New Delhi: Even as a large number of multinational companies are finding it tough to run their India offshore captive units due to rising costs and attrition levels, a move to other low-cost locations like China and Malaysia may not yield desired results, a new study has said.
Over 60% captive centres in India are struggling and this trend would further accelerate the move toward third-party vendors for outsourced services by 2009, global technology research firm Forrester said.
More than 300 North American and European firms started their own offshore setup in the past two years to lower the costs of product development or back-office operations.
But over 60% of them are struggling due to spiralling costs, high attrition, and lack of integration and management support, Forrester’s India head Sudin Apte wrote in the report, released on 8 May. Besides, lack of scale, poor morale and unrealistic cost models have also contributed to the failure of the captive model, he said.
Taking a cue, a number of early entrants have already sold their captives and opted to outsource their operations to third party vendors, the report said. However, these problems are not unique to India and companies planning to “short-circuit” the problems in India by using other countries such as China and Malaysia would be disappointed, it added.
Research on China shows similar attrition and wage pressures and the “cultural idiosyncrasies of locations like Malaysia and Brazil tend to make staff much less amenable to travel and shifting work hours to better align with the parent country time zones,” the report said.