Strategic Challenges Facing Captive Centres

Firms such as General Electric, Texas Instruments and Motorola, who established captive centers in India in the mid-1990s, had traditionally kept most of their offshored tasks in-house. Since then, however, the Indian IT service sector has grown and developed abilities to carry out both simple and complex IT maintenance and development, often more cheaply than their Western competitors. This development has forced Western multinationals to consider how to better utilize their offshore assets. For example, in 2006, SAP Hosting Services in Bangalore outsourced several hosting services to Tata Consultancy Services, also based in Bangalore. Other companies, such as Standard Chartered and Hewlett Packard, have followed a different approach in which their captive centers provided services to both parent company and external service providers. British Airways, on the other hand, sold a majority stake of its captive centre to the private equity firm Warburg Pincus in 2002. Apple Inc. went even further and closed down its development centre in India in 2006. Clearly, such changes suggest that the basic concept of the captive center is transforming.