Rethinking the India Back Office in the Wall Street Journal (11 Feb 2008) explains that company owned and operated offshore centers (”captives”)are often more expensive than companies expect. Consequently, “Some of the largest outsourcing units are still those belonging to Western companies, including Wall Street’s biggest banks… could soon be looking to get out of part or all of the business by selling either to Indian companies that specialize in outsourcing services, to private-equity firms or through initial public offerings.”
Dollar depreciation and Indian wage inflation have taken a toll but India still offers a significant cost savings. The bigger problem is that operating a captive is expensive and hard. A recent McKinsey / Nasscom study found that captives are “less efficient than companies run by outsourcing firms that specialize in the business. ” The article continues to observe that “Once the initial benefit was felt, companies found it hard to keep on top of their costs. Salaries and the cost of office space jumped. Staff turnover has been high, and companies are having to spend on headhunting fees and training.”
What the article reports is consistent with Integreon’s experience.
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