Danske Bank is the latest company to transform its offshore IT strategy by setting up a captive centre in Bangalore, India next year for 1,000 staff.
The Danish bank has an established offshore IT delivery relationship with Indian IT services firm ITC Infotech, which is the internal IT department at Indian conglomerate ITC as well as a service provider to other companies, but wants to take more control of the IT activities in India.
There is a trend being seen where European businesses take more control of their offshore delivery.
In October, Volkswagen (VW) is opening an IT-development centre in Pune, India, to keep IT knowledge in-house while benefiting from the offshore delivery model.
The German car maker will open the centre next month. It will eventually have 1,000 engineers and provide support to all VW’s global operations.
For example, pharmaceuticals giant AstraZeneca recently opened an IT delivery centre in Chennai. This is part of its plan to reduce the amount of IT it outsources to Indian suppliers, yet it is retaining the advantages of the offshore delivery model through a captive centre in India.
Last year, another German car manufacturer, Daimler, said it planned to achieve savings of €150m a year by bringing IT services in-house and expanding IT operations in India and Turkey.
“Danske Bank's decision to establish a large captive underscores how European firms are taking a strategic view and are committed to implementing globally distributed IT organisations and work models,” said Peter Schumacher, CEO at management consultancy the Value Leadership Group.
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“Mature customers of offshore IT services, such as Danske Bank, believe they have gone too far with outsourcing and that too much business IP now resides with the suppliers. Additionally, captives offer lower operating costs and enable time-to-market gains - in particular for smaller projects - and provide an efficient platform for experimentation and innovation in new services, capabilities and skills.
“Bangalore has become a huge knowledge hub. In fact, no other location in the world has such a diversified base of technology and services companies from around the world and across sectors. The incredible pool of talent in Bangalore gives Danske Bank a powerful platform for intellectual arbitrage - access to the latest expertise in new and different technologies at an enormously attractive price point.”
ITC Infotech will continue to provide services to Danske Bank.
Professor Ilan Oshri, at the Centre for Global Sourcing and Services (CGSS) at the Loughborough University School of Business and Economics, said there has been a misconception that due to the increased number of captives being set up in Eastern Europe there has been a decline in India.
“Captives in India have not declined but European businesses are setting up captives for higher bend IT services. It is no longer just call centres,” he said, adding that European businesses are catching up on strategies that US companies already have in place.