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.

Before we discuss the trends in the market, it may be helpful to explore how the Indian captive market got to its current scale. The market evolution can be viewed across five distinct waves of evolution.

Wave I. Captive adoption begins in engineering services (1980s): The origin of the Indian captive market can be traced back to the 1980s, when hi-tech companies (e.g., Texas Instruments) set up captives to provide engineering services.

Wave II. Captive adoption begins in BPO (early-mid 1990s): The early-mid 1990s witnessed the beginning of captives being set up for BPO/transaction processing. The captives set up by American Express and GE were landmarks in this period. This period also saw manufacturing companies (e.g., Daimler Chrysler) adopting captives to provide engineering services.

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