Wholly owned offshore service centers, or captive centers, have seen some rocky days; a slew of major enterprises, including Unilever, Citigroup (NYSE: C) and Dell have closed theirs. Nonetheless, analysts say there has been growth in the captive center market over the past five quarters. Offshoring expert Ilan Oshri, in an interview at CIO magazine, discusses why this model is here to stay despite its evolving challenges.

In the interview, Oshri explains that many companies shuttered their captive centers to improve their cash position, in the midst of the economic downturn. But now, the environment for captive centers has changed for two reasons: "Local vendors have built massive scale offshore and the acquisition of a captive today will probably not have a dramatic impact on their economies of scale. Second, private equity firms--the other candidate buyers--are not cash rich as they were between 2002 and 2006. Having said that, vendors will consider buying a captive if the purchase includes a long-term service contract," said Oshri.

Another trend that's changing the face of captive centers is the emergence of offshore service centers in Central and Eastern Europe. These are proving to be a serious contender to those in India, explained Oshri.

Some common pitfalls for captive centers are the failure to develop scale, poor management and allocation of resources, tense relationships with the parent firm and inefficient governing structure, Oshri told CIO.

For more:
- see the interview with Ilan Oshri at CIO

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