July 2003

By Shailen Gupta, Renodis

In today's troubled economy, companies are searching for new and innovative ways to help them weather the storm. Outsourcing has traditionally been one of the options used by companies looking to trim costs and reconfigure business models. Outsourcing gives companies the ability to focus on areas of competitive differentiation by moving non-core parts of a business to an outsourcing provider. By outsourcing, costs are changed from fixed to variable and business services are performed by providers that have mastered processes and technology in a manner that presents significant efficiency advantages. Over the past few years, however, the nature of the game has changed. Companies, both small and large, are looking outside of national borders ('offshore') in search of further outsourcing benefits.

Offshore outsourcing provides all of the same core benefits as traditional outsourcing to a U.S. provider but at price point that is significantly less than anything seen in the past. Wages of customer service reps in offshore countries can be as much as 80 percent lower than those of their U.S. counterparts and employees often have better educational qualifications. The jobs that can be moved offshore range from lower-end inbound and outbound customer contact services to higher-end technical support and value-added business processing.
Because of the tremendous amount of buzz and activity around offshore outsourcing in the call center industry, almost all industry participants today have, at least in some capacity, considered moving their call center to a country like India, the Philippines or Ireland. Many call center executives have explored the offshore outsourcing option with cautious optimism, often seeking answers to some very basic questions before undertaking such an initiative. Can I really save 50 percent and maintain my current service levels? Can I effectively mitigate the risks of doing business with a lesser-developed country? Can I overcome accent and cultural differences? Will the network infrastructure provide me with the kind of reliability my customers demand? The answer to all of these questions can vary widely based on the offshore country you eventually decide to do business with.
One of the most basic, yet critically important decisions a call center executive will make during the offshore outsourcing process is country selection. The country decision is important because ' at a macro level ' many of a call center vendor's operating practices (management style, business culture, adherence to process and quality standards, etc.) are strongly influenced by the country they are headquartered in. Each country presents its own set of unique challenges and risks as well as benefits. Executives should look at a multitude of country-level characteristics to determine country suitability for an outsourcing initiative. The wrong choice can lead to disaster.

The country choices are many and the supporting data, more often than not, is inconclusive. In an attempt to promote their respective countries to new businesses, government officials and vendors will often use exaggerated claims or inflated figures to help make the case as to why their country is the destination of choice. As more U.S. companies seek to outsource call centers globally, more countries are emerging to benefit from that demand, each with its own particular strengths and weaknesses. Countries as familiar as Canada to others in remote parts of the world like Sri Lanka and Malaysia are emerging as real options for call center executives.

A country analysis should begin with the development of important criteria that will be used to compare the multitude of country options available. The criteria should be developed based on general requirements as well as requirements specific to the call center. The following list of criteria should provide a good starting point to the analysis:

Maturity of market. Look closely at companies that have successfully moved call centers offshore and the countries they have selected. Many Fortune 500 companies have spent many months selecting a country, supported by rigorous evaluation methodologies and country-specific research. Review case studies of these companies to understand why they selected a specific country and if they were successful.

Support by government. National and local governments provide financial incentives to companies looking to set-up call centers in their respective countries. These incentives can be in the form of tax credits, government-funded infrastructure or eased regulatory requirements. Developing countries are notorious for slow bureaucracy and red tape, which often can present significant problems for U.S. companies.

Infrastructure. Relative to the U.S., offshore countries often lack basic infrastructure requirements such as power, roads, public transportation and communication networks. Many countries without these basic infrastructure elements have tried to create government-sponsored technology parks with mixed success. Often these technology parks satisfy basic requirements for a call center with dedicated and redundant power and communication systems. The reliability and cost-effectiveness of a country's communications infrastructure is an important component of running a world-class call center and should be evaluated carefully within each country.

Wage rates. Many countries such as India and the Philippines offer wage rates that are as much as 90 percent less than U.S. wages. Ultimately, one of the main drivers for outsourcing a call center to a foreign country is cost savings. Since staffing costs represent 60 percent of operating costs for a call center, fully loaded wage rates within each country should be understood.

Labor pool. Macro characteristics of a country's labor pool, including education, size, language and work ethic, should be evaluated. Many smaller countries score well across several of these characteristics but lack a critical mass of population.
English. Countries like India offer an abundance of English-speaking college graduates, whereas a country like China offers limited English skills. Companies should determine whether English is a primary or secondary language in each country.

Accents. Although a country might have an abundance of English-speaking resources, heavy accents may present serious issues for U.S. call centers. There seems to be a growing frustration today by consumers who are forced to communicate with customer service reps with heavy foreign accents. Often, accent characteristics of resources within a country can be altered through accent training or 'neutralization' programs. These programs have yielded mixed results.
Geopolitical risks. Geopolitical risks of war, terrorism or civil armed conflict have emerged as serious concerns for companies looking to move call centers overseas. The past year has shown that many regions are prone to violence that can be damaging to businesses operating there. The possibility of war between Pakistan and India or political and religious violence in the Philippines makes geopolitical risk an important evaluation criterion.

Legal environment. Intellectual property protection, labor laws, data protection and overall ability to enforce contracts are important legal questions to explore in each country.

Cultural differences. Business and social cultures are often very different in foreign countries relative to the U.S. Many U.S. companies fail to realize that businesses in foreign countries may operate under different standards of work ethic, risk taking, organizational structure, etc.

Geographic location. Often companies are faced with the nearshore versus offshore decision. Countries such as Canada and Jamaica are easy to travel to and call centers may be more easily managed as compared to call centers in Asia.
Table 1 is a brief profile of the country leaders in the burgeoning call center outsourcing market.

As more country choices become available, country selection will play an increasingly important role in the offshore outsourcing process. Many of the potential failure points and risks can be avoided with proper country selection. Although today countries like India and the Philippines remain popular outsourcing destinations, call center executives are increasingly looking at alternate and additional countries to mitigate country-specific risks. Companies are often faced with a cost savings vs. risk tradeoff. Moreover, political uncertainty, war and terrorist-related activity have many companies rethinking their offshore outsourcing strategy. Because the industry is still in a nascent stage, over time we will get a good indication as to which countries can effectively develop world-class call center capabilities. For now, the jury is still out.

Shailen Gupta is president of Renodis (www.renodis.com), a player in the rapidly expanding offshore business process outsourcing (BPO) market. Before co-founding Renodis, he served as the CFO of ITRadar, a business-to-business exchange focused on the IT services industry, which was sold to a Gartner subsidiary in August 2000. Shailen also has extensive experience in building and operating companies in India. Renodis is based in Minneapolis, MN, with a client service center in Chennai, India. For more information,
contact sgupta@renodis.com.

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