What is a captive office?

Answer 1

There are two major types of outsourcing in the world today. Outsourcing & Offshoring. A "Captive Unit" or a captive office could mean one of the following. 1. An outsourcing company or a 'third-party' provider and the client (typically based in the US or UK) set up a joint venture unit to execute their projects. This means that the outsourcing company and the client share all costs, have independent office space in an offshore country (typically India or China and more recently the Philippines). Here, the client is assured of full data protection and dedicated personnel. The parties may also enter into a form of profit sharing. 2. A large company may "offshore" their routine duties to reduce costs. This means that a major company (e.g. Dell or IBM) would set up a company of their own in a foreign country where taxes are lower and hire employees under this new entity. This is also a captive unit based on a cost plus basis (operational cost of the center plus a minor profit; say 5% of all costs that is the only taxable income in the foreign jurisdiction). The shareholding pattern would be a whopping majority belonging to the American or British company. All after tax profits would be repatriated back to the parent company. The parent company in turn would be achieving a 50-60% cost savings. A captive unit is best utilized where data security is paramount and hence it makes sense to set up your own unit instead of an outsourcing relationship.