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Customer Inter@ction Solutions
June 2007 - Volume 26 / Number 1
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Business Case for Bangalore: Pros and Cons of Relocating a Contact Center to India

By Doug Tanoury, Customer Interactions Consulting (CIC)


Just as computers and the Internet revolutionized the business world in the 1990s, globalization will have an even greater impact on businesses in the first 10 years of this decade. In 2000 and beyond, globalization in politics, business and culture is having a profound effect on our work lives and on our personal lives. Since 2000, offshore relocation of front- and back-office functions from the U.S. to India has steadily increased (Kripalani, Lee, & Saminather, 2006).

Much of the movement offshore is driven by anecdotal data and the general trend to follow the crowd, which is especially enamored with the mode of offshore operations. What no one seems willing to do is show the actual business case and the results achieved. There is a great deal of hype, but we are a little short on substance. This discussion is focused on the competitive cost advantage that can be achieved by relocating a U.S.-based contact center to Bangalore. The intention of this report is to provide an “apples-to-apples” comparison using the same levels of service and available staff.

________________________Rule of thumb says that payback in 12 months or less makes a good business case. The farther the payback point extends beyond 12 months, the weaker the business case becomes.
The objective of this exercise is to duplicate a U.S. operation as closely as possible in Bangalore in an effort to highlight cost differences and any significant impact to service levels and quality.

Business Advantages: Cost Savings, Cost Savings, Cost Savings
The most significant portion — about 70 percent — of contact center cost is payroll. The goal of any offshore relocation is to a reduction of at least 70 percent in contact center payroll costs and a payback of all relocation and launch expenses within a 12-month period. The 12-month payback period is the hallmark of a solid business case and rapid paybacks of this type are common in contact centers where work volumes are high and the service is labor-intensive. Rule of thumb says that payback in 12 months or less makes a good business case. The farther the payback point extends beyond 12 months, the weaker the business case becomes.

Beyond a rapid payback, the business benefits also involve placing a U.S.- based company in a position to expand front- and back-office operations in Asia while holding costs at a level that will afford competitive advantage. Increased staffing levels, with reduced absence and attrition rates, will provide increased accessibility and decreased wait times for callers, and this will improve customer satisfaction levels.

Risks: What If Customers Don’t Like Ending Up In Bangalore?
Five major risks can influence the success and viability of the business case that is driving offshore relocations.

The greatest risk is a backlash from our customer community in response to the Indian-English accent of the telephone agents. Levels of customer satisfaction can be reduced based on the perception that service levels delivered by Indian employees is inferior to service levels delivered in North America, as well as the concern regarding the impact of outsourcing on the U.S. economy.

In addition, Bangalore is GMT +5:30 while Eastern Standard Time in the U.S. is –5 GMT. This greater than 10-hour time difference may complicate management and communication.
There is a view that dispute between India and Pakistan over the Kashmir region may accelerate into a war, and that this war may escalate rapidly to a nuclear level given the capabilities of the countries.

There is a persistent risk of sectarian violence based on the religious differences of the Hindi majority and the Islamic minority. This has the potential to disrupt normal business operations.

The ever-increasing acceptance and growth of offshore outsourcing may create levels of demand in India that will continue to inflate payroll costs and erode the savings upon which this relocation’s justification is based (Bhattacharjee, 2003, p. 12).

Driving Business Factors
The most notable factors of the current operation driving this relocation are excessive labor costs, elevated staff turnover and the high cost of recruiting and training. In many applications, contact centers are not profit centers and generate no revenue. In most cases, contact centers are viewed as cost centers or a necessary expense of doing business. In short, they represent a cost that must be managed.

High labor costs. Table 1 delineates the typical tiered staffing levels found in many contact centers as well as hourly, monthly and annual costs for North American contact center staff.

Table 2 shows the same staffing levels along with hourly, monthly and annual costs for Indian employees. Indian wages and salary are approximately 77 percent lower than in the U.S. for the same level of skilled labor.

Staff turnover. Overall staff turnover rates of 60 percent annually will be decreased by 50 percent. This will reduce average handle time and training costs. A staff of 500 with an annual attrition rate of 60 percent loses 300 employees annually. A 50 percent reduction in the attrition rate would put it as 30 percent annually, or 150 people a year. That reduces the required payroll while in training from 24,000 hours to 12,000 hours, and this cuts training costs in half. Because the actual rate of attrition may change drastically year over year, it is not included in the payroll savings used to calculate this business case.

Quality issues. Based on a more seasoned and tenured staff, it is expected that quality and customer satisfaction will increase. For purposes of this discussion, it is assumed that the relocation of operations offshore will hold quality at current levels.

Initial training costs. Two weeks of initial training are required and this cost will equal two weeks of pay per staff member. The salary cost is staff based on the number of employees trained times 80 hours. So in our call center of 500 people, let us assume each person receives 80 hours of training. The salary for four instructors for a two-week period is also included in the cost. Training cost for staff will be $171,259 US dollars, and the eight instructors for two weeks will cost $5,122 USD.

Total Cost Savings
There is only one real reason to relocate North American operations in India and that is dramatic cost reduction. Customer contacts centers are comprised of four key operational elements: people, process, technology and facility. It can be assumed that real estate or facility costs as well as technology and processes will be the same in India as in North America. The majority of contact center-related cost is people, so this is the primary cost that all business cases to offshore are based on. The table below shows the comparative payroll costs between North America and India.

As illustrated in Table 3 below, the overall annual payroll savings because of this relocation is $24,565,000, and this includes benefits as well as salary. This is a reduction of about 82 percent of current payroll expenses for a U.S.-based contact center.

Scope Of The Business Case
This section will continue a cost focus, and discuss such areas as facility or real estate fees, technology infrastructure cost, labor and process related expenditures.

Facility. For the sake of simplicity of the business case, it is assumed that the cost of the facility will be identical in Bangalore versus North America. However, furniture will also need to be purchased, so $5,000 USD per staff member should be budgeted for a total outlay of $2,500,000 USD.

Technology. A new telephone system is required at a cost of $1,000 USD per staff member for a total expense of $500,000 USD. All systems are Internet-based and can be accessed via the corporate Intranet. Computer workstations will need to be purchased and installed in India; we should allocate $1,000 USD per staff member for a total expense of $ 500,000 USD. Therefore, purchase and installation of telephone and computer workstations for a staff of 500 will cost approximately $1,000,000 USD.

People. The hiring profile should be easy to fill in most metropolitan areas in India. English language skills and good typing skills are the two primary requirements. Foreign accents remain a problem, but companies have taken some creative steps toward accent reduction in their staff, such as watching American television and movies.

Process. The relocation from a business process standpoint is assumed to be process-neutral, and no gains or losses in overall process efficiency is expected.

The Bottom Line
Relocation costs related to people, process, facility and technology are summarized in Table 4. The expenses in this table were assembled as part of a sample budget and are based on management estimates.

The annual North American payroll cost calculates to $29,893,908 for a 500-person call center operation, versus a $5,328,907.36 annual Indian payroll cost for a 500-person call center operation.

What Now?
The savings realized by relocating North American contact center operations to India is so significant that it represents a compelling competitive advantage. Although savings appear dramatic, a careful business case that includes an in-depth, business-specific analysis is required before projects of this nature are undertaken. More than ever before, globalization is speeding up the pace of change around the world and companies that do not take advantage of these changes are certainly likely to be overtaken by them.

1. Kripalani, M., Lee, L., & Saminather, N. (2006, July 28). Call Center? That’s So 2004. BusinessWeek Online.

2. India. (2006). Country Review. Retrieved October 20, 2006, from Country Watch database.

3. Bhattacharjee, A. (2003, October 29). India’s Call Centers Face Struggle to Keep Staff as Economy Revives. Wall Street Journal, pg. n/.

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