Why Neo-Captive is the best model for product companies to build their own offshore teams
One of the most consistent trends in the IT industry has been the movement of jobs to low-cost labor centers overseas. Offshoring, as well as outsourcing, have dominated this sector. Both models have gained rapid momentum in the present age, partly because of the burgeoning need of the companies to minimize their operations costs and increase productivity. While Captive Offshoring has offered companies the ability to remain in control of their operations and be directly involved in the management, a new phenomenon is changing how companies manage their captive offshoring operations.
While conventional methods of outsourcing and offshoring have been the most prevalent, companies, especially product companies, have faced significant challenges with the above two processes. But technology has advanced rapidly, significantly altering the traditional methods of offshoring and outsourcing. With the emergence of new technologies such as AI and Machine Learning, Outsourcing has already received an update in the form of a Virtual Development Center or VDC.
Unlike traditional Captive Offshoring procedures where the companies have to directly get involved in setting up and running their captives, a VDC lets businesses set up an Offshore team without setting up a legal entity and worrying about red-tapism.
For instance, a cost-effective VDC model offered by Cortex supports every aspect of setting up a captive offshoring business, including establishing your technology centers overseas with skilled developers across technologies, and gives you complete control and flexibility, which no outsourcing or offshoring model provides. Virtual Development Centers provide infrastructure and staffing needs pertaining to your business objectives, while keeping you in the driver’s seat. The notable advantage of a VDC is that it lets you set up a completely functional Captive Offshoring business without needing to invest in infrastructure, getting through the legal red-tapism, staffing, and related complex processes. Under the neo-captive model; companies run, control, and operate their business, and have complete control over their offshore operations.
Another vital advantage of a Virtual Development Center is that it flawlessly resolves some of the most critical issues faced with the traditional methods of outsourcing and offshoring. Product Engineering companies in particular have experienced a string of problems with the conventional outsourcing and offshoring models, causing the overall project to collapse.
Why Outsourcing Failed For Product Engineering Companies
Earlier in this blog, the point about the challenges faced with traditional outsourcing methods was mentioned. Let’s understand why that is the case. As companies grow, assistance in critical areas such as IT Support, Technical Support, and production also increases. Some companies may choose to recruit new employees to handle the increase in the workload, but several companies often outsource the extra work to third-party service providers. While it is an effective way to meet the increasing labor and management needs with the added benefit of reduced costs, there are several problems companies usually face with outsourcing, often derailing their whole operations. The problem is significantly more common with product companies, and there are several reasons for it. Let’s have a look at some of the most common reasons:-
1. Unrealistic Expectations:
Service providers will often exaggerate their capabilities and the benefits of choosing them as the outsourcing partner. This makes businesses overestimate the benefits of choosing them. They get over-reliant on their partner to deliver high-quality work, but the results are often mediocre, causing multiple operational bottlenecks for the company.
2. Lack Of Communication:
Outsourcing development of a product or service in another location is marred by inadequate communication and confusion over how the final product is supposed to be delivered. It generally leads to several operational inefficiencies.
3. Lack of Technical Experience:
Companies typically outsource their IT operations to eliminate huge costs and the perplexing process of recruiting skilled workers. But in most cases, even the service provider does not possess an adequately skilled team or has insufficient technical expertise to deliver the solutions, leading to the failure of the whole outsourcing process.
4. Insufficient Domain Knowledge:
One of the most taxing risks associated with outsourcing is a third-party service provider who lacks sufficient knowledge about your industry. Unfortunately for many Product Development companies, their outsourcing partner possesses inadequate domain knowledge, single-handedly thwarting the outsourcing endeavor.
5. Threat To Intellectual Property:
Intellectual Property Threat is another critical risk which significantly obstructs the outsourcing process for product companies. Leaking pivotal data, classified information, mishandling of technology and crucial IP assets are some of the challenges the product companies face while outsourcing.
Setting Up Captives Is A Better Alternative – But Product Companies Should Avoid Running Their Own Captives
Captive offshoring is rapidly gaining momentum. Product companies benefit immensely from setting up operation centers in low-cost countries owned and managed by companies themselves. Unlike outsourcing, Captive Offshoring lets organizations create their captive site overseas and staff it with locals who essentially become their primary workforce. The upside is that it lets companies benefit from some of the financial perks of outsourcing while assuming greater control and security. The downside? Setting up captives is not easy and is fraught with disparate hurdles.
Setting up captives is grotesquely expensive and managing an offshore site is incredibly difficult. One of the most challenging aspects of setting up a captive is the registration process in a different language to create the company’s legal existence. Additionally, countries have rapidly changing registration requirements which may cause several delays.
Another problem is finding the right location and the required office space for the captive management. Companies should also consider the varying rental and leasing costs, and it typically requires extensive knowledge about the local leasing markets. Moreover, the companies must also jostle with an unfamiliar culture, foreign account methods, political, operational, and business process practices. Furthermore, the captive centers are usually located in less developed countries where threats to external damages are a risk worth considering.
Lastly, setting up and running captives internally can distract the companies from their core product development activities and negatively impact their time to market.
Virtual Development Centers And How It Is Revolutionizing The Conventional Outsourcing And Offshoring Models
Virtual Development Centers can tremendously solve the problems prevalent with the traditional methods of the Captive Offshoring process. As VDC is entirely virtual, it allows companies to set up an Offshore team with significantly fewer resources and time. With a VDC, companies can have their Offshore team created within just a few weeks, which generally takes extended periods under the prevailing Captive Offshoring models. VDCs such as Cortex lets companies set up their offshore business in labor and cost-efficient countries such as India without going through the legal formalities and red-tapism.
Moreover, under the Neo-Captive Offshoring model, a VDC such as Cortex takes care of every aspect of the Captive Offshoring process, including the staffing and office space requirements, after thoroughly understanding the organization’s business objectives. Once your VDC has been established, you have complete flexibility and control over the management and business operations. You can directly manage your Captive Offshore team virtually, without focusing on non-core business processes such as managing the office space, recruiting the right people, going through numerous paperwork and legal formalities.
With Cortex, you can operate your Offshore team with 100% control and put yourself in the driver seat at all times. Organizations can benefit from a highly secure complete ecosystem, including support tools and personnel tailored to your needs. Moreover, Cortex offers project management support for your offshore team and delivery, which can be seamlessly scaled up or down with faster time to market. Cortex works with you at every step to set up your offshore entity and assists you with market research, identifying a strategic location, obtaining required permissions, and navigating red tape and infrastructure. Once the Offshore team is appropriately set, Cortex transfers the team to your payroll to let you run operations independently. Cortex will remain at arm’s length, and your local SME will help you while scaling up the operations.
Conclusion
The neo-Captive Offshoring model is the best and superior alternative to conventional captive offshoring and outsourcing models. Both outsourcing and captive offshoring modes are labor and cost-intensive processes with high probabilities of failure. With a VDC, you can avoid the pitfalls typically associated with them and focus on your core business activities. The Neo-Captive model is even more suited to product companies as they can get cost-benefits such as no infrastructure, no recruitment or training costs. The features and benefits provided by the Neo-Captive model are unmatched by any outsourcing framework, and growth-focused companies should consider Neo-captive over any other outsourcing or offshoring models.
