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Captives vs. Offshore Outsourcing

When it comes to offshoring, businesses can utilise two main service delivery models: captives and third party outsourcing. A captive is a subsidiary that is set up to serve as an extension of the parent company in a different location. The parent company has full control over the captive. It takes a long time and a lot of investments to set up a captive. On the other hand, third party outsourcing involves acquiring the services of an external provider that will take on the entire process on behalf of the client. One disadvantage of this delivery model is that it is pretty expensive. Also, contracting a service provider to manage the entire process results to loss of operational control. In this diagram, we'll compare and differentiate these services and show the benefits of utilising the virtual captive model. This is a service delivery model that combined the strengths of both the captive and third party outsourcing.

Captives
  • Long Setup Process (6 to 9 months)
  • Large Capital Expenditures
  • Long-term Commitments & Sunk Costs
  • Initial Inefficiencies take time to optimise
Offshore Outsourcing
  • Much Higher Operational Costs
  • No Ownership
  • Heavily Reduced Operational Control
Virtual Captives
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The Virtual Captive as the Optimal Offshoring Model

The virtual captive is the service delivery model that has the benefits of two other offshoring models: captive and third party outsourcing. With a virtual captive, Australasian clients can utilise the expertise and local knowledge of MicroSourcing. They also do not need initial investments since MicroSourcing already has the infrastructure, assets, and all other resources in place to start your operations in the Philippines. What makes it different is that you will be the one to decide how the virtual captive will operate, from workflow processes to the daily activities of the offshore staff. Here is a diagram of the benefits of setting up an offshore operation in the Philippines through MicroSourcing:

Your Offshore Organisation in the Philippines

Services
Your Company
Operations Management
Operations Management
Your Offshore Staff
Assets
MicroSourcing
Your Company
Joint
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The Virtual Captive as Offshore Incubation Model

By setting up a virtual captive, Australasian companies can set up offshore operations in the Philippines without having to worry about capital expenditures and all other aspects involved in running a business operation in the Philippines. Many of our clients start small then end up expanding their operations supported by MicroSourcing. They find that setting up a virtual captive is a great way to see whether or not having a Philippines-based operation is an ideal solution for their business.

Advantages

Lower Costs

Virtual captives enable Australasian companies to set up offshore operations in the Philippines without any capital expenditures. Clients can utilise the infrastructure, resources, and local know-how of a service provider. This means that they do not have to worry about initial investments.

Lower Risk

It is not easy to set up an operation in a foreign location such as the Philippines. You need to have a better understanding of the legal policies and standards before you can enter the market. With a service provider and its local knowledge, it will be easier to test the waters and see if establishing operations in the Philippines is a wise move. Also, risks are minimised since there are no long-term investments.

Quicker Time to Market

It takes quite a long time to set up a captive. By utilising the infrastructure and resources of a service provider such as MicroSourcing, you can have your offshore team up and running in about 1-3 months.

Risk vs Control

When it comes to risk, control, and costs, virtual captives offer the right balance. Australasian clients can take 100% control over the offshore operation - from the staff to workflow processes. Both the client and service provider will each have their share of operational risks.

Access to Skilled Labour

Establishing a virtual captive enables clients to tap into a new pool of talent that have the right skill set. In cases where finding the right employees and retaining them are difficult, setting up an offshore team to the Philippines can be the solution.

Setup Process

When it comes to setting up a smaller virtual captive, we follow the steps in the Offshore Staffing Setup Process. In large-scale offshore operations, these are the steps that we take:

  • Requirements Analysis
    It starts with knowing your requirements, what you want to achieve out of this outsourcing agreement, and how we can help achieve your goals. All aspects of the operation, from the staff and infrastructure to technical support and operational management, will be analysed in this stage.

  • Proposal & Acceptance
    After identifying your requirements, we will send a proposal that covers the basic terms of service and pricing model. Of course, there will be some revisions to the proposal before we have a final agreement.

  • Services Agreement
    We will then formalise our outsourcing agreement through a services contract. This covers all the information needed in setting up your virtual captive.

  • Project Team Assembly
    At this stage, close coordination is essential to make sure that the offshore operation is in sync with your domestic operations. This typically involves a project team consisting of management personnel from the client side and MicroSourcing's management team members. There will be a project manager who will be responsible on each side.

  • Recruitment
    Our Recruitment department will be responsible for finding candidates who are suitable for the staffing requirements we have discussed in step 1. We will create a staffing plan that covers the actual number of employees needed, their job profiles, and expected start dates. The department will go through the recruitment process but you can of course be involved by giving your own tests and interviewing the candidates.

  • Infrastructure Acquisition
    Our IT department will work closely with our Facilities department in setting up the infrastructure and systems needed by your offshore team. They will also coordinate with your IT department to ensure that all systems and workflow processes on both sides are in sync to have a smooth-running operation.

  • Management Framework
    In this stage, we will cover the management framework to determine how the offshore staff will be managed. This also includes identifying the key performance indicators, metrics, reporting structure, and other ways to measure the performance of the offshore staff.

  • Go Live
    Now that we've covered all aspects needed by the offshore staff, we can go live and start the offshore operations. This is usually marked by the presence of the client's management team and/or stakeholders in our office.

  • Daily Operations
    Our Operations Group will make sure that the offshore operation is running smoothly. Our shared services departments will be there as well to support your offshore staff and address any concerns they might have.

Pricing

We use different pricing models for our virtual captive services, depending on the scope and nature of the operation. In most cases, our pricing model relies on the following factors:


  • Direct Staff Costs - These cover the base salaries, benefits, and taxes of your offshore staff. We will discuss this with you so you exactly know what the offshore employees are getting. You will also be able to keep track of all the costs of your staff.

  • Infrastructure Fees - These include the office space, workstations, hardware and software, IT systems and network, telecom, etc. needed by your offshore staff.

  • Shared Services Fees - These cover the operational management and support services we provide to your offshore staff.

  • The pricing for your virtual captive will generally depend on your requirements but in general, you can get significant cost savings when you set up a virtual captive in the Philippines through MicroSourcing.