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Outsourcing Hot Spots
Low labor costs are spurring more and more companies to consider outsourcing their contact centers to service providers in offshore and nearshore locations.
For the rest of the February 2004 issue of CRM magazine please click here
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The appeal of low-cost labor outside U.S. borders is hard to resist. In India, for example, salaries for customer service representatives (CSRs) can be 80 percent to 90 percent less than those of U.S. agents. To boot, most CSRs in India have college degrees, whereas in the United States most CSRs have only high school diplomas. These low labor costs are spurring more and more companies to consider outsourcing their contact centers to service providers in offshore and nearshore locations. The areas experiencing the most rapid growth are India, the Philippines, Canada, and Mexico, according to Datamonitor. Paying a fraction of the cost for more highly educated representatives is compelling, but alone it's not compelling enough to make the move. There are hidden costs that make the decision of where to outsource much more challenging. Travel, training, telecommunications, infrastructure, and dual management expenses can severely erode total anticipated cost savings. There are also intangible costs to consider--mainly damage control and the loss of business associated with the move if customers reject it. It had been recently reported that Dell, for example, was contemplating a departure from India because U.S. customers had difficulty understanding the India-based CSRs. In addition, some customers may simply abandon a company for what they consider an anti-American business decision. This was such a big concern for J.P. Morgan Chase executives when the company moved its credit card--bill payment services facility to India in March 2002 that agents were forced to be evasive when prompted for their whereabouts. "For a long time we were not allowed to tell customers where the customer service reps were located. When agents were asked, they were told to respond: 'For security reasons we can't tell you,'" says Diana Kyser, a former vice president of eCustomer support for credit card services at J.P. Morgan Chase. It was a small outsourcing effort involving only about 30 agents in India, but it was necessary. In January 2002 Chase had launched its online bill-payment site, Chase Bill Management Center, which enables Chase customers to check balances, pay bills, or change address information, all online. However, there was no dedicated support for the site, according to Kyser. The company considered ways to keep the staff within the country and company, but she says it would have taken too long. "It's a big company and it takes time to do large projects," she says. Kyser adds that flexibility, a quick startup time, and costs were big factors in Chase's decision.
At the time Chase had already been working with The Mphasis Group, a Web site--development company with offices in Mumbai and Bangalore, India. So it made sense to send online bill payment inquiries to Msource, a wholly owned subsidiary and business process-- outsourcing arm of The Mphasis Group. As would be expected, getting everyone on board with the idea wasn't easy. "There was a ton of resistance, mainly because of the loss of [U.S.--based] jobs," Kyser says. "But, if companies like American Express and Citibank are doing it, then we can't afford not to do it." Despite the resistance from within the firm, Chase's offshore outsourcing decision has yielded significant returns: By moving bill payment services to India Chase's eCustomer support for credit card--services division saved at least 50 percent on overall support costs, Kyser says. Productivity has ballooned from a few hundred calls per day to 23,000 per month. Last December Chase also gave Msource all its email support business for online bill-payment inquiries, which total 16,000 emails each month. Chase had been paying a Milwaukee company $2.75 per email for email support. Msource is charging Chase only $1 per email response. Chase is certainly not alone in making its offshore efforts pay off. But integral to this success is selecting the right location to begin with. What follows are the pros and cons of the fastest growing offshore and nearshore contact center-- outsourcing locations. Offshore Options Datamonitor estimates that there are currently more than 63,000 agent professionals in India devoted to offshore outsourcing, and that from 2002 to 2003 that number grew 23.5 percent. India is the fastest growing offshore outsourcing hub for U.S. companies, but it is not the only one. The second largest offshore location for U.S. companies is the Philippines. Circuit City, for example, recently signed a contract with TeleTech Holdings to provide telemarketing services in the Philippines. Call centers exist all over the world, so what makes these offshore locations so desirable for U.S. companies? Mainly, analysts say, lower labor costs for highly educated agents. "Wages for labor in countries like India and the Philippines, which have large workforces, can be 80 percent to 90 percent lower than [those] of U.S. labor," says Daniel Hong, an analyst at Datamonitor. Kyser saw the sharp drop in salaries firsthand. "The average customer service representative in India makes about $2,400 a year," Kyser says. "It's [about] 10 percent of what a CSR in the U.S. makes, and that gets them a nice apartment, good clothes, television, and more. It's your typical middle class existence." In addition to lower labor costs, telecommunications infrastructure and related costs are finally at a comfortable level for U.S. companies. Thanks to international private leased circuit networks (IPLC)--undersea cables that connect the U.S. to locations like Asia and India and provide reliable, fixed-bandwidth telephone connections--the cost of telephone calls has dropped from 30 cents per minute a few years ago to 8 to 12 cents per minute today. "As a result, people are moving from satellite communication to IPLC," says Amit Shankardass, solutions planning officer at ClientLogic. Don't let these cost savings fool you, though. Shankardass warns that while international telephone calls cost considerably less than what they used to, they still pale in light of the 3-cents-per-minute rate in the U.S. So although salaries in India compared with the U.S. may be significantly less, some of the savings is lost due to increased telecommunications costs. "A lot of people misunderstand that if labor cost is one sixth of the U.S. cost, then they think their total cost of service should be one sixth if they move customer service to India," Shankardass says. "However, the net-net is, if you move the same work to India it would cost you about 35 [percent] to 45 percent less than the U.S." Industry pundits agree: "You'll run to India because of the cost of labor and amount of labor and education level of the employees. You'll want to turn around and run the other way when you find out what it costs to build the physical building and the infrastructure costs," says Dennis Ross, general manager for global services at Convergys. Nearshore Rationale For companies worried about moving support overseas, or those looking for a hybrid geographical approach to customer support, nearshore opportunities in Canada and Mexico are options. In fact, Datamonitor's Hong says labor in Mexico can be up to 50 percent cheaper than U.S. labor, and Canada's labor wages are up to 30 percent cheaper than those of U.S. labor. After factoring in all costs, including labor, telecommunications, travel, dual-management structures required for different cultures, and the physical infrastructure costs, Shankardass says, Mexico would cost about 25 percent to 30 percent less than the U.S., and going to Canada would save 18 to 20 percent. "Canada remains the most prevalent nearshore outsourcing location for U.S. outsourcers," Hong says. "From 2002 to 2003 there was an 8.3 percent growth in outsourced agent professionals in Canada." Citing the reasons for the growth, he says Canadian culture is nearly indistinguishable from American culture, and as such, Canadian agents are able to speak to and relate to U.S. customers with ease. Organizations with a large or growing Spanish-speaking customer base might prefer Mexico. Mexico represents a geographically close locale with inexpensive and bilingual labor. Datamonitor estimates that the Hispanic population in the U.S. will constitute nearly 14 percent of the total U.S. population by 2004. In addition, 87 percent of the U.S. Hispanic population speaks Spanish in their homes as the preferred language, according to the Direct Marketing Association. This has translated into exponential growth in the Mexican outsourcing industry, with the number of agent professionals rising roughly 30 percent in 2002, Hong says. Taking a Hybrid Approach A call center outsourcing approach does not have to be an either/or strategy and can include both nearshore and offshore efforts. "The larger multinationals are choosing a combination of offshore, nearshore, domestic, and automation strategies," Ross says. Having call centers in different parts of the world makes sense, aside from geopolitical reasons, for a follow-the-sun strategy. "Through a global network of call centers outsourcers are able to provide uninterrupted, 24-hour customer service, without having to pay agents higher fees for working late hours. Offshore countries are in different time zones from the U.S. As a result, companies are able to transfer customer service from the U.S.-- based call center during late hours to an offshore-based call center, where due to different time zones it would be business-day hours," Hong says. Chase is one firm taking a hybrid approach. Last fall Chase announced plans to shut down its Hicksville, NY, Chase Cardmember Services site and lay off its roughly 1,100 employees. Within the first half of this year Chase expects to move the majority of its customer service positions from Hicksville to Vancouver (the company's first nearshore call center), as well as to Houston, San Antonio, TX, Tampa, FL, and Tempe, AZ. And based on Chase's offshore success in India, there will be more to come--or to go, as it were. When asked if J.P. Morgan Chase plans to move additional job functions to India, Kyser says: "Oh yeah, definitely." CLICK HERE to view comparison chart. Contact Senior Editor David Myron at dmyron@destinationCRM.com
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