Creating a captive center and outsourcing to a business process outsourcing (BPO) call center both offer cost reduction. But which one is a better choice? Generally, captive outsourcing has an advantage in terms of security and authority, while third-party outsourcing offers greater value in price and specialized industry knowledge.

Captive vs third-party outsourcing

Unlike today’s typical third-party outsourcing model, captive outsourcing is when a company moves its operations to a wholly owned subsidiary, instead of delegating it to a third party service provider. The subsidiary is commonly based in a low-cost location, perhaps in another region or country such as India or the Philippines.
Understandably, captive outsourcing is preferred by companies that would like to retain full control of operations. Since the subsidiary is still a part of the main company, the company can control how it’s integrated and how products are made and delivered.

Moreover, there are smaller security risks particularly when it comes to access to information and other resources since the company doesn’t have to open up their database to an external provider.

On the other hand, captive outsourcing has its own drawbacks. First, it’s more expensive than outsourcing to a BPO call center. The company has to fully invest in the offshore operation’s infrastructure (eg., land, buildings, equipment, etc) and maintenance cost. In IT services, for instance, a company can save 5%-15% more if they outsource to an offshore provider rather than opt for the alternative.
Lastly, the company may miss out on the skills and knowledge of a third-party specialist working with multiple clients.

Which is the right model for your business?

Each service delivery model has its own merits. When deciding which one best suits a company, one needs to assess various factors, such as the availability of skilled workers, business control, and continuous improvement capability, among others. Generally speaking, the best model is one that fits a company’s short- and long-term plans.

In some cases, the optimal solution does not lie in either of the two, but a “hybrid,” or combination of both models.