Captive Unit example | Captive BPO | Captive Unit for IT | Companies offering Captive Unit

If you are an IT company, or if your company depends upon IT to run its business, you need software development staff and other IT Talent. And finding sufficient local talent can often be a daunting task. Instead, you can now consider a new type of offshore development, where you are in full control, but where you get help from an experienced offshore development management team to set it up and run it with you. Consider setting up an Assisted Captive Unit.

And while you focus on what matters, being the project, we will handle everything else:

Ideal and productive startup team sizes for a Captive IT Unit vary between 5 to 30 technical staff for the first 6 months and may grow to many multiples after that. Great to know is that Captive Unit teams can work in your time zone, so that they can benefit of overlapping working hours with your current team.

Even though the general idea until now was that Captive Units is costlier than common Time and Materials Outsourcing to India, we have generated a setup that allows for business plans which are far lower in cost than normal offshore development budgets and in some cases can go to less than half the cost of that. Even including the cost of the entire handholding full service.

We offer similar services for BPOs and other IT enabled services, but the focus in this case is not on software programming. The focus in this case is on handling of Back Office work, such as accounting, billing or transcript of medical or legal recordings. Another popular setup is a service contact hub with your clients.

Pricing for this type of Captive Units is usually up to 30% lower than that of IT related ones.

One of the latest trends in outsourcing is to execute engineering work to India. With more engineers per capita than anywhere else in the world, the subcontinent is the ideal place for it. And even for this, it is worth exploring setting up a Captive Unit which can grow along with your client’s requirements.

Budgets for an Engineering Captive unit are in line with those of an IT related nature, due to a similar raw HR cost.

A growing high income and upper middle class

Even though most western companies mostly look at India for cheap labor or cheaper options for production, they tend to forget that the country is the second largest in the world with regards to headcount (1.39 billion people) and is projected to overtake China (1.41 Billion) in 2025. The most important consequence of that being that the Indian market is rapidly becoming a very important consumer market. The image below shows the number of households – on average 4.5 members in a household – in their respective income level. It is very apparent that the high income and upper middle income segment, where most of the buying power resides, will dramatically shift the way India is perceived in the world. It will become the most important consumer market on the planet. And your company wants part of that!

wef_future_of_consumption_fast-growth_consumers_markets_india_report_2019.pdf (bain.com) = source

Opinion – Starting a joint venture in India?

Prior to the liberalisation of the Indian market in 1991, there were major restrictions on imports into India. Foreign companies could not simply walk into the country and start a company. They needed an Indian partner, who usually had to own the majority of the shares. And this is how a trend to set up JVs started in the country. Some of them between large corporations and others between large foreign entities using a benami. Almost in all cases, JVs have failed, have landed up in the hands of the Indian partner or have been sold at many times a premium to the foreign entity. The CaptiveUnit.com management is of the opinion that even though collaborations between Indian and foreign entities are to be promoted and encouraged, the participation in each other’s companies is an antiquated idea. The difference in corporate culture between Indian and non-Indian companies is usually insurmountable, especially in a JV. Even in modern days, many such JV partnerships are set up, some of them with a 50-50 equity sharing, and mostly negotiated by foreign managers who feel that they are India experts after two five-day business trips. 95% of those partnerships land up in court within five years of establishment.

Opinion – Is appointing an Indian distributor a better idea?

Another very popular approach for the “developed world” until now has been to appoint a distributor for their products to the Indian market. This usually happens during specialised international trade exhibitions, held in Europe or the USA. Indian corporates or sometimes even one-man businesses have always visited those trade shows in large numbers and have been able to procure distributorships for their country with many oversees companies. And vice-versa, many oversees companies have been able to score a distributor in the subcontinent, sometimes even without ever physically visiting the distributor. The questions that should be asked in such case are minimum the following:

• India is a very large country – much bigger than Europe. Does the appointed distributor have sufficient branch offices throughout the country to service the entire subcontinent? And is he present in the locations that matter? Do you have a say in that?
• How well is the sales staff trained in the product portfolio? And what portion of the sales staff is trained? Do you have any say in that?
• How many competing products is the distributor selling and how important is your product in his portfolio? Do you have any contractual impact on that?
• Are you aware of the additional cost to the end-user due to the still very dramatic import duties the country levies?

Last but not least: the distributor margin. On average and depending on the product type, a distributor is given a discount on the end-user price list between 25 and 60 percent. And in some cases there is not even a need for any stock keeping at all by the distributor. The big question here is: why should you give up this distribution margin, and have almost no impact on the process?

The answer: set up your own sales daughter company in India. It’s easier than you think.

Until now, the common understanding was that starting your branch office(s) in India is near to an insurmountable task, only doable by Fortune 500 companies who can afford the services of a very expensive consultant to help them. Almost every Fortune 500 company has set up their captive unit operation in India. Not only for production but also for sales into the local market, which has often shown to be a bigger market than their home market. Times have changed and due to relaxations of a number of policies, and implementations of a few other government initiatives to attract foreign investment and knowledge, setting up a sales office in India is now a reachable target for almost any SME, from anywhere. This means total control about how things happen, when and by who. It also means that parent companies no longer need to shell out the distributor margin, and use that to fund their own business in the country. Yes of course – setting up a company in the great unknown of India still sounds daunting – but that is the reason of existence of CaptiveUnit.com. You focus on your product and the prospects – we do all the rest.