Nexus 2024: CXO Panel Explores Why Captives Will Continue to Rise

In a couple years, when nearshore investors think of captive centers, they might not be envisioning an office building or campus anymore.

The traditional definition of a captive conjures pictures of logo-specific offices where foreign workers learn the ins and outs of business operations taking place hundreds or even thousands of miles away. The flexibility allowed by remote delivery, however, is slowly transforming the notion of what a captive center actually is, breaking down the walls of the campus.

“We’re opening a center of excellence in Mexico. We’re in the process of hiring there. If they ask us ‘Where in Mexico?’, we just say ‘In Mexico’. That’s where our center of excellence is,” stated Christopher Snyder, VP of Engineering at Zego, during a Nexus 2024 panel.  

“I think it is a fair thing to say that when we talk of captives, we don’t talk anymore about brick and mortar captives. We’re talking about a country or region, not an office building,” Snyder added.

Even when return-to-the-office mandates in place, the remote mindset has changed the ways in which nearshore and offshore delivery work. Location is still important, but global businesses aren’t sticking to a single building, city or even state. If they can leverage resources that lay beyond the campus, why wouldn’t they?

The situation opens opportunities for nearshore locations themselves to show their potential. Investors are more than ever looking for the hidden gems or unexplored spots, where they won’t ahve to deal with a crowded business ecosystem or a labor market that has grown too tight.

To do so, however, the will have to show that they have what businesses are looking more than anything: a skilful labor force.

“I think it is a fair thing to say that when we talk of captives, we don’t talk anymore about brick and mortar captives. We’re talking about a country or region, not an office building”—Christopher Snyder, VP of Engineering, Zego

“It takes a long-term commitment from universities and authorities; long-term commitment from vendors. We saw, in the past six years, a real interest in moving operations from the US to Mexico. And who had to keep the ball rolling? The vendors,” commented Juan Coronado, Strategic Sourcing Managing Director at Deloitte , who also participated in the Nexus CXO panel.  

“For me, if the upcoming destinations invest in that kind of ecosystem and put their names out there, their names will come out, and we’ll collectively be looking at those locations as an opportunity,” he added. 

Another way of popularity

The captive model has seen its popularity come and go in waves. It seems that captives are in vogue once again. This time, however, things are different.

The captive model was originally built on the logic of cost efficiencies. Now, businesses see captives as an opportunity to transform; from an operational, technological and even cultural standpoint.

“Today, we see a lot of interest from clients in setting up and improving their capability centers,” stated Juan Coronado. 

“We see the market [for captives] being driven by access to talent,” he explained, “which accelerates transformation in two ways: enhancing the ways of working, including agile and those types of approaches; but also transforming the ways in which those capability centers influence the overall business strategy, being more agile, with shorter time-to-market for products.”

The captive model allows businesses to be more elastic in their operations, but it also provides them with the tools to combat one of the more persistent problems in nearshore BPO delivery: churn. 

“We don’t have a captive, but we’re leveraging a BOT process so we can get to that. I think there’s a great opportunity to have both a captive as well as a center of excellence, and also leveraging partners nearshore to create that elasticity,” commented Brent Glover, CTO at Routeware.  “You have a solid base, you can create a culture and mitigate churn and attrition by having actual employees in location.”

The rise of captives does not spell doom for traditional outsourcing operations, however. Those are still expected to serve specific business needs; anything that requires smaller teams, more specialized knowledge. 

“There’s also cases where you’ll need specialized skill-sets for a limited period of time and you will not want to make a long-term investment, so you can leverage more of a traditional model for that type of outsourcing,” added Brent Glover. 

For decades, nearshore and offshore operations were regarded as a one-sided relationship in which foreing businesses took the lead, with very little imput from nearshore teams. It seems that, lately, that relationship is growing more equitative. 

“To make an analogy: the staff augmentation model is a bit like dating, and captives are like marriage,” explained Chris Snyder. “In the first one, you want to infuse your culture into a small group of people. The other one is bidirectional; we think this location is a great fit, has great culture, and we want it to infuse that back into us.” 

Paths to (captive) success

Captives have grown popular once more, but that hasn’t made a succesful captive operation any easier to achieve. 

Nearshore (and offshore) delivery can be quite challenging, and some locations more challenge than others. The culture, labor law, local politics; there are many pitfalls into which ill-informed or ill-prepared investors can fall if they’re not careful. 

“It is very easy to fail if you don’t understand the culture, employment law and other things in the locations where you want to establish these captives,” commented Brent Glover. “BOT [build, operate, transfer] models and hiring the right people might help, but I guess the attraction is really about building that culture, having diverse teams, with diversity of thought. With that you can be more innovative, creative, developing stronger solutions.”

Much of the path to nearshore success seems to depend on leadership. The right management team can be the difference between a long-running captive operation and utter disaster.

“There are two key aspects [to success in nearshore captives]: one is having the right leadership team. They really need to understand the culture, and I don’t mean Latin American or Western European culture. They need to understand the way of working there,” explained Juan Coronado. 

“The second aspect is about really having the time and patience to bring and develop the talent you want in that quality center,” he added.

One should not forget that nearshore investment about more than cost efficiencies. Many businesses see in it the opportunity to make an impact in the communities they operate in, which in turns provides for better results in the long run. That logic also applies to leadership choices.

“If you want to grow your nearshore model, you need to have management teams in the places you wish to operate in, but also career paths for the people already working there,” commented Chris Snyder. 

“If the only people who are getting promoted in your organization are US-based, then you’re stifling potential growth, missing out on a lot of potential growth, from your nearshore model,” he added.