Captive Vs. Third-Party Outsourcing – Which One Is Better For Your Business?

Captive Vs. Third-Party Outsourcing – Which One Is Better For Your Business?

Business expansion is directly proportional to the competition amongst companies in the market. 

Today, the product or services are expected to be of excellent quality and expected to be cost-competitive. Since cost competitiveness is one of the critical elements that take the company towards progress and be the reason for its failure, it is crucial to work out the best way to manage its costs and expenses. 

Setting up a Captive Center or outsourcing to a Third-Party BPO, i.e., business process outsourcing or a call center, is one of the most typical mediums to run a business. But the real question is – which one is better?

The rapidly growing nature of the market tends towards a high-cost competition. Thus, companies are choosing third party outsourcing as it is cost reductive and is apt for the business. In contrast, many companies keep security and authorization under their control and decide to create their captive model. Different companies have different choices prioritizing their businesses’ needs and gains.

In this blog, we give you our verdict about which is more convenient and beneficial. To understand it better, let’s delve deeper into the workings of both the models separately.

Captive Model

The captive model comes into play when the companies decide to set-up their operations and handle the entire work itself. The functions are remotely managed, as they are not outsourced to another vendor. They conduct their subsidiary, preferably in low-cost locations. In this model, companies can choose to take charge under their authority rather than any other delegated service provider. They inspect the integrated and complete working process, like manufacturing the product and its delivery or entire customer life-cycle in case of services, etc.

However, Captive Shared Services have a drawback considering that it’s expensive compared to third-party outsourcing. Understandably, significant capital investment is needed to invest in equipment and infrastructure, for instance, the land required for the building, maintenance charges, and so on.   

Third-Party Outsourcing

In contrast, third-party outsourcing is when the third-party service provider is assigned all the operations’ responsibility. It is done to reduce the cost and improve the overall efficiency of the whole organization. Suppose a company outsources its processes to a third party, depending on the industry, location, level of complexity, and various other dynamics. In that case, they can save up to 40% of their current costs.

When you delegate your operations to a BPO or a call center, you appoint them on a contractual basis. They take the entire charge to handle your customers. In third-party outsourcing, you don’t have to stress much as the burden of responsibilities is taken care of by the vendor. All that is required for a reasonable control is a robust review system.

Merits and Demerits of Captive Model Outsourcing

As mentioned earlier, some companies arrange their dedicated task force for management, which is termed Captive Model Outsourcing. But what makes the rest of the companies go for alternative third party offshore outsourcing? It’s because there are many factors associated that businesses should consider. For understanding the overall facts of captive center services, let’s take a look at its advantages and disadvantages. 

Merits

Demerits

Merits and Demerits of Third Party Outsourcing

Picking third-party outsourcing has its perks. Usually, offshore outsourcing or third party outsourcing is appointed from the countries that are not located near the home country, i.e., it is designated to other countries offering similar services. But as we should examine all the factors linked with it, let’s check out its merits and demerits. 

Merits

Demerits

Finally, what is the right choice for you?

Based on the above advantages and disadvantages of both captive and third-party outsourcing, you can choose the one which seems more beneficial to you. It depends on your business’s nature, but ideally, if you examine, third party outsourcing is a better choice for all types of companies. In contrast, the captive is better only for the large size companies. Secondly, the ROI and the company’s budget look positive if you go for third party outsourcing; after all, it is much more affordable than the captive model

Lastly, if you want to shut down the process that requires either a captive center or third-party outsourcing, and if you have created a captive model, then terminating the process will be a massive issue for your entire business. On the other hand, if you have a contract with a third party offshore outsourcing, you can dismiss them and end the complete agreement with them. Captive needs more time, effort, and investment while the latter results in the least. [/vc_column_text][/vc_column][/vc_row]