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In captive business process outsourcing (BPO), also known as captive service, a company sends out its business, not to another company, but to an owned subsidiary. The subsidiary is wholly owned, and may be stationed domestically or in another region or country. Benefits companies see when using captive BPO is that, while the business is outsourced, they still have complete control over all the information and supply chain. At the same time, using captive BPO is more expensive than using a third-party vendor for outsourcing, but many companies would prefer control rather than a cheaper operating price. If a company is going bankrupt or is being sold, its captive service is normally sold as a separate unit.
When companies grow, they often need to outsource part of their business. By outsourcing, they relieve the stress of having to create a particular product or provide a specific service while still getting the work done. Captive business process outsourcing (BPO), and all other BPO branches, separate outsourcing into two types. Back office outsourcing is outsourcing work that occurs behind closed doors, such as creating products or handling accounting, while front office outsourcing involves customer service.
If a company needs to outsource work, it will choose either a third-party vendor or a subsidiary. A third-party vendor is a completely separate company. These vendors can normally provide the services at a lower cost but, at the same time, the main company loses some control. For example, if database work is outsourced, a third-party vendor must have access to the company’s database, which can compromise security.
With a captive BPO, the company outsources its work to a subsidiary business entirely owned by the main company. This means that, while the subsidiary needs access to information, the risk to security is much lower. The original company can directly control how products are made, how and when they are delivered, and all other aspects of the outsourced business process, because it never technically leaves the main company.
Captive BPO units can be located either domestically or offshore. Most commonly, they are offshore so the company can save the most money while still maintaining control of the processes. If a company is being sold, either because it is bankrupt or the owner or owners do not want the company any longer, the captive service is normally sold separately.
Choosing between the two BPO choices depends what the company is prioritizing. If price is a major factor, third-party vendors will be better. If security and authority are the main factors, then captive BPOs will work better.
Captive BPO is the practice or bypassing a traditional outsourcing provider and setting up a foreign location and extension of your business to tap into local talent and reduce operating cost.
The benefits of this are the control you would possess over operational policy that would not be present in traditional outsourcing. The downside is that it can often run contrary to one of the main purposes of outsourcing in the first place, which is to allow a company to focus on its core competencies without being sidetracked by "growing pains" that come in the form of business processes which can deter resources from distribution and other expansion related activities.
There are other options, such as neo captive outsourcing, which
is a hybrid form of outsourcing that allows total control over operations but does allows a company to utilize a seasoned outsourcing partner to manage the actual day to day operations and all logistics so that the mother company can focus on growth.