Is Virtual Captive the Right Offshore Model for your Business?

By September 25, 2015Blog

There are many reasons healthcare companies may choose to outsource healthcare IT development: faster time-to-market, resources, access to high-quality skills and healthcare IT knowledge, lower costs, and more. The next decision, then, is to determine which offshore model is the best fit for your business and needs. Understanding them more thoroughly will help determine whether a virtual captive is the best choice.

Third-Party Service Provider

This is one of the traditional models characterized by the typical client-vendor relationship. This model is adopted for outsourcing activities and operations that are considered to be non-core and cost-incurring. Typically, this model is offered as either project-based with well-defined expectations and requirements, or set up as a client-dedicated development center for longer-term engagements requiring a dedicated team and evolving requirements.

Organizations benefit from cost savings and flexible staffing options. The third-party service provider model offers minimal control over operations and talent. Teams may come and go and processes are typically aligned with the service provider, not the client. For projects with a long-term strategic view, inherent complexity and strong linkage with business plans, the traditional outsourcing relationship is not ideal.

Captive Center

This is an offshore subsidiary of the company. Some of the primary drivers for a captive center are to secure access to resources, develop a local market, and create a long-term presence within that local market.

Organizations must go through an extensive cycle of planning and due diligence to set up operations, which requires significant investment as well as domain knowledge of the local market in terms of culture, government regulations and business norms. Captive centers offer complete control of operations and IP security, yet may struggle to manage overhead, offer career development and retain key talent because of scale and brand challenges.

Start-up time is also suboptimal, since the parent company will invariably take longer to set up operations and reach acceptable levels of productivity in another country. A robust facilities infrastructure including security, technology and support must be in place before hiring the core team.

Virtual Captive

This offshore model falls between a third-party service provider and captive center. It allows a client to rely on an offshore vendor to custom-build a support team while maintaining significant operational control and having the option to transfer it into their complete control, gaining talent, technology infrastructure and other key resources.

The offshore vendor takes on the responsibility of setting up operations, which includes administration, infrastructure and staffing. The vendor then manages the operation end-to-end for the client for a predefined period of time. At the end of the period, the ownership is transferred to the client.

The virtual captive accelerates time-to-market by eliminating the need for the company to undertake the time-consuming and capital intensive exercise of launching an offshore subsidiary. Since the virtual captive service provider has expertise and the necessary relationships for such launches, they can get the new operation up and running much faster. Companies also benefit from operational alignment, instilling guidance and control around hiring and key processes. Finally, the virtual captive model lends itself to fostering innovation and institutionalizing IP, even if the transfer option remains unexercised.

Read more about on this topic in our white paper on the virtual captive offshoring model.

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