The Future of Offshore Call Centres – From 2008 to 2013

[Rob OMalley]

In 2002, I wrote “The Future of Offshore Outsourcing” on how the offshore call centre industry would develop. I had predicted a short-lived honeymoon period with investors, employees and customers losing much of their early excitement with offshoring before moving on to the consolidation period which we are now in. In hindsight, my predictions become so true that in 2005, one American industry website called me “The futurologist of call-centres”. The tabloid media in both The US and The UK were quick to criticise offshore call centres in the same way they had done when manufacturing moved East decades before. In India, attrition rates amongst staff rocketed to over 100% in the tier 1 cities and many offshore vendors have gone bankrupt and as the $ has fallen rapidly against the rupee, this has only sought to escalate this problem. Those with a limited insight into the industry believed that there would be wide-scale homeshoring of call centre activity which we have not seen nor will it happen. In a consumer survey that I commissioned in 2007, most people believed that the driving force for offshoring was about increasing profit for shareholders but this isn’t the whole story. It is of course a key driver and we have seen that in general the share price of those companies who do offshore have increased at a far faster pace than those who don’t. Between 2002 and 2007, the share price of Natwest increased by little more than 10% but the share price of Barclays doubled. Of course, the fact that Barclays offshore heavily and Natwest don’t at all is not the only differentiator between the 2 companies but it is one reason why the share price at Barclays rallied so much. I have studied the share prices of countless numbers of competitors where 1 company offshore and the other one doesn’t and the one who did almost always had faster share price inflation. However, the reason why homeshoring won’t happen on any significant scale is that there simply isn’t the labour pool willing and able (with the emphasis on willing) in The UK. In The US, AT&T tried to homeshore 5000 jobs but despite spending massive amounts on the homeshoring project has only managed to fill 1500 positions. The situation would be even worse in The UK where the labour market is even tighter. Many of you would have watched a recent program where young British people in East Anglia were turning down fruit picking jobs paying £7 per hour which were then being filled by Eastern European migrants. Unfortunately, very few Eastern European migrants are working in The UK’s call centres and it is likely to be a generation before we see significant numbers doing so. In a nutshell, homeshoring simply isn’t an option. UK-based call centres are already struggling to find anywhere near enough staff and simply could not accommodate the positions currently being offshored. Overall, offshoring will continue to rise but at about 10-20% per annum for the next 5 years with some positions being brought home but even more going overseas.

There are a number of trends relating to both the general economy and to more specific factors which will determine what will happen between now and 2013. Most analysts now seem to believe that we are heading for an economic downturn and some are even using the dreaded “recession” word. However, recession puts conflicting pressures on offshoring. If we do go into recession, companies will be looking to scale back capital investment which means that companies tend to outsource more but not necessarily offshore. However, with companies under pressure to reduce expenses, much of the outsourced work will go offshore. A significant recession may also have a positive impact on homeshoring. If there is more supply in the labour market, then companies may opt for UK based agents. Given there is a general election looming, we may even see some political pressure to keep call centre jobs at home in light of a declining labour market.

What will the industry for offshore outsourced call centres be like in 2013?

Based on the key drivers for the call centre industry, we are likely to see a substantially different industry in 2013 to what we have now with the following trends taking place:

- There will be almost no offshore call centres under 200 seats. At present, there are 100’s of this size of company. They will either merge, be bought or in most cases, go bankrupt. The few that will survive will be highly specialist in certain industry sectors or applications.
- Despite media speculation, homeshoring will be almost non-existent with a net rise in offshore seats and the offshore industry growing at a slightly faster pace than domestic outsourcing. Each business will determine that certain applications work better in different geographies and adjust their operations accordingly.
- Outbound telemarketing will become increasingly obsolete with the vast majority of those vendors participating in pay-per-performance telemarketing will cease to exist.
- India will have a smaller percentage of the overall offshore market as clients look to move to higher quality locations such as South Africa and The Philippines.
- Business will increasingly move away from Tier 1 cities to smaller cities. Some players will dominate the local labour market in these cities to reduce attrition rates. These cities will include cities such as Clark (Philippines), Cebu (Philippines) and a number of cities in South Africa.
- Clients of outsourced call centres will become increasingly sophisticated in their decision making process and accreditations will become increasingly important.
- Issues which have previously been given a negative press in The UK will be eliminated for the vendors which remain in business. These include quality of telecommunications, security of data storage, accent/language issues. When you look at the higher quality vendors, these are non-issues already. Those who do not step up to these standards will not be able to compete.
- The costs for offshore services will stabilise unless we see dramatic changes in the £:$ rate. Most offshore vendors look to make US$ profits and many of their costs are also in $’s. A fluctuation of more than 10% from the current market value of the $ either way is likely to be impacted in the £ cost to UK businesses.
- Wage inflation will remain high in some cities such as Bangalore, Delhi and Manila. In tier 2 cities, wage inflation is likely to have a far lesser impact on call centre vendors.
- Many of the countries who have attempted to establish themselves as offshore destinations will fail. We have seen that even in India where English quite widely spoken, not just anyone can be an agent. In countries where English speakers are simply good linguists such as in Poland or Egypt, their industries will not be able to meet the quality demands of the next decade. However, some countries where English is widely spoken in Africa and The Caribbean may grow small but significant industries.

Cities ideal for call centre expansion 2008-2013

Clark Philippines
Durban South Africa
Johannesburg South Africa
Cebu Philippines
Davao Philippines
Baguio Philippines

Cities likely to contract in call centre seats 2008-2013

Bangalore India
Mumbai India
Warsaw Poland
Delhi India
Kolkata India
Chennai India
Cairo Egypt


Overall, the offshore call centre industry is actually in quite a strong position. The sentiment of 2002 has been replaced by a reality that offshore can work coupled with a requirement for offshoring that has never been stronger. Negative consumer opinion will quickly be removed once the vast majority of calls are handled by the more professional call centres and evasive telemarketing slows down dramatically.

About The Author

This article was written by Rob O’Malley, The UK Managing Director of Cyber City Teleservices which has operations in a number of cities in The Philippines and South America. Rob has over 15 years experience in the call centre industry in both The UK & Asia. A veteran of SITEL, Inkfish and Teleperformance, Rob spent 6 years as the leading pioneer in the call centre industry in The Philippines. More information on Cyber City can be found at www.cctll.co.uk

[Mahtab Afgan]

I really appreciate the article however you might have over looked Pakistan.

Thanks and Best Regards,

[Anthony Mitchell]

Some contrary predictions:

1. Quality and sophistication of offshore agents will climb as global education and culture homogenizes.

2. Domestic demand in China, India and Pakistan will climb steadily.

3. Small international call centers will thrive, but not as independent companies. Instead, they will follow U.S. patterns of small branch facilities in residential areas.

4. Homeshoring will increase as gas prices and congestion make commuting impractical in many countries.

5. QA practices will experience a moderate reversal, with many U.S. and U.K. centers using offshore centers for QA of U.S. and U.K. agents.

6. Real-time Internet-based qualitative feedback techniques will become popular, enabling customers to rate agents from company websites with click-to-call capabilities.

7. Indian call centers will set up facilities in Pakistan to serve U.S. and U.K. clients, capitalizing on low-cost-talent-pools and on PK companies’ shortfalls in marketing efforts to bring in good programs.

8. Indian companies will continue to expand their footprints in North and South America and Europe, thereby giving clients broader choices for service delivery options.

9. Enforcement actions against unregistered offshore call centers operating B2C campaigns in North America will increase.

10. Dedicated fiber lines will become more popular as top-tier call centers seek to shield their customers from disruptions caused by DDOS attacks by criminals seeking to bring down large portions of the Internet.

11. Call center managers from India and Pakistan will increasingly be recognized as world class and will be sought after for global management positions.

12. Vastly improved speech recognition and speech automation systems will allow call volumes to increase while agent hours decrease.

[Anthony Mitchell]

Here is an article that I published today on the future of the call center industry:

http://www.crmbuyer.com/story/What-Does-the-Future-Hold-for-the-Cal...

[Anthony Mitchell]

Racketeering prosecution under RICO settled against Wachovia for telemarketers’ use of their ACH/EFT services.

Criminal charges can (and should) be pursued against telemarketing personnel. See this October 13, 2008 report:
http://www.law.com/jsp/article.jsp?id=1202425213471&rss=newswire

[Raj Sukheja]

Hello Mr. Malley.

A splendid and credible effort. Bravo!

Rgds
Raj Sukheja
www.anthemindia.com
[phone]

[Ankit]

Dear Sir,
I am student at cardiff university, UK and am working on paper for comparison of Indian and UK call centre. Could you please help me by providing the demograpics(year 2005 onwards) of call centre Industry for these countries (e.g Total number of call centres in india/uk, agent positions,breakdown by vertical market,outsourced call centres,etc.).
It would prove to be of great help for me. My email address is [e-mail]

Thank you.
Regards,
Ankit

[Cora Llamas]

Hi, Rob

Interesting article. Would it be ok to pitch this (e.g. ask permission from the publishers) to print your story (with your name and credentials) on the BPA/P newsletter? Thanks!

Cora

[Cora Llamas]

Hey Rob,

I just re-read the article again. You first posted this on March 28. Has any of your perceptions/insights changed since the US financial crunch that hit the world only a week ago?

[Rob OMalley]

Cora

You're more than welcome. I don't think the fundamentals of future prospects for offshore outsourcing change that much. If anything, the following changes are taking place as a result of the economic turmoil.

(1) Companies are holding off from making decisions in major new investments.
(2) Offshoring will take a bigger % of the overall outsourcing market as a result of shrinking margins.
(3) There may be a short-term downside in some industries which are directly impacted from the credit crunch but you're likely to see more work in areas such as debt collection to offset this.

Rob

[Hamish]

Hi there Rob

I am suprised that this blog hasn't received more replies, it provokes some great thought
My comments are:
More and more Eastern Europeana are workign as call centre agents in the UK. They are hard working, reliable and determined, I had a discussion with a HR Director recently where he said he would take as many as he could get his hands on

Having just set up a 200 seat centre in Cape Town, I foresee South Africa being a real threat to the Indian dominance of the UK offshore market in the next 5 years. Especially Durban where costs are up to 15% less than Cape Town, let alone the UK, and the education levels are excellent as well as a natural customer service focus

Pakistan an option is interesting, it makes living in Jo'burg look like a walk through Hyde Park and the country is virtually bankrupt,

and as for Pakistan and India QA'ing US and UK work, well you only have to look at the quality of the adverts placed by Asian on this website to know that they are a long way off that capability

Regards

[Anthony Mitchell]

Hello Hamish,

Good point about Durban being an excellent location. You’re on target about the time frame for building up an industry in SA. Once there is sufficient managerial talent, SA will do very well.

SA avoids the major drawback we’ve seen in Kenya regarding unreliable voice lines.

I’d like to present a more upbeat perspective to the comments is in regard to South Asia. It’s not fair to characterize the call center industry in South Asia based on the comments posted on this website.

While there are certainly a few good facilities represented here, the bulk of the participants on this site from South Asia are still struggling with the basics of marketing, professional communication, and service delivery in a global environment. [See: Test Your Global IT Business Skills, Strategies for ideas on improvements.]

Many (if not most) of the participants from South Asia on this site are poorly disposed to invest in the training and marketing efforts that would be needed to advance them to the next level in the industry. That doesn’t give a black card to the entire industry in South Asia.

If you were to visit a range of facilities in India and Pakistan, I believe that you would be as impressed as I am. There are lots of operations there that can meet or exceed the best U.S. based operations.

South Asian call center industry people are like the people in my family. When they are good, they are very, very good. When they’re bad, they are awful.

[Rob OMalley]

I have to agree with Anthony. When I first started outsourcing work overseas back in 1999, the quality of the agents and the overall project management in India was incredible. 1 year later, when I moved to The Philippines, I found exactly the same. Fast forward to 2008 and the market is very much different. Location really isn't an issue any more...it's all about the quality of the vendor. An Australian guy I met in Manila gave a great analogy when he said "Bondi Beach is an amazing beach and it would be even better if the whole of the UK hadn't decided to come and sit on it". In reality, there are minimal barriers to entry to setting up in any country and the bigger the pool of exceptional candidates, the more centres will move there and the demand for quality agents outstrips the supply. Back in 2000 in Manila, we would receive 1000+ applicants per job and would cherry-pick the best ones and they'd be great with minimal training. Now, with so many call centres, you have the same issues as back home and only the centres who recruit, train, motivate and develop their staff effectively will succeed. I still find that some of the tier 2 cities have relatively untapped labour pools and they are the ones I highlighted in my initial discussion. But in 5-10 years time, I can see them having similar issues to the likes of Bangalore, Delhi and even Manila. We operate in multiple cities in The Philippines and find that attrition is twice as high in Manila as it is in Clark. In terms of South Africa, although I've never sold it as a solution, I'm one of those people who think that theoretically, it should be a great location. However, in the past 2 months, I've met 2 sizeable companies who've moved their operations away from South Africa because the people who were willing to work in their call centre were generally weak candidates. I have to assume that the chose the wrong outsource partners but again, it comes back to the point that which offshore country is actually fairly irrelevant. But then I've also heard from one of the big telcos who outsources to SA a lot and they rave about how good the quality is. As someone who predominantly sells The Philippines, I rarely even talk about The Philippines itself anymore whereas 5 years ago, that's all I talked about. Buyers of outsourced services have reached a level of maturity where they know that there are centres both good and bad in all of the offshoring hotspots. I now find myself talking about why we're a good vendor and the location is secondary. In fact, one thing which increasingly comes up is our financial stability. We're now starting to see many of the inferior vendors struggle financially and more and more, I find clients wanting to see our accounts and find out who are investors are....this never used to be the case.

And just to finish my little ramble, I have to agree with the point about poor marketing. Call centres are about communication and if a company can't communicate effectively when selling their services, then it's no surprise that genuine clients give them a wide berth.