The Lure of Offshore
Monday, April 05, 2004
The Lure of Offshore
Offshoring is worth doing
correctly because it taps into qualified low-cost labor. Here's what you can
learn from the experience of others.
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Step back from news coverage of American firms "exporting their jobs."
Mute the din of election year promises to stop the "shipment" of US employment
"offshore."
Now take a hard look at offshoring: locating call centers or
outsourcing programs handled in low-developing countries and regions like India,
the Philippines, Africa, Eastern Europe, the Caribbean, Mexico and most of
Central America.
Offshoring saves call centers 20% to 50% on operating
costs and often - but not always - improves service.
Geri Gantman,
senior partner, R.H. Oetting (River Edge, NJ), says that Wall Street demands
companies shift labor off their books. That also means off the shores if it
improves financial results.
Expect offshoring to grow as the US economy
bounces back, due in part to the rising value of the American dollar against
other currencies, and in part to rising costs and a tighter labor supply.
Dennis Smith, president of PacTac Advisors (New York, NY), predicts the
economic arguments will wear down political and public relations resistance,
just as the cost case for offshoring manufacturing did two decades ago.
"When companies shrink their labor forces they are reluctant to offshore
because it lowers morale and it doesn't look good," says Smith. "But as
companies add staff those job loss concerns go away or are minimized."
Offshoring Issues
The chief issue impacting offshoring is poor
cultural affinity between offshore agents and American customers, which risks
customer satisfaction and retention problems.
Dell's recent withdrawal
of high-end support from India has been cited as evidence of this.
No
matter how well trained a foreign agent is and how often they watch American
media outlets like CNN, they don't know what it's like to live in America.
With offshoring becoming a political issue there is legislation in place
and more in the works that could affect call centers if expanded.
For
example, WashingtonTechnology.com reports that the Thomas-Voinovich amendment to
the federal budget, which President Bush signed on January 23, 2004, prevents
offshoring of new federal contracts.
Offshoring magnifies the issues
involved with site selection and outsourcing. Assessing, choosing and managing
locations, property, vendors and people is much more difficult when they are
based in foreign countries that have unique cultures, laws, practices and
languages.
There are the long flights and travel hassles in
"far-offshoring," like to India. If there is a problem with a call center in
Mumbai, and it needs face time to solve, going there is much more involved than
if it happened in Moncton, Canada or Mobile, Alabama.
Offshore
developing nations tend to have poorer infrastructure, be more bureaucratic and
corrupt and are usually more politically unstable than developed foreign
nations.
There are security risks facing offshore US call center
managers and trainers, in-house and outsourced programs alike. Many offshore
nations are not safe. Americans can become crime targets.
You also run
data security risks when offshoring. US laws such as HIPAA require that you
safeguard American data no matter where it's handled. That also affects your
third-party vendors, for which you are responsible.
But it is more
difficult to protect data if it leaves the country, especially to a developing
offshore nation, which may not have the same safeguards or enforce them as
readily as in the US.
Martin Conboy, CEO of callcentres.net (North
Sydney, Australia), is picking up anecdotal evidence that some Asian call center
staff are being coerced by organized crime and industrial spies to hack into the
foreign firms' computer systems.
"But that can happen anywhere," he
says. "That includes one's home country. It is just another issue that
organizations need to be aware of in their risk balancing analysis when
considering offshoring."
Offshore Turnover
There are growing
turnover and wage escalations offshore that threaten to make them less
competitive. A recent NASSCOM report sets Indian turnover at 52%. The
Philippines risks becoming saturated with call centers.
However, Bryan
Mekechuk, partner, Pacific Crest Consulting Group (Saratoga, CA), who wrote a
report on Indian business processing outsourcing published by the Zelos Group
(San Francisco, CA), thinks the issue is overrated and not well understood.
The turnover rates are acceptable for a country and labor market the
size of countries like India. There is also no shortage of potential call center
labor for the next three or five years.
Most Indian call centers do not
know how to manage a certain level of turnover, he points out. Only the savviest
call centers understand the total cost of labor and manage their turnover
appropriately to keep their cost structures tight.
"People who complain
that Indian call center turnover is too high do not understand turnover and call
centers," says Mekechuk. "Turnover is part of a call center wherever it is
located. Recruiting, hiring and training never stops in call centers."
Yet there are special and more prominent conditions, especially in
Indian call centers, that are pushing up offshore turnover and crimping
recruiting.
Suresh Gupta, managing partner with The Paaras Group (West
Harrison, NY), explains that most US-serving Indian agents work graveyard
shifts. This is because when it is 3:45 pm in New York and 12:45 pm in Los
Angeles, it is 2:15 am the next day in New Delhi.
But those hours
discourage women from working in call centers, inhibit social life and cause
family and relationship tensions, he says.
Also, Indian agents are
becoming discouraged when discovering little advancement or career growth in
call centers. Only one in eight agents can hope to move up the ladder. Most
Indian agents are college-educated, ambitious 20-somethings who were lured to
call centers by high salaries.
These two factors have combined to knock
down call centers from their status as quality jobs. Status is very important in
India.
"It used to be that people were proud to say they worked in a
call center," says Gupta. "Now they say they don't do 'call center work' but
instead they do 'business process or IT outsourcing work.'"
Mistakes to
Avoid
YJust as poor application, implementation and management have too
frequently given call centers, outsourcing and CRM bad raps, similar errors made
in offshoring have done likewise to that strategy.
These mistakes
include jumping into high-end support and outsourcing without gaining experience
at the low end and in outsourcing domestically.
Geri Gantman points to
Lehman Brothers, which pulled back its outsourced internal help desk from India.
"Lehman underestimated the complexity of internal help desk calls, and
the training and process documentation involved," says Gantman.
Gupta
explains it takes several years to fully understand another nation, especially
one that is as culturally complex as India.
He blames part of the
well-publicized poor service on poor quality outsourcers and on US clients that
willingly contract with the lowest-priced vendors - without performing adequate
due diligence.
"Just as you outsource in the US, you must invest in
evaluating prospective vendors' experience, capabilities and customer feedback,"
Gupta points out. "It's doubly important in India since the call center market
is immature, fragmented and full of inexperienced vendors expecting to make a
quick buck."
Is Offshoring Worth It?
Put these trends together
and you may ask: is offshoring worth the hassle? Aren't we better off paying the
higher cost to have customer contacts handled in the US, or Canada instead?
King White, senior vice president, Trammell Crow (Dallas, TX), says his
clients are increasingly asking themselves those questions. Many of the projects
set up in India were pilots and many of these are coming back to the US
unsuccessful.
"The low-end, back office data entry, e-mail and chat will
stay in India with many higher end voice services coming back to North America,"
predicts White. "The Philippines will be more successful than India in retaining
voice services because American English is spoken there, but only if the
saturation can be managed."
Some consultants recommend thinking
out-of-the-box on call center labor. Paul Stockford, founder of Saddletree
Research (Scottsdale, AZ), suggests locating on American Indian
reservations, specifically the Navaho Nation.
Jack Heacock of Jack
Heacock and Associates (Parker, CO) advises teleworking to eliminate facilities
costs, raise productivity and tap into new labor supplies (more about this in
next month's Teleworking article).
John Boyd, president, The Boyd
Company (Princeton, NJ), sees more of his clients, especially financial services
firms, asking him for guidance on offshoring.
They have seen their
competitors and peers dramatically lower their costs. But they are also aware of
the customer satisfaction problems and opposition to offshoring.
"The
difficulty lies in quantifying and tracking the customer satisfaction issues to
analyze their impacts on revenues and profits," Boyd explains.
Do It,
But Do It Smartly
Offshoring is not for every call center or program.
Organizations that are leery about cultural affinity, consumer and political
backlash and that do not want to put considerable effort into starting and
maintaining such projects or partners should not do it.
Oetting's
Gantman points out that it isn't so much the offshore outsourcing program type
but rather the client that drives whether offshoring will be successful.
Users who are highly experienced in outsourcing and have established
infrastructures for managing outsourcers are much more likely to consider going
offshore.
"A client who desires close ongoing and often on-site
participation with their outsourcers will be better served staying in the US,"
recommends Gantman. "Unless their programs are large enough to support this kind
of on-site presence or they have management in the offshore location."
Gupta recommends against offshoring highly sensitive work, such as
serving high-end customers. Companies can't afford to lose top-quality customers
through any misunderstandings.
You should only look at having your
high-level work offshored when you have gained several years' experience
outsourcing and offshoring less-sensitive work and have a sufficient business
case for doing so.
A 2003 NASSCOM/Evalueserve report says it costs an
average 18% more to manage projects offshore than onshore, no matter the size.
The lower the volume, the more the impact of the additional management costs.
"There is no compelling reason to move your higher-grade work offshore,"
says Gupta. "There is not the same cost savings as there is with high-volume
commodity calls. Also the expenses are higher because you need to spend more
money selecting the very best agents and training them more rigorously."
To make offshoring work there must be internal cooperation from all
levels of management, says Gantman. You must have your staff members on the
project, including overseas at those centers, in setup and ongoing.
"You
can't 'fire-and-forget': turn over a program to an offshore vendor and walk
away," says Gantman. "Solving problems become harder if the call center is 3,000
miles away or more."
Near-Shore Alternatives
One route around
the offshore obstacles is nearshoring to developed or nearby developing
countries.
John Boyd sees growing interest by in-house call centers in
nearshore locations. He cites Canada, Northern Ireland, Australia, New Zealand,
Argentina, Chile, Costa Rica, Mexico and Spain for the US Spanish-speaking
market.
"These countries are well-positioned to benefit from the growing
corporate concerns of quality customer service, political stability and
security," explains Boyd. "They also have sizeable domestic markets or access to
regional markets that justify having centers there."
The downside with
nearshoring is that the cost advantages are smaller: typically, 8%-15%, compared
with 30% or more with offshoring.
With the US dollar declining in value
against other currencies and with turnover and costs starting to climb in many
of these nearshore locales, their appeal is at risk.
Australia and New
Zealand, for example, have little value proposition for US contacts, says White.
Both countries also suffer from long travel times. Instead, consider Australia
as a base to serve the Asian market.
There is more of a nearshoring
business case with Northern Ireland. Larry Buchsbaum, marketing manager, Invest
Northern Ireland (Boston, MA), says it is not competing against India for
high-volume commodity-grade contacts.
Northern Ireland only has 1.7
million people. But it has a quality labor force, many of whom speak languages
other than English, a large number of college graduates and single-digit
turnover. Northern Ireland is also becoming more politically stable.
Northern Ireland's niche is high-end/high-touch call centers, such as
business-to-business and tech support, enabling companies to serve their UK,
other European and American customers.
The dropping US dollar has caused
Canada to lose much of its competitiveness, in the short-term. The Canadian
dollar's comparative worth has risen by 17% over the past year.
Even so,
US-based site selectors and Canadian economic development agencies and
consultants have not seen a letup in projects.
Susan Arledge, principal
with Arledge Power Real Estate (Dallas, TX), says there is still sizable
savings, especially when adding in Canada's provincially-run health care system
that eliminates the need for employers to pay employees' medical costs.
"We're seeing an integration of Canadian and US locations, in the same
matrix, instead of Canada being looked at separately, like India," she explains.
"We're being asked to examine US and Canadian sites on average wages,
unemployment, underemployment, saturation, facilities and incentives and cost of
doing business."
The Sutherland Group (Rochester, NY) opened its first
Canadian center in Sault Ste. Marie, Ontario in December 2003. It also opened a
new 1,500-agent call center in Chennai, India.
New centers are in the
works for JP Morgan Chase in Surrey; Telerx in Penticton, British Columbia; and
Convergys (Cincinnati, OH) in Brandon, Manitoba and Cornwallis, Nova Scotia.
Frank McKenna is the former New Brunswick premier who is credited with
starting the foreign-shoring revolution. In the late 1980s, his Liberal
government identified call centers as a means to create jobs for the province's
large numbers of well-educated but unemployed workers.
In partnership
with NB Tel (now Aliant), the province started to attract American-serving as
well as Canadian call centers to New Brunswick.
Since leaving office in
1995 McKenna, an attorney with McInnes Cooper (Moncton, NB, Canada), has worked
on call center projects on behalf of clients such as Aliant and TeleTech.
"There has been a lot of talk about offshoring but it hasn't diminished
the business coming into Canada, including New Brunswick," he says. "Instead, we
are seeing higher-value outsourced projects, outsourcers and in-house call
centers coming into Canada."
Making It Work
Offshoring's
benefits are compelling enough, with the right program or project, to find ways
of making it work.
To cope with cultural affinity, train offshore agents
to listen and understand what callers are saying so they can empathize with
their calls more, reports Mekechuk.
In the top firms, agents go through
rigorous 80-hour accent neutralization and cultural training, including training
agents to pronounce words differently, for American (or UK) ears. Trainees must
pass these classes before they are qualified to answer calls on the call center
floor.
Agents then take on easy-to-understand and pronounceable
pseudonyms, to avoid raising any unnecessary questions that could lengthen
calls.
But if you or your outsourcer's agents use pseudonyms, make sure
they register them internally, as required by the Telemarketing Sales Rule. All
US telemarketing rules apply offshore if the agents talk to Americans.
He advises against agents faking accents or locations, which some
offshore call centers do.
"If the offshore agents come off as being
fake, you violated callers' trusts," warns Mekechuk. "If that happens, you risk
losing business and make it more difficult to continue or expand offshoring."
Mekechuk recommends that you or your offshore-outsourced partner take
steps to protect privacy, in compliance with FSMA, HIPAA and other legislation.
Keep all data onshore: in a secure server such as a Citrix server,
either for US or foreign-based outsourcers. That way agents only see what is on
their screen; they cannot download any information. Also, deploy secure
transmission means such as encryption through VPNs.
You should record
and archive calls onshore. You and your outsource partners need to consider
disabling removable storage media, such as disk drives and CD burners on PCs.
Further, don't allow people to take notes but if it is necessary as part
of their jobs, provide shredders. Restrict access such as with turnstiles to
prevent unauthorized visitors tailgating. Top-tier outsourcers take these
measures but lower-tier firms may not.
"No firm should compromise
security whether they outsource or locate offshore," stresses Mekechuk.
Tony Chase, CEO of ChaseCom (Houston, TX), says his firm has been
operating in India for the past three years, partnering with an Indian
outsourcer.
"We've managed to maintain tight control of projects by
having our people conduct the training and front-line supervision of the agents
assigned to his clients' projects," he says. "It's also possible for all client
data to simultaneously reside in the US."
Agent Retention
To
curb agent attrition offshore deploy many of the same techniques you would use
in the US: effective screening, better amenities, and better career development
prospects. But you should adapt these programs to fit local cultures.
During his recent visit to Bangalore, Gupta found that call centers are
entering into mutual agreements not to hire applicants they had worked for at
least 12 months in their old jobs.
Convergys has been tackling the night
shift issue at its Indian call centers by recruiting specifically for the shift.
The outsourcer lets applicants know immediately the hours they are
expected to work. It plays orientation videos and outlines the medical and
social effects of working that shift.
The agents receive their initial
training on the shift in which they will most likely be working. Supervisors are
also trained to watch for signs of fatigue and to react to how the employees
might be feeling adjusting to the job and to the change of hours.
Supervisors suggest eating healthy, balanced meals and maintaining a
consistent sleep schedule including during the off-days to cope with the hours.
"If employees are not ready to work that shift and if they try to
maintain the same kind of social life as when they worked or studied days, then
they are going to find it difficult to adjust to the job," explains Dennis Ross,
general manager, offshore operations.
Convergys also offers postings to
daytime work, such as e-mail response and IVR response transcription. Much
coveted by agents is live-call handling from 24x7 US operations and from the UK.
Morning in Newcastle is afternoon in New Delhi.
Ross acknowledges that
the limited advancement from call centers is an issue. Last year Convergys
promoted agents into 180 supervisory/management openings in India. Among 7,000
employees, 2,000 applied.
"We carefully select and train supervisors and
managers," says Ross. "We look for management skills such as previous management
experience and strong interpersonal skills. The good news is that we are seeing
very qualified applicants."
Blendshoring: Best Of All Worlds
Just as you've gotten used to the notion of offshoring, some are
advocating a more conservative middle ground, called "blendshoring." This is a
mix of onshore [US], nearshore and offshore locations that balances cultural
affinity, disaster response, currency risks and labor costs and quality.
For example, with blendshoring if an earthquake hits your bureau's
Indian call center, it can shift part of your program to South Africa with the
rest to the US. Or if you needed more Spanish-speaking agents, you can ask your
Mexican call center to add more workstations and direct more calls there.
The leading firms have centralized their switching and workforce
management onshore to permit program shifting from one country to another.
Bureaus offer blended prices based on the locations selected.
To assist
clients in determining the best strategy - onshoring, offshoring or nearshoring
and how best to implement them - outsourcer LiveBridge (Portland, OR) recently
launched a professional services division.
The unit offers assistance
examining operational efficiencies, technologies, vendor selection and
management, site selection and design, facility management and technology
hosting. It has already completed consulting, assessment and benchmarking
projects.
ICT Group (Newtown Square, PA) deploys a blendshoring
strategy. It has call centers in the US, Canada, Mexico, Barbados, the
Philippines and soon India.
Duffy Campbell, ICT Group's executive vice
president, global sales and marketing, says several clients have migrated work
from North America to offshore locations.
Precision Response Corporation
(PRC; Plantation, FL) keeps a percentage, determined jointly with the client of
the offshore work onshore.
"We do that to provide a domestic benchmark
for offshore and provide business continuity in case there are problems
offshore," says Alicia Miyares, PRC's vice president of marketing.
