This article originally appeared in the May 2011 issue of Customer Interaction Solutions

Where to land contact centers and programs – onshore, nearshore or offshore – is becoming less of a strategic permanent commitment to any one place and more of a tactical decision, and for good reason. Each locale’s labor costs and quality, infrastructure, currency, security and stability must be carefully weighed against the caveat that these factors can quickly be altered, as economic conditions and political events and disasters graphically (and tragically) illustrate.

Changes in corporate needs also affect shoring decisions. As firms increasingly focus on retaining existing customers by bolstering service and, from this, attract new ones, so grows the emphasis on having agents who can provide top-notch performance, wherever they are located.

Customer Interaction Solutions interviewed several leading global BPO firms and onshoring/offshoring experts on key trends and factors involved with shoring decisions:

• Judi Hand, chief marketing officer, TeleTech (News - Alert) (www.teletech.com )

• H. Karthik, vice president, Everest Group (www.everestgrp.com )

• Jeffrey Puritt, president, TELUS (News - Alert) International (www.telusinternational.com )

• Peter Ryan, lead analyst - BPO and Contact Center Outsourcing and Services, Ovum (News - Alert) (www.ovum.com )

• Amit Shankardass, global chief marketing officer, Sitel (www.sitel.com )

CIS: What trends are you seeing that are affecting where contact center programs are landing?

Hand: At TeleTech, the trends we’re seeing are driven heavily by our client demographics. Our client base is skewed toward higher value market segments – organizations with increasingly complex customer needs that are seeking differentiated customer experiences through integrated CRM and technology solutions.

As a result, the trend is to base programs in locations where the talent has the credentials to deliver an excellent customer experience. Top factors for program placement include workforce quality, education levels, cultural affinity, language and technology infrastructure. In addition, currency and exchange rates will continue to factor in to the decision process for offshoring locations.

With these criteria in mind, TeleTech continues to see strength in bricks-and-mortar centers in the Philippines, Latin America and the U.S. We’re increasingly using TeleTech@Home (our work-at-home solution) solution to meet client demand in the U.S. and internationally.

Karthik: We foresee a mixed bag for offshoring in contact centers. While companies will continue to offshore, they will do so more selectively (i.e., only if it can result in an enhanced customer experience coupled with reducing costs). Highly sensitive customer touchpoints (e.g., for mortgage loan defaults) will continue to remain onshore.

Overall, customer retention has become a key business focus for companies given the crisis due to the slowdown in new customer acquisitions. Consequently, there is a paradigm shift in expectations from contact center work. On a cost arbitrage basis, offshore locations are 50-70 percent lower costs than source (originating onshore) locations. Even if there are additional costs to manage in the offshore model (e.g. attrition), the net savings impact will still be significant for source geographies.

Offshore locations that offer a strong proposition based on language, cultural affinity, accent, will experience growth. Examples include Philippines for the U.S. and South Africa for the U.K. Nearshore locations to the U.S. (e.g. Central and Latin America) are also likely to experience growth given their Spanish language proposition. Providers will develop a global footprint: a mix of onshore, nearshore and regional centers to cater to business needs.

Puritt: For many companies, price has often been the primary consideration when selecting an outsourcing location. However, with wage escalation and rising attrition rates, particularly in traditional offshore destinations like India, outsourcing offshore may becomes less attractive. Additionally, the time and expense of traveling to offshore outsource partners’ premises in order to manage and interact with them may also be a challenge. These considerations are driving some decisions to either repatriate work from Asia back onshore to the U.S., or to a nearshore destination like Central America. Enhanced geopolitical stability and infrastructure in Central America has materially influenced this trend as well.

Ryan: We are noticing a fair amount of economic nationalism in the contact center community. There are many outsourcers that are announcing themselves as more favorable to keep programs onshore, if possible, rather than moving them nearshore or offshore. That is a reflection of the times, of the concern about job losses at home. There are also concerns about quality and compromising data security with offshoring, which are being fueled by the drug wars in parts of Mexico and the recent instability in Egypt. With that in mind, companies are becoming wary about going offshore. There are many thinking about hanging on their onshore contact centers and expanding, instead, in Canada and Eastern Europe, as opposed to going to cheaper, but much more risky, locations.

These trends holding back offshoring are not going to last, though. As the economy moves into recovery, companies are going to find it will be a lot tougher to handle contact center work at an affordable price onshore. Recent rising inflation numbers will hit home in rising wages and benefits.

Shandarkass: There are several trends we’re seeing with the selection of geographic locations. In the U.S, there is a growing sentiment of having a certain piece of work serviced domestically. Several clients are specifically looking at customer segments, product types or service types and are re-visiting their domestic sourcing strategies.

There is also an increasing interest and demand for homeshore or home agent capabilities among businesses in the United States. We’re seeing this for a number of reasons. It provides a more flexible, cost-effective delivery, due to lower infrastructure requirements and enhanced recruitment through a deeper, more geographically dispersed, labor pool. It even helps strengthen a businesses’ carbon footprint as agents are not commuting to work. Due to the overall increase in outsourcing, companies are seeing interest in continued offshoring. This is taking place in large part to geographies such as the Philippines, Latin America and to India, as well as to emerging locations, such as Nicaragua, Poland, Bulgaria and Romania.

CIS: There have been well-publicized concerns about offshore quality. Is offshoring competitive, when that perspective is accounted for with onshoring?

Hand: You can’t paint offshoring with such a broad brush. It begins with location selection. If a company is simply looking at labor arbitrage and seeking the lowest labor rates, the initial savings are ultimately consumed by inefficiencies and customer dissatisfaction.

TeleTech goes to great lengths to match locations with our clients’ complex needs. We place programs in locations where we expect to deliver an excellent customer experience in terms of efficiency metrics (like call length), as well as outcome-based metrics, like customer satisfaction and net-promoter scores.

Karthik: Leading U.S. firms, especially banks, have offshored 10-30 percent of their workforce in contact center work. Clearly, the offshore model has been successful. However, it requires investments in appropriate training and talent development programs. When these are put in place, offshoring can yield similar or, in some cases, even better performance compared to source locations (e.g. U.S., U.K.) It is also important to note offshore locations tend to attract a more qualified pool for contact center work (e.g. tertiary graduates in the Philippines) compared to source locations.

Puritt: Offshoring to a low-cost provider just to save money may help the bottom line in the short term. Yet, in our experience, it creates problems resulting in poor service and potential brand damage over the long term: escalations, repeat calls, customer complaints and poor customer satisfaction. It is little wonder the current trend is to repatriate customer-facing work back from offshore.

Cost reduction alone drives the wrong behavior. Rather, service excellence should be the primary focus of any outsourcing partnership: and you will get what you pay for. Companies have begun to recognize this.

They are now looking to find sustainable improvements in efficiency and effectiveness and are selecting vendors and partners that have a demonstrated track record of expertise, wherever they may be located.

Ryan: Quality issues would have been bigger 10 or so years ago. The training offshore agents now receive is so high that I’d be surprised if the number of missed, disconnected, longer or escalated and repeat calls are significantly higher than that for onshore agents. While there may well be issues, I don’t think they are as necessarily pervasive as what may be propagated by certain anti-offshore journalists. For if you are going to do offshoring properly, you are going to have to focus on quality training, retaining good agents and ensuring that issues are resolved the first time.

When the economy begins ramping up again, turnover is going to increase, as U.S. and Canadian workers who took contact center jobs because they had been laid off from employers in the fields in which they were trained will be hired back. This is going to reduce the number of quality people willing to work in contact centers and, with this you can easily have service-related issues happening onshore too.

Shankardass: There were outlandish claims in the early days of offshoring in terms of what it could deliver in cost savings, like 40 percent. When companies look at it exclusively from that perspective, they begin to fail, because they put the wrong kind of work in offshore locations, and they have the wrong kind of expectations for what type of technology benefits they could get.

Sitel believes offshore outsourcing is still an economically viable option. The question companies should be asking is what those economics look like. If companies choose cost savings as the sole reason for going offshore, without balancing the ensuing potential changes in customer satisfaction, empathy and perception, that’s when they fail. Businesses just have to balance what the expectation of that is, and be pragmatic and reasonable to what one would see in terms of cost savings.

CIS: Are firms and clients thinking twice about having programs handled in at risk nations and regions like the Middle East, Mexico and the Philippines?

Hand: Business success comes from well planned strategies that mitigate risk, and the markets where we do business, such as the Philippines, were chosen because their many benefits typically outweigh the risk. We work with clients to implement globally diverse strategies, along with a blend of bricks and mortar and TeleTech@ Home solutions to mitigate risk whenever possible. This strategy gives clients a diversified solution that is not overly reliant on any single geography or business model. Clients are comfortable implementing these diversification strategies because we enable seamless global routing capabilities along with consistent technology, processes and training, which ensure a positive, reliable customer experience around the globe. We use our cloud-based technology to dynamically route traffic and manage global queues in real time, while keeping systems in sync and delivering simultaneous training and monitoring.

Karthik: The recent political unrest in North African countries will pose concerns to investors’ confidence in these countries. Companies will think seriously about risk diversification and business continuity strategies. While natural disasters have affected Philippines, they have not impacted BPO operations in a meaningful way.

Puritt: As an integral part of their due diligence process, firms and clients have to carefully evaluate where they locate their contact center operations. Along with price, location stability continues to be a top consideration. It is, therefore, important to look at specific country risk factors – like political stability, currency changes, and team member safety – when deciding where to outsource operations. It is also important to ensure your outsourcing provider has strong business continuity and disaster recovery plans in place to address such risks. There is inherent risk in choosing to locate one’s business operations in an emerging market. But that’s where the opportunity for considerable reward exists as well.

Ryan: The Middle East was setting itself very nicely to take on a lot of English and multiple European language work. Investors are now going to be very cautious about going into any location there. Many large BPO firms have opened centers in Egypt, especially over the past two years; it is going to be challenge for them to continue operations and to educate their clients on the stability of having their programs handled there. It is also going to make investors and clients wonder about other neighboring countries that have attracted offshore centers, like Morocco or others seeking them, like Jordan.

Places like the Philippines will continue to grow, despite the risks; there is no evidence of the contact center growth there slowing down. As for Mexico, in spite of the violence, is still extremely popular and is seen by the American enterprise community as an extremely stable location. The economy is perceived to be moving in the right direction, labor is affordable and higher-end English language skills are relatively easy to track down. Monterrey, the country’s business capital, had attracted many contact centers, but was in lockdown last year. It has since calmed down and none of the contact centers have left, and the contact center work pipeline is getting filled, which are positive signs.

The world got into a false sense of security with offshoring and nearshoring with pockets of incidents like the Mumbai bombing. What the Egyptian turmoil has done is to show that a big country can be turned upside down very quickly and the impact that will have on Western investors. It has acted as a reality check. A fairly prominent figure in the outsourcing community told me: “When you go into offshore destinations, you are not just taking on a lower cost point, but you are also taking on a significant political risk.”

Shandarkass: With the advent of offshore outsourcing, many countries have come into play that were not really looked at as viable outsourcing locations in the past. Companies have become prudent in how they source their work globally. It’s a concept we call global sourcing: choosing the best location for the right type of work, and having the appropriate level of disaster recovery programs in place. The reason Latin American countries have seen growth in offshore outsourcing is because companies have chosen to diversify outside India and the Philippines.

These companies don’t have all their eggs in one basket, and have better disaster recovery or backup options. Natural disasters happen in any part of the world, and the key to effectively responding is having an efficient disaster recovery plan in place. Political unrest is another factor that heavily goes into the decision-making process. For companies that are offshoring in a smart way, they are creating buckets of work in different parts of the world, so they can leverage one part of the world over another when natural disasters or political problems occur.

Where To Serve Hispanic Customers

Hispanics represent one of the fastest growing U.S. population segments. There are now over 50 million Americans of Hispanic/Latino origin, the U.S. Census Bureau reported March 24, 2011 a 43 percent jump from 35 million in 2000. Hispanics now comprise some 16 percent of the U.S.’s 309 million residents and amounted to more than half the nation’s 27 million population increase over the past decade. The expectation is that the Hispanic population and market will continue to grow over the next decade to nearly 60 million by 2020.

Yet, while many non-English-speaking populations in the past quickly dropped their primary languages to assimilate into American society, such is not the case with today’s Hispanics. Instead, they are retaining their Spanish fluency, reports Michael Curry, chief of business development, Conexion-One (www.oneconexion.com), a U.S.-headquartered BPO firm with a 3,100-seat capacity contact center located in Mexico City.

Moreover, Hispanics will prefer to speak in Spanish, even when they know English, especially on involved customer service, support, and sales calls. Curry has observed this firsthand. His wife is from Cuba and grew up on the West Coast; his household uses both English and Spanish interchangeably.

“If you have to get details, go technical and show compassion, you have to go to Spanish when speaking to a Hispanic household,” recommends Curry. The question is where to best serve the American Hispanic population, and the consensus that is emerging is nearshore, to cut costs and to obtain access to higher quality staff. Of these countries Mexico continues to be a prime location. The narcoterrorism that wreaked havoc in its northern and border cities has quieted down, enabling its labor arbitrage benefits to once again grab corporate attention.

Mexico also has another important benefit, says Curry: cultural affinity to American Hispanics. Americans of Mexican descent comprises far and away the largest group of Hispanics: 67 percent compared with eight percent for the next largest, Puerto Rico, reports the U.S. Census. The accent, tone, pace and words used are friendlier in Mexican Spanish – a key to keeping customers on the line – compared with that of other countries, such as Cuba, Guatemala and Puerto Rico. It is “akin in English between Alabama and New York City,” reports Curry.

Do not overlook other and affordable, high quality and politically stable Latin American countries, such as Chile, Colombia, El Salvador, Guatemala and Honduras, advises Peter Ryan, lead analyst, BPO and Contact Center Outsourcing and Services, Ovum. U.S nearshore programs have worked very well in those nations, which also have cultural affinity to American Hispanics. Colombia, for example, has a strong but subtle and very effective sales culture. This attribute makes that nation ideal for contact center work requiring cross-selling and upselling on customer service calls, which more companies are seeking in order to grow revenues and cover costs.

“Colombians are very good at warm sales and can sell you something without pushing it,” says Ryan. “I’ve bought items there without initially intending to just by the way they engage with you.”