‘Virtual Captive’ is a very new model of outsourcing and globalization that brings the best of every existing model in outsourcing. This model is still nascent and yet to be understood by those who only know and practice the only two ways of globalization and outsourcing: Traditional outsourcing and company-owned captives.  

After understanding the fast-changing business ecosystem, the key factors that have emerged in favor of ‘Virtual Captive’ models have been the rapid growth of startup ecosystem globally that has given rise to small and mid-sized technology-driven companies that see no geographical boundaries for their business expansion.  

ScrumStart team surveyed several CXOs from outsourcing companies and IT executives from the captive and outsourcing companies by asking them some questions. It comes out very clearly that the most compelling factor for outsourcing and offshoring in the form of captive companies has been cost and continues to be that. All other factors happen only with cost advantage taken care. This fact was demonstrated in detail on our white paper.

The whitepaper discussed in detail as to why traditional outsourcing and company-owned captives are not the best solutions for small and medium-sized global companies. While a lot of small and mid-sized companies have opened captives and have traditional outsourcing, most of them surveyed in this new paper have obvious issues that clearly indicates the suboptimal level of outcomes in the existing two models for such companies.   

Virtual captives give the benefit of Captives and the traditional outsourcing providers while eliminating the disadvantages of both. More focused at startups, small and mid-sized companies who are unaddressed as compared to the large companies. Such virtual captives are showing a great promise of giving far lower cost as compared to any other model so far and is likely to be a disruptor to the traditional IT outsourcing model.

The fundamental difference in thinking between small and large companies on outsourcing

With startups and the new wave of young, risk-taking entrepreneurs, the business fundamentals are now being tested to absolutely new levels. The way large and even some mid-sized companies think of outsourcing is coming out to be very different from what the smaller and to a great extend mid-sized companies think.

One thing that stood out clearly is that fact that small companies and startups look at “End outcomes” as something that they seem to be interested in outsourcing. While most of them openly admit that getting this commitment from a vendor is very difficult due to several factors, they would like outsourcing to happen with clear outcome commitments. The reason also seems easier to understand. IT has been primarily due to less headcount; focus on their core and lack of expertise in areas that they do not focus.

The most interesting part of the outcome was the way large companies outsource and how small companies think diagonally opposite. Large companies outsourcing to either their own captive or to a traditional outsourcing company is primarily based on functions. It would be IT function, Finance, HR or similar functions that need people and the outsourcing is primarily to replace the high-cost labor with low-cost ones. The value adds part the large companies fail to acknowledge or take benefit from due to this fixed thinking.

On the contrary, small companies like to get the job done end to end. For them, it is not financed function, but ensuring that everything they need to be done in that area is done without them bothering about the issues and outcomes. They do not want to hire staff that is not cored to them unless it becomes essential. Small companies are unable to retain and give growth to their noncore team members and they acknowledge this fact openly.  Small and mid-sized companies like to explore new solutions that can add value to their business with more openness than large companies. A partner who can take care of their logistics as a solution is more preferred than to have their own logistics department. While large companies seem to be less open to such transfer of ownership.