Is the call center finally coming back onshore?

We had a great discussion a few weeks' ago regarding the USA's potential to take on more sourcing work, with increasing unemployment and downward wage pressures.  I've made this point a few times now, but BPO is clearly the bigger onshore opportunity than mainstream application services for the US to muscle in on sourcing work.  And where better to start than the call center?

Bottom-line, President Obama should take a leaf out of Margaret Thatcher's book and examine simple effective ways to provide productive and sustainable employment in depressed areas where industry is in a terminable decline.  I never voted for old Maggie, but she did do one very smart thing during her tenure as British PM - she closed down unprofitable coalmines during the 80's recession, and encouraged businesses to set up call centers in depressed British cities.  Now there are over 650,000 call center employees across the UK. 

Wages in the UK are competitive for qualified staff - and they don't command ridiculous healthcare premiums.  (One major healthcare insurer just increased its premium by 20% this year).  While there are some good investment ideas inthe stimulus package, I would have liked to have seen some focus on business service support areas - as we discussed here.

Protectionist sentiment is swelling. The Buy America provisions in the stimulus bill are symbolic of the increasing resentment towards jobs and work going overseas. I have already seen this provision included in some sourcing RFPs from healthcare organizations and other companies benefiting from bailout money, or with significant public sector influence.

With over two-thirds of Americans filing first-time unemployment claims for the week ending February 21 to bring the total to over 5.1 million, this tide will surely rise. Over the past decade there had been considerable leakage of domestic customer service agent seats to offshore locations. Customer service is returning back to the country, literally. Inspired by the Canadian model and technological advances, customer care is increasingly being delivered from rural America.

The customer service rep is the organization’s ambassador to the caller. The human voice provides the company’s human face. Much of the time when the customer calls it is because something has gone wrong. If the caller cannot understand the agent due to accent issues and/or communicative styles, the problems are compounded. The caller can become agitated and the company may wind up losing a customer. In the present economic environment, just hearing a foreign accent could trip the trigger. Losing dollars chasing dimes is not wise.

Earlier in this decade, there was a mad dash for the low-wages on offer in India - and more recently the Philippines and low-cost Latin American countries such as Peru and Nicaragua. Everything was thrown over the wall once telecommunications technology and the associated costs became less of an issue. A Mercedes Benz owner was furious when connected with an offshore agent, “How can somebody help me with problems related to my car when they have probably never even driven one?”

Like Britain in thn 1980's, Canada has also explored ways to grow its economy, concludingthat the stability of the nation and its people were major assets. It was determined that the call center industry to serve the American market presented an excellent opportunity. Beginning in the late eighties, strategic initiatives were put in place involving tremendously unified efforts by all levels of government and higher education. These efforts were initially intended to address economic woes of unemployment in traditional industries and leverage the value of the Canadian dollar.

The programs proved to be successful, particularly in more rural areas. The Canadian turnover rate was consistently a third of US. As there was less competition in rural areas from other industries for workers, there was far greater retention and a seasoned experienced workforce developed.

American providers have noted the formula along with being able to take advantage of the lower cost of living in many rural areas. Additionally, wages are lower with a reduced turnover rate adding to the value proposition. Human resources consultant FurstPerson reports in its 2008 Call Center Recruiting and Compensation Survey that the average cost of attrition per agent is $5,466.32. Consequently, call center providers are increasingly leveraging opportunities in areas with smaller cities, particularly in the Midwest.

One such provider is West Direct headquartered in Omaha, Nebraska (the oft-dubber "call-center capital" of the US). The business model is based on having 39 contact centers around the country, mostly in cities with populations ranging from 50,000 to 150,000. West Direct also employs home-based agents.

By offering telecommute positions; a much wider net can be cast to attract agents in outlying areas. The employee saves time on commuting and the cost of fuel. The employer is able reduce the costs of a seat in a brick and mortar center while frequently attracting high quality employees at a lower wage. It is common for the churn rate to be in single digits for home-based agents.

Technology, high-speed connections, and Web based applications has enabled companies to tap into rural America with its strong work ethic. Customer care can be domestically delivered at an attractive price point with callers being greeted by a fellow American.  I'll wager $100 we have new call center development in Michigan before 2009 is over.

Comments

[Shekar Panchapakesan]

While this is an interesting discussion, the real issue for most of the Fortune-1000 is that you can't force the genie back into the bottle. The offshore call centers in India and elsewhere are now integral parts of these companies' customer service organizations. For companies that are just starting to evaluate offshore call centers, the above discussion may be relevant, but for those who already have them, bringing them back onshore is an impossible cost-benefit argument to make.

[Susan Tait]

While doing some research on the labor pool in Portland OR, a recruiter told me that a couple of research studies found that Portland people placed a "higher than usual" premium on civility and getting along. She couldn't cite the study, but she did say that was why Bank of America, Wells Fargo, Norm Thompson, and a few other places do have call centers here and the decision was driven by the local culture.

I'm not sure I could see that happening nationally, but culture (and microcultures) do count for something. As does good spoken English.

[Youa]

Our company, for many years now, has always advocated for the Captive on-shore set-up of Shared Services and BPO vs. Off-shoring.

This is great news that people and organisations are now beginning to see the true context of things and are becoming more proactive about captive on-shore set-ups.

As per the words of our Company's Mission: "If a Captive on-shore shared service centre truly achieves a defect-free and fully automatised status, there would be no particular reason for considering off-shoring solutions to simply achieve short-term sighted cost advantages without tackling the underlying People, Process and System quality challenges... These short-cut options can only be seen as easy escape-outs after having failed to successfully create a true fully defect-free and automatised Captive on-shore SSC."

[Jeff]

We need to keep an eye on exchange rates to get a full sense for the potential here. Even if the commercial tax code is changed to make creating jobs offshore less attractive, if INR and PHP continue to lose against USD and GBP, offshoring can continue to make economic sense if done at scale.

It is certain that wage inflation in developing economies, combined with deteriorating standard of living in US and UK, will eventually create an inflection point for these types of services, but I think it's still 5-7 years away based on the cost disparity I see today.

[Phil Fersht]

Marinko,

The tax incemtives will surely drive most US firms to source cc work onshore. And I can't see a lot of UK / other companies going through the transition pain of moving work to Africa from countries such as P'pines / India, which are highly experienced and low cost when it comes to voice. The economy's too bad right now for many firms to take that risk, but can see firms in the future looking at some of these African locations. I'd see more interest in Northern African locations, such as Egypt, which support middle-eastern and European languages,

PF

[marinko]

Interestingly, there was an news article on the bbc today about call centers moving from India to Africa. So they may not be coming home just yet - which is a pity!

[Colm Connolly]

I think in recent years outsourcing/offshoring has been considered to provide such significant gains to companies operations that the negativity such moves generated in the customer base was pretty much outweighed.

Now, with companies looking to trim excess capacity due to over supply and/or lack of demand see onshoring as a way not only to deal with that surplus but also to generate a sense of customer good will and a "patriotic" public image boost also (see United Airlines recent decision to bring back some of their roles to the USA from India for an example).

Whether any incentives to do this will come from the government, I don't know. However I think the positive image garnered by companies "onshoring" in the face of the current crisis will certainly sway other companies to do this.

Colm Connolly

[Jerry E Durant]

Very sound and practical information. What is interesting is that with the advent of remote call routing technologies you don't even have to have a facility but simply a network. This reduces operating and personal commuting costs.

There was a time when we were considering the development of a linguistic frontend that gave the option to a caller which dialect they would prefer. This goes to show how much of a problem language was.

Still there are issues surrounding scripted response, solution attention and pricing that still needs to be arranged.

[Daniel Hancock]

Excellent article. I think everyone's fed up with god-awful offshore call centers. If we can recreate new employement opportunities and improve the customer experience at little, or no, extra cost, I think we're all for that.

[Naomi Bloom]

Whem we moved to Fort Myers in 1999, there were large call centers all over this part of Florida, including GE's F&A back office. Most all were gone by 2004, leaving behind a great workforce, low cost of living, and first-rate facilities at cut-rate prices, and that was before the recession. I'm sure our local Office of Economic Development would be delighted to work with any company interested in moving back office work to Southwest Florida.