CEEMAN Case Collection
Strategic Challenges Facing Captive Centres
The teaching case illustrates the development of captive centres since the early 1990s. The evidence presented in the case provides an excellent opportunity to examine the rationale behind the allocation of some back office activities to offshore locations. Furthermore, the first part of the case provides information about the changes in scope and specialities that have been offshored through captive centres. The second part of the case, on the other hand, provides an account of the challenges faced by two captive centres that illustrate the strategic change that took place since the early 21st century, along with the opportunities presented to the parent firm to exploit and further develop their offshore assets.
Firms such as General Electric, Texas Instruments and Motorola that established captive centres in India in the mid-1990s had formerly kept most of their offshored tasks in-house. Since then, however, the Indian IT service sector has grown and developed abilities to carry out both simple and complex IT maintenance and development, often more cheaply than their western competitors. This development has made western multinationals consider how to better utilize their offshore assets. For example, in 2006 SAP Hosting Services in Bangalore outsourced several hosting services to Tata Consultancy Services (TCS), also based in Bangalore. Other companies, such as Standard Chartered and Hewlett Packard (HP), have followed a different approach in which their captive centres have provided services to both parent company and external service providers. British Airways, on the other hand, sold a majority stake of its captive centre to the private equity firm Warburg Pincus in 2002. Apple Inc went even further and closed down its development centre in India in 2006. Clearly, such changes suggest that the basic concept of the captive centre is being transformed.
The key objective of this teaching case is to encourage managers and executives to think about their offshore assets in a strategic way. While the early adapters of offshore strategies perceived the offshoring of back office operations as a move driven by cost efficiencies, evidence from recent years has shown that in fact growth strategies and access to unique skills are becoming some of the dominating factors in the setting up of captive centres. Therefore, each challenge identified in the teaching case should be examined from the perspectives of both cost reduction and growth strategies.
Author:
Ilan Oshri
Institution:
Rotterdam School of Management
Industry:
Software, Information Technology Services
Discipline:
Knowledge, Information and Communication Systems Management, Strategy and General Management
Number of pages:
13
Language:
English
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