Analysis of maturity states for captive offshore development centres in the IT and automobile industry

Abstract

Over the years, global sourcing has become a mainstream activity for multi-national corporations that are experiencing serious cost pressures as well as critical talent challenges in their respective countries of operations. In addition to being a sourcing strategy for cheap resource, the outsourcers also view countries like India and China as markets for their products. The Indian IT-BPO revenues is expected to be 72BUSD in FY 2009 with the IT software and services revenue expected to be around 60BUSD (Source: Nasscom 2009Strategic Review). Saving money is the primary motivation for companies seeking offshore outsourcing vendor relationships. Not satisfied with potential savings of 20% to 40%, some companies sought greater savings by opening their own offshore development and maintenance centers. This practice was prevalent in the high-tech sector, where companies may already have offshore R and D centers. Over the last 10 years, outsourcing organizations have come to view setting up their own captives in low cost locations like India, China and few other locations in Asia as a strategic imperative to address their business challenges. What commenced as a need for product development talent by organizations like Texas Instruments and Motorola in late eighties has become a key sourcing option in the services industries like financial services, healthcare, transportation etc. (Figure 1 above). The captives have been setup by these verticals as either pure play captive or as a joint venture with an outsourcer or a in a BOT mode.