Captive or Conventional Outsourcing – Which Model will be Beneficial for your Organization?


Companies looking to outsource their Information Technology requirements have had two options to choose from, either they work with a third-party service provider or they set up a captive center. Captive centers have been witnessing renewed interest from companies, but the model has some pros and cons, which we will be examining here.

1. Data Protection and Intellectual Property
The parent company in the captive center model is able to maintain end-to-end control of complex processes which an outsourcer may not be able to provide. This decreases the chances of compromising proprietary information, process and technology.

2. Alignment to Parent Organization
In the Captive Center Model, there is greater integration and strategic support with the parent company which enables better alignment with the company’s culture and philosophy.

3. Ownership Control
In the captive center model, the head office has complete operational control and it is able to select the people it wants and define the workflow and processes.

4. Demand Fluctuation
In the Captive Center Model, handling demand fluctuations could prove to be tricky and at times costly. Adding or reducing the number of people suddenly would entail costs, which is not the case in the outsourced development model.

5. Steep Learning Curve
Talent acquisition problems, like sourcing for appropriate candidates and filling leadership roles can be especially difficult for the Captive Centers, as they are not attuned to local market conditions and could end up paying higher salaries.

6. Time Setting Up
In the captive center model, the Initial fixed costs are high, as the company has to invest in infrastructure, hiring of personnel and comply with local regulations. In the case of an outsourced software development process, once the contract is signed work will start.

The risks in setting up your own Global In-House centers can be overcome by partnering with the right partner. The ‘Virtual Captive Model’ offered by ScrumStart, avoids the potential model pitfalls of the two models. The ‘Virtual Captive Model’ combines the advantage of having your own captive and conventional outsourcing.

To know more visit: Virtual Captive Solution

Captive Conventional Outsourcing
Data Protection and Intellectual Property
Alignment to Parent Organization
Ownership Control
Demand Fluctuation
Steep Learning Curve
Time Setting Up