October 2, 2007

Everest Research Institute: Third-party outsourcing suppliers can provide 5-15 percent more savings than captives; best-in-class captives can match third-party performance

Third-party vs. Captive Study Advises Value Evaluation More Important than Costs

DALLAS, October 2, 2007 - Third-parties outsourcing suppliers are typically 5-15 percent less expensive than captives in terms of their total cost of operations, according to a recent study
by the Everest Research Institute. The study makes a holistic comparison of costs across
operating costs, productivity, transition, sales and marketing and margins. The cost advantage of
the third-party model is derived primarily from better leverage of scale, leaner operating
environments, more complex overhead management associated with most captives, as well as
higher investments that captives make in knowledge transfer during offshore migration and
creation of a more global culture. However, best-in-class captives are observed to operate at
similar and even lower costs.

Although cost reduction is important, the study, Comparison of Outsourced and Captive
Solutions for Capturing Value from Outsourcing, advises that a company’s decision of which
model to leverage must be aligned with its near- and long-term strategic goals. The Institute will
also host a Webinar on October 11 at 8 a.m. CDT, to provide multiple viewpoints on the thirdparty
and captive offshore divide.

“Many of the factors that drive up the near-term captive operating cost structure can be valuable
investments in the long-term to create business and strategic impact,” said Nikhil Rajpal, Vice
President of Global Sourcing for Everest Research Institute. “To capture the value associated
with the captive model requires an investment of effort and finances, and the company moving
the work offshore as a captive operation must maintain focus on cost-reduction opportunities
where relevant.”

According to the study, the third-party model can be better suited for companies who value goals
such as minimizing location risk, attracting scarce talent that is not core to the business, and
scaling costs to match demand for processes with fluctuations in volume. Conversely, the captive
model can further goals such as to gain access to new geographic markets, increase access to
management talent, achieve end-to-end control, and enable greater integration with the parent
company.

“A company must identify the model that works best for its specific objectives and situation,”
said Eric Simonson, Managing Principal of the Everest Research Institute. “It is becoming
increasingly clear that the third-party and captive models are differentiating themselves and
should be compared based upon their unique attributes. There are unique types of value that the
third- party and captive models are better suited to capture that can help a company better reach
its strategic goals and, in many cases, a combination of both models is the optimal solution.”

This report builds on to the results of a recent Everest study, Captive Value Diagnostic Study
Market Update, which surveyed over 100 key executives who operate captives across global
companies. The survey revealed that more than 85 percent of these executives believe that their
captive operations are delivering on cost savings and service expectations, despite contrary
opinions.
The Webinar will take place on October 11, 2007, at 8 a.m. CDT; 1300 GMT; 6:30 p.m. IST. To register, please visit: www.everestgrp.com/Webinars.

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