The Captive Conundrum

Seeing the fantastic margins that Indian software vendor make (upward of 20%), many buyers have wondered if they are paying too much for software services from India. Over the last five years, many companies have attempted to setup their own, captive software centers in India, thus bypassing the margins they have to pay to the vendors.

While this approach has some easy to see benefits, the reality has been rather disappointing. A 2007 research by Forrester had this to say about captive centers:

Shattering the Offshore Captive Center Myth, Forrester Research

A year later, the situation seems to have significantly worsened:

Understanding the Captive Life Cycle, Forrester Research

Mr. Apte goes on to explain that most captive start slow, attempt to accelerate and hit roadblocks which result in a gradual lowering of expectations. Continual below-par performance eventually leads to looking for exit routes.

While I agree by and large with Mr. Apte analysis of the situation, I find it hard to accept this life cycle as sacrosanct. In other words, I believe it is possible for captives to break out of this downward spiral from inception towards exit.

In this and following posts, I attempt to break down the Failure Factors that impede a captive center’s growth and propose approaches that convert these failure factors to success factors.

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