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Changing shorelines in the call centre sector

5th Sep 2007
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MyCustomer.com

Offshore? Nearshore? Homeshore? What is the difference and do any of these have a place in the contact centre landscape of the future?

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By Neil Davey, editor

Few topics in customer management are quite so emotive as that of contact centres. And when the contact centres in question are offshore, you are talking about an issue that could practically be jailed for ‘incitement to riot’. But with the sector maturing and public concern quelling, surely it’s time for a reappraisal of the pros and cons of contact centre offshoring?

The original wave of offshoring started some 15-20 years ago, as American companies began to realise big cost advantages in countries such as India. Although the trend started in areas such as back office transactional activity, businesses soon started to experiment with voice to voice customer contact. Britain was soon to follow suit.

“The UK market, particularly in financial services, was drawing up impressive cost saving strategies for organisations, and what made it appealing was the cost of serving customers,” explains Anne Marie Forsyth, chief executive of the Customer Contact Association. “Because of the complexity of products, the need to contact companies was on the increase and companies were becoming perplexed by volume. And so there was a compelling reason to reduce these costs.”

As the sector developed, so firms began looking to expand their offshore capabilities, particularly on the sales front – in some cases, arguably at the expense of the customer service operations. This was the first sign of problems.

British backlash

As offshore call centres became increasingly common, public discontent began to grow. A survey of 1,000 UK adults in 2004 by call centre industry analysts ContactBabel revealed that three quarters said they felt more negatively towards their supplier if they used offshore agents; one in seven who used an offshore call centre in the previous year protested by taking their business to rival firms.

One in seven who used an offshore call centre in the previous year protested by taking their business to rival firms.

On the back of a handful of high-profile thefts in offshore centres in 2005, research from Nationwide revealed that 78 percent admitted they had concerns about the security of personal data when dealing with an overseas agent. And although public opinion of offshoring seems to have softened - Forsyth emphasises that the issue is “settling down now…offshore seems no longer to be an emotional debate” – businesses are still portrayed as having concerns. Last year a British corporate backlash against offshore call centre operations was forecast after several firms, including energy supplier Powergen, shut centres abroad to move back to the UK.

Peter Ryan, senior analyst of contact centre outsourcing at Datamonitor, dismisses such reports as merely exploiting the bad name that the industry has unjustifiably attracted in recent years. “The tabloids splash a horror story that some company has had with a contact centre in India, and over the next few weeks you will see all the major organisations that have contact centres abroad talking about their emphasis on quality control and data protection, or removing some seats in India as a reaction to these concerns,” he says. “But what you don’t hear about are all the firms who still have their contact centres abroad and who are very pleased with them.”

BT is one company that has been happy to go on record about its satisfaction with offshore contact centres in the past. In 2005, BT became one of the first companies to speak out against the “myths” that surrounded offshore outsourcing. Dismissing some customers who complain about language difficulties with Indian call centres as “bigots” BT’s procurement officer Meryl Bushell also emphasised offshoring’s improved customer service and “substantial” cost savings – estimated to have been in the region of 40-60 percent on everything it had moved abroad.

Voting with their feet

There are still doubters, however. Research by Compass Management Consulting stresses that the advantages of using offshore call centres for the likes of banks and insurers are diminishing as wage costs continue to rise in markets such as India. The study, which looked at 50 call centres, also suggests that poor service and language difficulties can lead to calls taking twice as long as in UK-based operations.

"In too many cases, service quality is being compromised by an offshoring decision that fails to deliver the level of savings anticipated." Simon Scarrott, head of business development and marketing, Compass

The consultants conclude that shutting a UK call centre and shifting the work to India, for example, can deliver savings of up to 15 percent in the short term - but in the longer term the benefits are less significant, particularly in terms of longer call times. “The key issue is to what extent savings are real, sustainable and continue to enhance the consumer experience,” says Simon Scarrott, head of business development and marketing at Compass. “In too many cases, service quality is being compromised by an offshoring decision that fails to deliver the level of savings anticipated. Rushing into an offshoring decision on the basis of short-term costs can deliver a double whammy of customer dissatisfaction and higher unit costs over the long-term.”

Compass believes high street brands are increasingly repatriating call centre activities and points to insurance firm Swinton, which views its UK-based call centres as a competitive advantage and – whether related or unrelated to this - is showing strong growth. "Offshoring is the result of businesses being run by accountants and is the cheapskate end of cost-cutting, without looking at the quality of service,” CEO Patrick Smith has said. “We're seeing customers voting with their feet, and also the likes of esure and Norwich Union drawing back from offshoring this year.”

Nevertheless, experts insist offshore call centres continue to form a significant presence, despite some companies pulling their customer care services back to the UK. “There is still a lot of work going to an offshore presence because people have realised what they can do,” says Forsyth. “And the good news is that organisations wishing to look at offshore can now examine lots of case studies and see what works and what doesn’t, whereas two or three years ago there were no such studies. There is real evidence now, and lots of experience.”

A new wave

Indeed, a growing number of firms are also looking to maintain their interest in offshore contact centres but by utilising resources closer to home. Nearshore call centre destinations are soaring in European nearshore regions such as Central & Eastern Europe and North Africa, as companies look to exploit the regions’ economic stability and educated, multilingual labour pool. Considered lower risk, albeit higher priced, than typical offshore locations, whilst still lower cost than an onshore location, countries such as Czech Republic, the Baltic states, Poland, Hungary, Romania and Morocco have emerged as particularly popular nearshore destinations in terms of customer care and contact centre locations, with other alternatives such as Egypt and Malta also proving increasingly attractive.

"Organisations wishing to look at offshore can now examine lots of case studies and see what works and what doesn’t, whereas two or three years ago there were no such studies." Anne Marie Forsyth, chief executive, Customer Contact Association

“The first wave from Eastern Europe was from Czech Republic, Hungary and Poland because they were the new EU countries with good English comprehension skills,” explains Ryan. “Since joining the EU there has, however, been a flood of young, educated and multilingual people from these countries taking advantage of their mobility and travelling to other parts of Western Europe. This has pushed up the price of outsource agent positions in these nations. But now there are a bunch of new EU countries, most notably Bulgaria and Romania, and they are going great guns in attracting contact centre work because they haven’t had the outward migration and tend to be cheaper.

“The hidden gem for Western European countries, however, is Egypt. It has around 200,000 graduates each year who are multi-lingual and there is commercial sophistication and real will on the ground for the industry to succeed. There are several local providers right now and the big news is that Teleperformance, one of the leading contact centre outsourcing providers globally has just announced that it is going to be moving into Egypt to set up its own facility.”

Nevertheless, with nations such as Czech Republic and the Baltics having considerably smaller populations than the likes of India, Ryan deems it unlikely that the nearshoring phenomenon will overtake offshoring. “Most nearshore locations don’t have the scalability,” he emphasises. “One of the most nearshore locations I have visited is Malta. But it is only 500,000 people and is hard to scale upwards. HSBC put in its own contact centre in Malta with around 250 positions, but if it was to double that capacity you would see a huge run on contact centre agents in the country and wages and costs would go up astronomically. And that is a fact that a lot of these countries face.”

Home-based skilled talent

A further alternative, and one that has been gathering momentum in the US, is homeshoring. Another form of outsourcing, homeshoring utilises a home-based skilled pool of talent including older people, parents, disabled and other mobility-restricted workers. In the States Gartner has already predicted that one of every 10 US call centres is likely to shift some work to home-based agents in the next two years, whilst IDC estimates there are already over 100,000 US agents fielding calls from home.

"Offshoring is going to remain an attractive option to a lot of companies – but it all depends on the company in question." Peter Ryan, Datamonitor

Whilst not as cheap as offshoring to the likes of India, homeshoring offers firms the opportunity to tap into specific expertise whilst avoiding any quality control issues associated with some offshore centres. “Some organisations have already been quite successful with it in the UK – AA has done some, as has BT,” says Forsyth. “There are pluses and minuses. There are cultural issues surrounding control and centralisation which companies need to get over. But once you get past that and put procedures in place then it can be done, and we have had a lot of enquiries about it. Companies really want to do it because they realise it will help them with things like attrition and they will get much better skilled staff.”

Homesourcing promises to attract a very professional and capable demographic at cheap prices. Issues relating to security and monitoring are issues that at present are consistently raised amongst prospects, and the at-home agent industry may have to come up with a palpable way of allaying these fears to meet its potential. But a growing number of bricks and mortar players getting into the sector, and the likes of leading global contact centre outsourcing firm TeleTech launching its [email protected] initiative in the UK, there are grounds to suggest that Britain could be following the example of the US.

Nonetheless, it is offshoring that continues to be the biggest call centre draw. With significant cost savings to be made in the likes of India, and with the public furore appearing to quell, the allure of offshoring looks set to remain undiminished. Whether the likes of nearshoring and homeshoring will capture the corporate imagination in quite the same manner as offshoring remains to be seen. But for those firms looking to uproot their call centre operations, there are now a host of options available, both home and abroad.

“Offshoring is going to remain an attractive option to a lot of companies – but it all depends on the company in question,” says Ryan. “Companies find that there is not necessarily a ‘one size fits all’ solution for contact centre outsourcing. There are a lot of investors who feel that their offshore deployments have been fantastic, but that they want to diversify their strategy and have some centres at home, in areas that are more critically sensitive in terms of being done in a domestic location. And then they may also want to look at nearshore options too, looking at locations that are a little bit closer to home, maybe a little more expensive but where cost savings can still be had, and that is more accessible and with a few more guarantees around quality control.”

“The only mistake firms make is when they don’t think about their customer first,” concludes Forsyth. “If companies jump into a cost saving exercise they will suffer for it. But if they go through the business plan, think about the brand and ensure they understand real customer needs before deciding to do something offshore or nearshore, then there is nothing wrong with that. They just have to do their homework.”

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