore emerging as the leading destination. Unlike third-party service providers that have started expanding their offshore operations to tier-two or -three cities in India, the instances of buyers expanding their captive footprint to these locations are limited.

More information about the report is available here.