Captives in India are transitioning from being cost centers for their parent companies to ‘Centers of Excellence’ providing higher value and efficiency propositions. The most significant contribution for the captive sector has been the establishment of a design led engineering services sector. Currently, there are over 500 captives that undertake engineering and design services across industry verticals. Out of these, 200+ ER&D captives have been established over the last three years highlighting the R&D and product culture initiated by these captives, which has in turn led to development of affordable products for emerging markets. Also, continuous expansion of services portfolios has also led to building new skills sets within the sector such as consulting; knowledge based services, research and analytics and end-to-end design. As a result, captives currently account for 50% of total knowledge based revenues from India which has significantly contributed to India emerging as a Knowledge hub. According to the report, the coming years will see many hybrid models that include program management capabilities and collaboration with third party vendors.

At the launch of the report, Mr. Som Mittal, President, NASSCOM said, “Texas Instruments set up the first captive center and completes 25 years in India. Through this journey, captives have followed an evolution path with different business models, service delivery and leveraging India as an innovation hub for emerging economies. Global companies have leveraged value through either monetizing these centers or building domain skills, enhancing service delivery through 24x7 operations and faster time to market. However, going forward, it would be important for the parent companies to empower the local management, not only to derive full value, but also to ensure that the captive can exercise sufficient flexibility when required”.

Many captives follow similar models and processes as their headquarters which are sometimes sub optimal in the Indian context leading to cost inefficiencies, low productivity and lack of innovation. The report suggests that global processes must be localized giving more decision making capability to the center while maintaining global practices. The report also talks about how these captives have been gradually upgrading the value they add to their global businesses while emerging as value players with robust processes and controls. Best in class captives have 11% higher productivity than parent organizations, provide 100% saving, have minimal attrition and create non-linear growth through an innovation friendly environment that encourages reverse innovation, development of IP and platform products. More captives need to adopt these practices for sustainable growth and competitiveness going forward.

Going forward, captives will continue to grow and expand into newer service offerings, engage in M&A activities to acquire capabilities in India along with increased monetization as they achieve the business goals set by parent organizations. There will be emergence of new decision making models that continue to drive faster time to market, penetration into new and emerging markets, as the global businesses focus on transformation in their worldwide operations.