Marketing strategies for Indian IT service companies against captive centers

Abstract

Captive Centers in India as on year ending 2007 have a market share of 25% in the IT Services industry and 60% in the BPO industry. One-Third of the Fortune 1000 companies have setup or tried to setup captive centers in India. Another one-third of Fortune 1000 companies are in the discussion of setting up captive centers or have already decided to setup captive centers. Our study has shown that Indian IT Service Companies have already lost 12% to 15% of revenues to captive centers. This has not reflected on their balance sheet due to the buoyant growth of the IT Services sector between 2000 and 2007. Analysts also contend that Indian IT Service Companies would have incurred an opportunity cost of close to 20% because of the advent of captive centers. This loss is prevalent even though only 40% of the captive center initiatives have succeeded between 2000 and 2007.Our study has envisaged that Indian IT Services Companies can view this context as a threat and as an opportunity. We have come up with strategy frameworks and models for both the view point. For the threat perspective, Indian IT Service Companies will showcase the value of offshoring to third party vendors as against to captive centers. We have done a value analysis for a specific case and this can be replicated by Indian IT Service Companies to leverage the benefits and illustrate the value to non-Indian parent organizations. Our interviews with many managers in IT Service Companies and captive centers have proved that a threat/confronting strategy will not help both the parties. For the opportunity perspective, Indian IT Service Companies can view captive center setting as a business opportunity. We have analyzed the attractiveness of this new industry vertical and will come out with the marketing strategy for the same. We have developed the five-step implementation strategy framework for driving the captive center setting initiative. This framework makes use of the engagement model mapping and value analysis for selected models to arrive at the optimum captive center that can be initiated for a non-Indian parent organization. In conclusion, Indian IT Service Companies can look at captive centers as both a threat and opportunity and must leverage their strengths to reap the maximum benefit out of this new industry phenomenon in the IT Services industry.