Wage costs make up approximately two-thirds of the operational costs of a contact center. Indian contact center agents are paid around £1,200 a year, compared with a starting salary of £12,000 an agent in the UK. It is therefore hardly surprising that there is a huge growth in Indian contact centers.
According to a recent Indian call center industry 2003 benchmark study, Indian contact center seats are expected to grow by more than 63% from 96,000 in 2003 to 158,000 seats in 2004, with most of that growth coming from the UK and USA. India already has 1,200 call centers with an estimated turnover of $1.25 billion per annum. The industry is increasing recognized as strategically important for India, and the first-ever ‘Offshore Customer Management International Conference’, to help Western businesses to get first hand experience of offshore contact centers is planned for 20th & 21st January, 2004 in Delhi. “Companies investigating offshore for the first time will have a genuine opportunity not just to hear, but to see and experience real offshore operations and working environments”, says conference organizer, Christina Wood of ICT Communications.
In the UK, the financial services industry has shown the way to shifting call center jobs to India, with several financial institutions having set up centres. Last summer, HSBC’s chief executive Sir Keith Whitson came under fire when he praised the bank’s Indian contact center employees for being more efficient, polite and enthusiastic than their British counterparts despite costing the firm ‘a fifth of the price’. BT is following their lead, announcing in March plans to open two call centers in India, creating more than 2,200 jobs. Pierre Danon, chief executive of BT Retail has confirmed plans to open two call centers in Delhi and Bangalore within the next year. He also said that the number of call centers in Britain will be slashed from around 100 to31, though this will only cut the number of workers from 16,000 to 14,000.
In the US, things are more complex. Canada has emerged as a key offshore center for US contact centers, as has Mexico for Spanish-language centers, though India is still an important center for US companies.
Why India? 250 million English speakers with 15 million college graduates a year helps. Of course, other Asia-Pacific countries are pushing for a share of the market, but, perhaps surprisingly in some cases, their costs are higher. Average transaction costs in India were 29 cents, compared to 52 cents in China, $2.03 in Hong Kong, 54 cents in Malaysia, 37 cents in the Philippines, 37 cents in Thailand, and $1.15 in Singapore. Also, Indian technical aptitude is helpful for the 61% of outsourced traffic that is focused on customer service and helpdesk activities.
However, the huge growth rate is causing significant stresses for the Indian Call Center industry. Datamonitor estimate that staff attrition rates in India have risen from 25% to 30% in the last year (though significantly less than typical US attrition rates of 90%). This attrition is at least in part due to the poaching of agents by Western multi-national corporations from Indian outsourcers. To the delight of the Indian government, an increasing number of Western companies are taking advantage of the benefits that India offers, not through outsourcing, but through direct capital investment or via strong partnerships with onshore outsourcing service providers which resell Indian capacity. In addition, multinational consulting companies, such as Accenture have begun to set up their own centers in India, increasing the number of India-based centers competing for Indian labour and Western contracts. Brian Huff, lead analyst of Datamonitor’s call center research program comments:
“Over the past year, Indian outsourcers, Spectramind, TCS and TransWorks have all been acquired by larger IT firms. Onshore outsourcers with an Indian presence or Indian vendors that are divisions of larger IT companies provide a greater sense of viability than stand-alone vendors without access to capital pools large enough to maintain survival during the Indian offshore outsourcing price wars. To effectively compete against multinational outsourcers, Indian outsourcers must establish a global operational presence. Those without the resources to expand their global reach must become vertical specialists. A multinational onshore vendor, such as TeleTech, with centres in the US, Canada, Mexico and India is much better positioned than an offshore vendor with operations located solely in India to win a contract from a large bank, such as Citigroup, looking to offer 24-hour customer service to its global customer base.”
This increase in attrition may have other impacts on Indian call centers. The Indian call center industry 2003 benchmark study predicts that although 60% of transactions handled by call centers were by agents, the next 12 months may well see the adoption of technology like speech recognition, email, and interactive voice response, to automate an increasing percentage of transactions.
Turning to industry structure, Datamonitor’s report (Indian Contact Center Outsouring: Surviving the Shakeout) predicts that in two to three years, the industry will witness a shakeout, driven largely by consulting companies exiting the contact center outsourcing market, and spinning off their contact center operations or turning over management of their customer care offering to other third-party outsourcers. It also predicts that in five years, the highly fragmented Indian outsourcing marketplace of today will be dominated by large Indian IT conglomerates, smaller Indian specialists and large Western multi-national companies (MNCs) using India as a base for business process outsourcing (BPO) practices.
Of course, this growing trend to outsourcing call centers to India is affecting the UK call center marketplace. The Communication Workers Union is concerned. “It is vital we stop the rot at an early stage,” said Sally Bridge, CWU’s national official. “The finance sector has already shifted call center jobs overseas and it is now spreading to telecommunications, where will it stop? We are primarily a services-based economy. The entire national economy could suffer.”
The emerging response of companies working in the UK call center industry appears to be to focus on investing in new software and training, to improve the quality their operations and the services offered to their clients’ customers. For example, Pierre Danon, chief executive of BT Retail, has announced a £100 million program to modernize call centers and investing in new computer software and training.
So what do we see as the net-net of all these changes? It seems clear that globalization is having a significant impact on the call center industry. With corporations focus on costs, the attraction of India, and other offshore call center countries will continue to grow for major corporations. This is likely to lead to an increasingly standardized service from offshore-based centers. The response of the home-based industry, who cannot compete on price, is likely to be to compete on quality, offering higher quality operations and customer service to the end-consumer.
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