The decision to build an off-shore captive centre for any business is challenging given the difficulties of building the business case, aligning the off-shore capability with business drivers and securing the support and commitment to proceed from all stakeholders. The challenges of establishing that off-shore captive centre are no less demanding.
I recently helped establish a captive centre for a speciality Insurance company in India. I joined the project after the decision regarding location had been made. The location of the city had been affected by the requirements for access to appropriate technical (catastrophe modelling) and subject matter expertise (actuarial skills).
Finding an office
Once the location for the captive had been identified, we initiated a search for appropriate offices, engaging a local real estate firm to assist. The calculation around how much space to contract needed to account for the planned and future levels of occupation, local custom and practice on personal space allocation and the need provide an enhanced office environment as part of the employee proposition. Occupancy costs on office space have a rental and an associated but separate maintenance charge. Be mindful of the fact that the maintenance charges will reflect a typical working day. If it is your intention to operate an extended working day, this will incur additional charges with the landlord.
The process of acquiring office space and an ability to contract for services (building services, commercial real estate, recruitment partner, IT services, bank account set up etc.) all require a firm to have the necessary credentials and registrations lodged with the appropriate local authorities. This activity is best undertaken with the use of local experts, preferably an advisor who is familiar with local (in this case, Indian) law and the legal system. Obtaining these registrations can take several months and should begin as soon as a decision has been made to build the captive centre. It will also be necessary to enable the transfer of funds into the new legal entity which will be used to make payments to suppliers.
If your company does not have experience of hiring staff in India you should consider the use of a recruitment partner to assist the talent acquisition process. The labour market in India is very dynamic and has many facets. For example, it is not common for individuals to move between the North and South of India, subject matter expertise is often found in specific locations creating a specific local labour dynamic eg Bangalore for deep IT skill sets and Northern India for actuarial skill sets whilst financial analytics skills are based around the financial centres in Delhi and Mumbai.
These insights can assist decision making around location and recruitment plans for the captive facility. India-based partners will also be able to accelerate the recruitment process by advising on the most appropriate mechanisms for finding specific talent or skills and by advising you on the challenges of making appropriate offers based on the concept of overall “Cost to Company”. Typically, the senior leadership team will need to be hired first and should include critical roles such as the Country Manager, Head of Operations, HR Manager and an Administration Manager who will normally have a longer notice period than more junior members of staff, and are often head hunted. These individuals will play an integral part in the recruitment process alongside the recruitment partner.
More junior members of staff can often be identified by advertising roles on popular web sites or through more traditional printed media. It is not uncommon to receive dozens of applicants for each role. It therefore makes sense to use your recruitment partner to manage the initial screening of candidates and credentials checking (academic and address details). The recruitment partner will also be able to advise you on building a favourable tax position for the employee around employee benefits and where it might be possible bring forward the notice periods for new joiners. You should be aware that a new employee will expect to recover the cost of buying themselves out of their existing notice period from their new employer.
Getting ready to go live
Having set up the legal entity, identified the location for the new office, secured appropriate offices and started the process of acquiring the necessary talent, there is still a lot of activity around fitting out the premises to accommodate staff. Supplier contracts will need to be set up for a range of services such as IT equipment and services, communication links, physical security, stationery and transportation. It is common in India for the employer to provide transportation for his employees to get to the office.
The process of setting up a captive facility took more than six months. Within 12 months of opening the centre, the facility had doubled in size.