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