| The most common approaches nowadays are either | | | | contract period the ownership is transferred to the |
| working with a third-party outsourcing provider or | | | | customer. Thus organization takes over the turnkey |
| establishing captive operations in lower cost locations. | | | | captive center tailored to its specific needs. BOT |
| Engagement models can be differentiated based upon | | | | option best suits organizations that do not have local |
| customer organization’s need for management | | | | expertise or extensive resources available. In this type |
| control, costs of operation, risks and other factors. | | | | of engagement only logistics associated with setup of |
| Third-party Outsourcing | | | | the captive center is outsourced. |
| Third-party outsourcing is classic client-vendor | | | | Build-Operate-Transfer optimally combines control |
| relationship governed by contractual obligations and | | | | element of the pure captive model with flexibility of |
| service level agreements. It is mostly driven by tactical | | | | outsourcing. Essentially it provides maximum control at |
| reasons such as short-term cost savings and staffing | | | | minimal risk. |
| flexibility. Non-core or non-critical activities are typical | | | | Main benefits of having own captive center: |
| candidates for outsourcing. | | | | • Ongoing realization of real cost savings |
| Traditional third-party outsourcing comes in two main | | | | • Full operational control and monitoring |
| forms: | | | | • Full ownership after the transfer |
| • Project-based outsourcing is considered to be the | | | | • Minimization of intellectual property and data |
| most appropriate for development of software with | | | | security risks |
| well-defined requirements and deliverables. It is suitable | | | | • Retained knowledge of industry, specific business |
| for irregular but on-going or one-off projects. On-site | | | | processes and techniques |
| presence may be required to facilitate estimating, | | | | • Improved communications by continual |
| specification and relationship management. Typical | | | | reinforcement and experience |
| pricing models are Time and Materials (T&M) and | | | | • Easy replication of parent organization’s |
| Fixed Price. | | | | processes |
| • Dedicated development center model caters for | | | | • Captive center can be commercialized at some |
| software with changing requirements, maintenance | | | | point in the future |
| and support of large systems, research and | | | | Both outsourcing and captive operations have similar |
| development, testing as well as other types of | | | | driving forces (cost reductions and competitive |
| complex ongoing medium- or long-term tasks. In this | | | | pressures in the first place) and particular advantages, |
| type of engagement vendor provides necessary | | | | but main factors for choosing one or another vary. |
| facilities and allocates a team that works only on | | | | Both approaches will deliver benefits in terms of |
| account’s projects and is managed by customer | | | | improved focus, optimization of processes, reduction |
| representative. This option is usually preferred when | | | | of operational costs, faster time-to-market etc. But |
| resource requirements are low. The customer is | | | | companies must thoroughly evaluate each option to |
| charged fixed monthly fee per full-time employee | | | | identify one that represents the best fit for their |
| (FTE). | | | | specific requirements, business culture and strategic |
| Captive Operations | | | | goals. |
| When considering how to organize the remote delivery | | | | The approach selected will depend on whether the |
| of software development services, captive subsidiary | | | | primary driver is short-term cost savings or whether |
| option often does not receive full consideration in | | | | the company has long-term vision for offshoring |
| comparison to outsourcing. While it is generally | | | | nearshoring and wishes to retain control over |
| accepted to outsource certain non-crucial activities, in | | | | processes and intellectual property. |
| certain cases this approach is inappropriate for core | | | | Establishing nearshore captive center in Ukraine |
| functions and critical activities. Decision to take work | | | | through BOT model |
| offshore/nearshore doesn’t necessarily mean that | | | | If software development is a core competency of |
| you have to outsource it. Use of remote resources for | | | | your company and you have long term specialized |
| the delivery of functions close to core business while | | | | resource requirements, it makes sense to build your |
| retaining operational control and benefiting from real | | | | own capability in order to support the full software |
| cost advantages can be achieved by means of | | | | life-cycle, secure intellectual property and build up |
| setting up captive facility, thus keeping work within the | | | | specific know-how. Nowadays this process is not as |
| company. | | | | difficult as it used to be. The key to success is finding |
| Captive model means that customer organization | | | | a trusted partner that already operates in the |
| makes strategic decision to create its presence in the | | | | environment of country. By doing this you will benefit |
| lower cost location and conduct work there as a part | | | | from: |
| of its own operations. The activities are performed | | | | • Clearly defined setup methodology and timeline |
| remotely, but they are not outsourced to the vendor. | | | | • Planned step-by-step implementation |
| Thus the customer is able to retain full control and | | | | • Responsibility for all logistics associated with |
| mitigate respective risks associated with intellectual | | | | establishing a captive center |
| property and other sensitive business information. | | | | • Practical knowledge of establishing IT business |
| Organizations that want to establish captive centers | | | | and dealing with related legal and contractual issues |
| have similar goals as those deploying traditional | | | | • Deep comprehension of cost and effort |
| enterprise or shared services operations. In the first | | | | components associated with setting up and running a |
| place captives are supposed to lower cost through | | | | software development center in offshore/nearshore |
| labor arbitrage. But recent research shows that buyers | | | | country |
| are seeking not only cheaper but skilled labor at | | | | • Hands-on experience in software engineering, |
| offshore/nearshore locations. They want to obtain | | | | generally recognized methodologies, processes and |
| competitive advantage and gains from process | | | | quality assurance that can be adapted to captive |
| improvements. In order to avoid risks of underutilizing | | | | center |
| captive capacities, organizations must thoroughly | | | | • Established HR practices, experience in recruiting |
| assess their long-term operational requirements and | | | | qualified IT staff |
| predict service needs that may arise in the future. | | | | • Attention to addressing security and business |
| The most common approaches to setting up captive | | | | continuity issues |
| operations are the following: | | | | • Consulting and support throughout the setup |
| • Creating captive center from scratch | | | | process |
| (do-it-yourself captive) can be successful when | | | | • High level of business commitment and |
| customer organization has necessary resources, local | | | | responsiveness |
| expertise and market knowledge. Decision to set up | | | | • Flexible client-specific approach |
| own captive center may evolve organically through | | | | About IIT Nearshore Sourcing Services |
| growth. Organization can either perform extensive due | | | | IIT Nearshore Sourcing is the newly-formed division of |
| diligence on its own or buy existing company with | | | | Intellias that offers services in establishing captive |
| operations in the chosen location. | | | | operations in Eastern Europe, Ukraine. Addressing |
| • Build-Operate-Transfer (BOT) approach means | | | | medium- and long-term software development needs |
| partnering with third-party vendor to establish and | | | | of your business, we introduce cost-effective and |
| stabilize center. Vendor is responsible for initial setup, | | | | low-risk way of setting up nearshore captive center |
| staffing and operations of the captive center during | | | | by utilizing Build-Operate-Transfer model. |
| the predefined period of time. At the end of the | | | | |