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

[Cora Llamas]

Hi Rob

I still have to pitch this piece to BPA/P but I got another bit of good news (I hope :) ). Bo Le Leaders, the official newsletter of a leading executive search firm in Asia, will be releasing by next week their issue on the BPO industry in the region, not just the Philippines. I help edit the newsletter. I quoted some of the points you made in the above article with proper credit given to you, your credentials cited, and this social networking site cited as well. I really think your opinion and information will contribute significantly to the newsletter which is being read by major decision-makers of prominent companies across Asia (who happen to be the clients of said exec search firm).

I hope quoting and citing you and the cite are ok: I regarded the above piece as published media similar to news releases.

For more info about exec search firm, Bo Le, please click on www.bo-le.com.

[Rob OMalley]

Cora

Sorry that I didn't reply sooner. You're welcome to use this.

Good Luck

Rob

[Anthony Mitchell]

One of the areas that we can expect to see changes in call center management is in the area of marketing and customer acquisition practices.

Having recently benchmarked a couple major multinational call center corporations in the methods they use to handle customer acquisition for themselves, I’m surprised at how much the merchant side of the industry is lagging behind current best practices at non-commercial operations. Usually we see merchant facilities setting the standards and adopting new technologies and work practices first, but this has clearly changed.

Several of the majors have not established what in the software field is referred to as a ‘happy path’ for customer acquisition. None of the majors that I’ve looked at are spending wisely on SEM, except possibly Accenture. Even with Accenture there is room for improvement, beginning with a more comprehensive keyword list—ironically one of their strongest suits now in comparison to their competitors.

The other companies seem to be running SEM and online customer acquisition on autopilot. Too much responsibility for content and operational practices has been left to techies who don’t understand the human side of customer acquisition (that’s why many of them are techies). They don’t understand the semantic parameters of online marketing and are ill equipped to deploy them. Consequently, too much of the marketing program is simply left on autopilot, waiting for customers to wade in through the surf of badly deployed ad campaigns, messed up websites, and botched brand management.

In the area of paid search, when those campaigns are left on autopilot they simply waste money, as we can see from what the major call center and offshore IT companies are doing. Those company’s executives do not understand the full parameters of SEM metrics, don’t know how to read metrics or benchmarking data, and don’t know how to act on metrics.

They don’t understand branding within the context of SEM, don’t understand how to extend their brand or how to defend it. Quick to assert their competence to handle customer acquisition for other companies, they fail miserably in creating streamlined ‘happy paths’ for customer acquisition by their own business units.

Changes in client-acquisition practices and technologies have outstripped the adaptive capabilities of some major old-line call center companies. This gives hope to younger, smaller companies that understand and are not afraid to adopt current best practices.

We could therefore see a rise in new-generation customer contact companies who genuinely believe in what they are doing and are not afraid to gain and retain market share.

[km]

hello,
have went through your article. Generally agree with you. Still i think your list of prospective cities is not exact. I work for a company in Bulgaria which facilitates businesses outsource their customer service activities here. If you track Bulgaria's business records in the past 10 years you will be surprised by the number of European companies, which have set up their call centers in small Bulgaria!
KM
http://www.bulgariacallcenter.com/

[Steve Bateman]

Absolutely love the article guys! Great Read!
Thanks for sharing!

Steve Bateman
President,
Call Center Connections

[Rick Upshaw]

Very interesting predictions, Rob. I've been thinking along these lines as well, to the surprise of the gloom & doom crowd around me (of which my accountant seems to be a part). I'm glad to see someone shining the light of common sense on our industry. These client companies need financial stability - now more than ever. There is a huge opportunity here for qualified centers, assuming they can provide the quality they claim to be able to provide in the minds of their clients, and not just in their own minds.

While I hope you're wrong about the smaller centers (because there are a lot of good people in that category), I suspect you may be right. We'll see!