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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