Outsourcing is not an alternative to a captive center when the work being done is leading edge because outsourcers may lack the depth of knowledge in the area and often they rotate staff among projects from different clients, said Rajiv Kapur, managing director of LSI Technologies India. The company, however, turns to Indian outsourcers to supplement its own staff.

"Outsourcing is more suitable for current and prior generation products," Kapur said. "The decision to do in-house or outsource is not about cost alone but about the ability to succeed."

Typically, clients tend to want to build their own operation rather than outsource when the process they are considering taking offshore is closer to their own revenue generation, such as product design, Pai said.

As a result, some foreign companies are likely to have Indian subsidiaries and also use outsourcers in the country, Pai said. Forrester expects 20 percent of captive centers to take this "hybrid" approach. Large companies, such as Microsoft and Cisco, are already using this offshore strategy in India to cut costs and to avoid hiring and managing more staff directly.

"While it may help in some cases to bring new work to a captive center, it makes commercial sense to give out work relating to established products and maintenance-related work to a vendor who can be more cost-efficient," Apte said.

As subsidiary operations get too large, with thousands of staff, they have to look at outsourcing as they don't have the processes that outsourcers have to manage a large operation, Apte said. A big risk for these large subsidiary operations is that management time and focus shift to human-resources issues like attrition, career planning, and training rather than the core business, he added.

Companies previously had little choice but to outsource because of their lack of familiarity with India, Pai said. As that changes, most of the early users of offshore services are now using the hybrid model where they have captive operations as well as relationships with outsourcers, he added.

Currently, 50 percent of Symphony's staff consist of teams for companies that also run their own captive operations in India, Kela said. Typically, what gets outsourced is a product line, depending on Symphony's expertise, rather than a particular function, such as quality assurance, Brooks said.

"The build versus buy decision is now the same worldwide," Pai said. "This means that clients will use a hybrid model in India just as they do in their home countries."