Businesses of all types use captive company strategies. These strategies have been in use since the 1920s and are even more popular today. The captive is usually owned by the owner of the insurance company or trust from the owner's side.
Captive company strategies have several benefits, including low insurance costs for businesses and take more risks because they have higher deductibles. With all benefits, there sometimes can be downsides. When it comes to captive company strategies, a disadvantage is that it is costly and could be too much of a cost for a start-up or small business.
A captive company strategy may sound complex at first, but it's fairly simple. Captive company strategy basically allows for a company to remain viable while supplying or selling to only one buyer. Their sales and profits depend on the other company who buys from them. While it may seem like a bad thing to mainly have one buyer for goods, it also gives the supplier the needed viability.
Possibly the biggest problem with this strategy is that the supplier is limited by its buyer's activities. If the buyer slows down with their business or chooses to go in a new direction, the supplier slows down or stops completely. A company can also be taken captive if they are overly weak and cannot subsist on their own.
One example of a captive company strategy has to be retrenchment strategy. In order for this to be done. The company has to prove that it will be able to provide a great job to a client. This will be useful to the client and even to the company because if they nail it, they would have a long-term client that will provide them with work for a long time.
If the company is unable to produce what is expected out of the company, they would be overlooked and other company will be contacted by the potential client. Companies have to be very careful and efficient when giving this type of option.