By Bill Rose, Founder and Executive Director, SSPA

SSPA Members: access the entire white paper here

In the last five years there has been a new industry developing that has great impact on the future of the service industry within the United States. Offshore outsourcing for call centers has created plenty of emotion, politics and concern as Americans see thousands of jobs moving away from our shores and it does not appear that they will be coming back any time soon.

Like appliance manufacturers that moved production from the Midwest to Mexican maquiladoras or apparel firms that moved production to the Far East, businesses of all types and sizes are now shifting back-office jobs to international locations such as China, India, and the Philippines where the labor is inexpensive and highly skilled. But this current wave of outsourcing seems different. Americans are concerned about what long term impact will be created for our youth and lower income families that would typically take a job in a call center.

However, there are several situations where outsourcing one or more functions may offer companies significant advantages:

1. A company may lack certain skill sets needed to accomplish a strategic objective.

2. A company may be in a highly volatile call-volume market where trained specialists are needed to handle periodic overflow calls.

3. A call center may have high internal costs for relatively simple calls.

Outsourcing can also speed implementation of a function because the key components and infrastructure are already in place at the outsource agency. Today, many companies are considering outsourcing, and for them a key consideration is whether the function supported by the call center is a core competency of their business. This frames the counter argument to the job loss issue; outsourcing is the prime alternative for layoffs and is a strategic tool for saving costs.

Traditionally, international outsourcing — or offshoring — transferred the responsibility of manufacturing and the production of physical products such as clothing or footwear. The global spread of online media, however, has given rise to a new kind of international outsourcing that involves the export of knowledge-based work. Known as business process outsourcing — or BPO — this practice encompasses everything from computer programming to call center staffing and medical transcription. While such BPO practices have existed on a relatively limited scale to date, they are poised to expand rapidly in the future.

The Challenges in Managing Global Operations

With the global telecommunications infrastructure now well-established and consistently reliable, BPO initiatives often include shifting work to international providers. Five BPO international hot spots have emerged around the globe, although firms from many other countries are specializing in various business processes and exporting services:

1. India: Engineering and Technical

2. China: Manufacturing and Technical

3. Mexico: Manufacturing

4. United States: Analysis and Creative

5. Philippines: Administrative

The chief problems facing the United States arise from the prevalence of companies adopting the low road to competitiveness, with its focus on the reduction of labor costs (whether by downsizing, de-unionizing, moving facilities to domestic or foreign nonunion areas, or outsourcing production to nonunion operations). In the advanced capitalist countries, along with low wages come low skill levels, which in turn are increasingly associated with low quality and low productivity. The social inequities that inevitably accompany such a strategy (poverty, wide income disparities) have to date seemed acceptable, at least to the individual companies choosing to take the low road. These growing social problems have, however, become increasingly salient in national and state-level political debates and in the lives of millions of U. S. workers and families.

Outsourcing can be a complicated arrangement. When choosing a provider, it is recommended that cost savings not be the only criterion used and that customer satisfaction (performance) be the basis of any contract. The case also highlights the need to be culturally sensitive or globally sensitive. As U. S. call centers enter global spaces and global call centers enter U. S. markets, the need to interpret and translate cultural imperatives is important. We have seen a number of Indian call centers come into the United States without success because they failed to partner with U. S. businesses to communicate the advantages and benefits of outsourcing to India.

IT functions have been outsourced to such an extent that the “New Silicon Valley” centered around the city of Bangalore, India, which became a major outsourcing provider for IT functions as a result of its lower costs and advanced processing skills. This led to the growth of large Indian outsourcing firms such as Infosys, Tata Consultancy, and Wipro.

Of course, there have been challenges as well. A project intended to be strategic fails to deliver the value and devolves into a pure commoditization of the work. This may lead the company to bring some or all of an operation back on-shore or to another locale where a smaller net cost differential may exist but the intended increase in capability is realized. In December 2003 Dell Computer very publicly brought some customer support for its corporate clients back to the United States from India in response to customer complaints over the quality of service they were receiving. Does this mean that Dell is abandoning offshoring and outsourcing?

Certainly not. What it means is that Dell is responding to its customers, adjusting its business, learning from the experience, and planning for future improvements. Insiders say that Dell actually didn’t reduce its overall workforce in India at all. At the same time this work was brought back into the United States, work in other parts of its call center operations were shifted to India.

People Issues and Offshore Call Centers

Rapid growth among outsourcing vendors has created a dynamic labor market. Key personnel are in demand for new, high-profile projects, thus, may be recruited by other offshore vendors. Offshore vendors will often quote overall turnover statistics that appear relatively low; what you need to track is the turnover rate of key personnel on your account. According to an annual report released by the META Group, common turnover levels are in the 15 to 20 percent range and drafting contractual terms around those levels is a reasonable request.

Given the fact that many call centers still suffer from considerable employee turnover, it is of absolute importance that would-be agents are carefully selected and trained. Having a balanced and systematic procedure for recruitment in place helps a great deal in finding the best man or woman for the job. Partnering with an outsourcing professional may save time, money and energy. Whether it is one person or 1000 people new customer service representatives must do the work in the process and manner expected. Work flow and work process should be documented. With documented workflows managers know what is happening and can make strategic decisions regarding how many people are needed and who should do the work.

The time and effort to transfer knowledge to the vendor is a cost often overlooked by buyer companies. Indeed, we observe that most organizations experience a 20 percent decline in productivity during the first year of an outsourcing agreement, largely due to time spent transferring both technical and business knowledge to the vendor.

Global outsourcing is a fast-growing aspect of the world economy. It has been estimated that 3.3 million jobs worldwide will move offshore. The strategic benefits for firms can be portrayed as a means to reduce costs, improve asset efficiency, and increase profits. Criticisms of outsourcing have often been in the areas of changing employment patterns, globalization of labor force, and its effects on individuals and organizations. Some proponents believe it will turn firms from vertically integrated structures into virtual organizations and transform existing fixed structures into variable-cost structures where expenses can move up or down as the business climate dictates. For employees, the trend toward outsourcing has been thought to result in a loss of fixed-employment opportunities as a consequence of firms seeking to use cheaper labor overseas.

The Future of Offshore Outsourcing

Offshoring is frequently blamed for the agonizingly slow pace of recent job growth in the United States. Despite a recovering economy, the response from Congress has been to include in a fiscal 2004 spending bill a provision prohibiting federal agencies from outsourcing some kinds of work to private companies that use workers in foreign countries. Twenty-three states are also considering similar restrictions and 4 have already passed them. An example of one such effort is the proposed state Senate bill in Colorado, which was intended to bar the use of offshore workers to perform services such as call-center operations. It was only shelved because the Senators thought the price tag of $24 million was too high.

Ireland, Central America, and South America, especially Mexico and Brazil, are in the mid-range for both attractiveness and acceptance. They are, however, moving in opposite directions. Ireland has been losing share, especially in the call center field, to India, whereas South America is just beginning to gain acceptance among Western businesses.

As firms become more global in their outlook and operations they find themselves working with diverse cultures. Speedier transportation and communications affects the way management must think and act as it transcends national borders. Culture is a slippery concept, but for convenience’s sake, the term here will be used to mean a set of beliefs held in common by a group of people about economic, social, and political forms of behavior. How people believe and behave is a product of their heritage as well as the present influences in their lives. Culture exists on numerous levels. Management theories, typically developed “by Americans for Americans,” face their most serious challenge as cross-cultural studies are made.

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Comments? Suggestions? We would like to hear from you. Please email the editor at sspanews@thesspa.com.

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