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Captive Offshore Centers Remain Cost Competitive With Outsourcing

The cost competitiveness of captive offshore centers may be fading but amid the speculations, a recent report showed that global in-house centers still save companies money over keeping the work local. Wage inflation in India of as much as 20 percent for certain roles and functions, for example, has created questions around the sustainability of the cost arbitrage associated with a captive center.

The research report by outsourcing consultancy Everest Group founded out that global in-house centers today deliver 30 to 70 percent savings when taking into account total cost of ownership including salaries, real estate, technology and telecom expenses as well as amortized costs associated with the setup, transition, and ongoing governance of the center. Wage inflation in India of as much as 20 percent for certain roles and functions, for example, has created questions around the sustainability of the cost arbitrage associated with a captive center.

Salil Dani, practice director in Everest Group's global sourcing team says, “Many delivery locations have seen significant shifts in currency valuations and inflation leading to the perception that operating a company-owned IT or business process center offshore is less financially beneficial in the past.”

Total cost of savings for captive centers varies by location and function. Typical captive center cost savings are 65 to 80 percent in India, 60 to 70 percent in the Philippines, 45 to 55 percent in China, and 35 to 45 percent in Poland, according to the research conducted in conjunction with India's IT service trade group NASSCOM.

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