There is a strong perception in the market that the captive business model is under threat. The story goes that third-party suppliers, especially in the Indian context, are maturing and are taking significant steps to expand the scale and the scope of processes delivered, thereby posing a threat to the captive model.

However, contrary to perception, Everest research indicates that captives are a large and significant section of the Indian offshore services market, and will continue to grow rapidly. This article traces the evolution of the Indian captive market and highlights that not only is captive adoption spreading to new verticals and functions, but the role of the captive is also changing with captives now offering more complex, high-end services for their parent organizations than before.

Indian Captive Market: Large and Growing
Everest Research Institute conducted the first ever bottoms up market-sizing analysis of the Indian captive market and found that there are around 110 captives in India , belonging to Forbes 2000 companies. Our analysis of the Indian captive market size indicates that captives account for about 30% of the overall Indian offshore services market and employ over 200,000 Full-time Employees (FTEs). (See Chart 1).

Not surprisingly, the captive share is higher (about 50%) in the Indian BPO offshore market, compared to the ITO offshore market. Captives have had a larger role to play in BPO than in IT, given the industry-specific nature of business processes, and the need for higher regulatory compliance. The third-party supplier market is relatively more mature in IT than in BPO, given the presence of large and established IT players.

An interesting way to understand the significance of the Indian captive market is to compare it with other countries. With an overall market size of about nine billion dollars, the Indian captive market is much larger than the captive markets in other countries. Our analysis indicates that India constitutes about 45% of the global offshore captive market.

Not only is the captive market large and significant, it is also growing at a rapid clip. There are two key factors contributing to this growth in the Indian captive market.

• Established captives expanding scale: Many of the established players (e.g., Dell, HSBC, Motorola) have expanded their scale and scope of operations. This has resulted in significant headcount expansion (about 20%–25% increase in headcount expansion every year) and in opening up of new centers
• Increase in captive adoption: New captive setups continue to increase as adoption spreads to new verticals and functional areas. See Chart 2 on growth in number of new captive setups catering to Forbes 2000 companies.