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Successfully Navigating the Offshore Outsourcing Waters 

Successfully Navigating the Offshore Outsourcing Waters

Successfully Navigating the Offshore Outsourcing Waters

Weighing the risks of offshore outsourcing.

5/3/2004
By Donna Fluss
Callcenter Magazine

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Offshore outsourcing is a hot topic for contact centers because it can reduce operating expenses by up to 50% to 60%. It’s an option that most enterprises should explore if your service and support function does not need to be co-located with other company activities. But, while the economic benefits are great for companies that execute well, the risks are also significant.

For example, countries like India, with more than 270 offshore sites (as of February 2004), are confronting many of the same challenges that US contact centers have been facing for years. They include:

  • High agent attrition rates
  • The need to attract and retain valuable employees
  • Increasing salaries
  • The non-ending cycle of hiring and training
  • Even with the increasing salaries that Indian contact centers are paying to retain agents, their rates are still 50% to 80% below those paid in the US.
  • Although the economic benefits are compelling, you must weigh them against the general challenges of outsourcing contact center activities, which are exacerbated by geographical and cultural differences. What everyone needs to consider is how to determine whether the value proposition and economic argument for offshore outsourcing are truly compelling.

Offshore Outsourcing Economics Argument

It’s hard to argue against the numbers. On average, contact center staffing costs USD$30 to USD$60 per hour per agent in the US but only USD$13 to USD$18 per hour per agent in India and the Philippines. Contact centers in India and the Philippines are cost-competitive, although rates are expected to increase in India during the next few years due to competition for agents, while the rates in the Philippines are not expected to increase as quickly.

Offshore Outsourcing Country Cost Comparison
Country Cost/Hour/Person
Australia $25 to $32
Caribbean $18 to $22
China $13 to $15
Eastern Europe (Czechoslovakia, Hungary) $25 to $32
India $13 to $18
Mexico $13 to $15
Philippines $13 to $18
Puerto Rico $18 to $22
United States $30 to $60

The cost per agent will vary based on the complexity and volume of transactions (calls and e-mails). Calls for collections are the least complex and expensive while technical support costs are the most challenging and costly. Most offshore contact centers in India, the Philippines and other countries are multichannel, handling both calls and e-mails. In general, the cost of handling e-mails is less than the cost of handling phone calls.

Not-so-hidden Other Costs

Many offshore outsourcers bundle telecom, training and all other expenses into their cost per hour per agent, to keep their cost structure simple. But, this may change as offshore outsourcing becomes more popular, allowing for more aggressive and sophisticated pricing schemes. Companies considering outsourcing must ask about all cost components before deciding which sites to visit.

You must also consider the cost and time of travel from the US to the offshore location. These expenses add up quickly and are necessary to manage the relationship, despite claims from many outsourcers that on-site visits are not necessary. Travel expenses vary based on the offshore location of both the corporation and the outsourcer, and must be included in the return on investment (ROI) decision and budget. I recommend that a representative of the corporation visit the outsourcer at least once per month, particularly early on in the relationship, if they do not have a manager based permanently at the offshore site.

Non-Financial Site Selection Criteria

When making a site selection, enterprises must consider non-financial and socio-economic factors as well as the costs. It’s essential to find an outsourcer that is willing and able to match the culture of the corporation and the needs of its customers. If the culture of the outsourcer doesn’t match, the result will be lost customers and bad press, as happened with Dell at the end of 2003, resulting in them bringing some contact center functions back to the US.

Socio-economic Factors
Accessibility How long does it take to travel to the outsourcer?
Language Does the population in the selected site speak English or the primary language(s) of your customers?
Accent Is the accent of the support providers acceptable and understandable to your customers?
Work Ethic Will the staff be willing to do the work required?
Customer Focus Will the staff be tolerant of negative customer behavior? For example, will agents tolerate rude and belligerent callers?
Quality Will the quality of service match or exceed service quality previously provided to your customers?
Economy Is the economy stable or is it in flux?
Resources Does the country have adequate English (of other language)-speaking and educated resources to staff a growing number of contact centers?
Education Is the population of available resources adequately educated to work in a contact center?
Infrastructure Does the country have stable utilities and highways?
Geographic Issues Does the country often have monsoons, tornadoes, hurricanes or other “acts of God” that disrupt service?
Government and Politics Is the country politically stable?
Risk Is the country at risk of war or frequent acts of terrorism?
Miscellaneous Does the contact center staff understand the culture of your company and customers?

US companies began outsourcing contact center functions to Canada in the 1990s because the culture was similar to that of the US, but weakness in the Canadian dollar also resulted in savings of 20% to 30%.

When these financial benefits lessened in the early 2000s (when the Canadian dollar strengthened), corporations found a lower cost alternative in India, the Philippines and other locations. India was relatively new to contact center outsourcing then, but had been doing systems development outsource work for many years.

It’s clear that offshore outsourcing has many positives for enterprises, but it’s not a one-size-fits-all solution and must be carefully analyzed to realize maximum benefits. Once you’ve analyzed the data – economic, socio-economic and RFP responses – and conducted site visits, you should select the top two candidates and negotiate the best deal for your company. It’s always good to have at least two viable contenders, as it gives your company negotiating leverage.

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