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Third party vendors or Captive centre

Today, firms are constantly faced with the market pressure to bring down their cost of operations. One of the most preferred methods in bringing down costs is outsourcing. When firms choose to outsource, they are stuck with a dilemma of choosing between “Third party vendors” and “Captive centres”.

The table given below is a comparison of “Third party vendors” and “Captive centres” to help one make a better choice.

Value proposition	Third party vendors	Captive centres
Expertise/Experience	Have expertise/experience with other clients in similar business lines	Build expertise from scratch by redeploying resources
Pricing	Very competitive pricing/flexibility to access various other providers	Unit costs are higher with captive centres
Capital investment	No capital investment	High capital investment
Payback period	Usually between 6 months to a year	Can sometimes be between 3 years to 5 years
Exit strategy	Can exit from one relationship and move another	No exist possible without incurring high costs
Security/Confidentiality	Third party vendors are extremely rigid with their security practices as they deal with several clients.	Captive centres would follow similar security/confidentiality practices as that of the parent company.
Management time and effort	Less management time is utilized if the work is outsourced to a third party vendor.	Requires considerable effort of management time and effort to establish.
Control	Less control	There is tighter management control
Best Practices	Benefit of best practices as third party vendors deal with other customers and this is the core business of third party vendors.	Restricted only to the practices of the parent company
Learning curve	Third party vendors would take a longer learning curve.	Captive centres would take a shorter learning curve.

Both options have their inherent advantages and disadvantages, it is therefore vital for firms to make the right choice not only looking at current requirements, but also looking at outsourcing as a global resourcing strategy from a long term perspective.

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