Authors: Doreen Hemlock and Christine Winter
Reprinted from Sun-Sentinel.com
August 11, 2002
Call Centers Thriving Worldwide
When Hewlett-Packard Co. decided this month to pull a contract with a Fort Lauderdale call center and shift some of its computer help-desk business to India, the move touched a raw nerve in the emotional debate over U.S. jobs and the global economy.
Phone calls and e-mails streamed into the Sun-Sentinel denouncing the company as un-American, and Broward County Commissioner Sue Gunzburger suggested a boycott of HP products. Questions surfaced about the future of the call-center industry, which employs more than 35,000 in South Florida.
Specialists say, however, that HP's move should not be overblown.
While some call-center business for U.S. clients is going offshore, that portion represents less than 5 percent of U.S. call-center business. And demand for call-center services is growing so fast that there's no end in sight to the boom of call-center jobs within the United States.
"There's going to be some leaking of business offshore. It's not a wave we're going to be able to push back," said Peter Gurney, managing director of Kinesis, a Seattle-based market research firm specializing in customer service strategies. "But there's no sign we're going to lose the call-center industry. It's still growing overall, and it's still growing in the United States."
Call centers provide a range of customer services, making and receiving phone calls and e-mails for businesses from hotels to airlines, newspapers to computer software makers. They employ as many as 2 million people in the United States, from low-end workers largely making telemarketing calls to engineers who answer such sophisticated inquiries as how to fix computer snags.
Most employees work directly for banks or other companies; a smaller number work for independent call-center operators, such as The Answer Group, which lost the HP contract.
The business has boomed since the 1980s, thanks to telecom deregulation and new technologies cutting the cost of phone calls and creating demand for e-mailed customer queries. By 2005, New York-based market researcher Data Monitor projects 2.8 million computer work stations in the call-center industry in the United States.
In contrast, India this year is expected to reach 33,000 work stations, according to industry estimates.
U.S.-based companies, such as HP, IBM and American Express, are looking offshore partly to cut their costs -- a priority that's gained importance amid the current economic slump and since the high-tech bubble burst in 2000.
The savings can be considerable both in labor, training and start-up costs.
While call centers in South Florida generally pay employees $7 to $12 an hour, with rates up to $19 an hour for computer engineers, wages can be less than half that in India, and perhaps 20 percent less in Canada.
A study by The Boyd Co. Inc. shows that New York City is more than twice as expensive as an English-speaking Caribbean island to operate a 250-employee customer service-center spanning 30,000 square feet, even though telecom costs are higher in the Caribbean. Sites in Canada can run about a third less: under $10 million a year, compared with about $12.5 million a year in New York.
Overseas call centers have far less of the employee turnover that drives up costs in the United States, said Geri Gantman, a senior partner at Oetting & Co., a New York-based consulting firm specializing in call centers and customer service since 1980.
Turnover for highly skilled, trained computer help-desk staff can run 50 percent a year in the United States and perhaps 10 percent in India, the Philippines and other large, developing countries with a surplus of college graduates in the technology field, she said.
"The real investment in tech-support jobs is training. So if you can keep the people, you can lower costs and provide the high quality of performance that can keep your customers," Gantman said. "The financial benefits of retention get too often forgotten."
Furthermore, many global companies already have call centers overseas to handle service for clients living in those countries, so it's convenient to expand them to handle U.S. calls, executives said.
But operating overseas is no panacea for call-center business. And indeed, concerns are rising about offshore operations, especially since the economic downturn and Sept. 11, said Brendan B. Read, author of two books on call centers and a Canada-based editor at Call Center magazine.
Company executives are worried that strong accents and cultural differences can complicate customer service for demanding clients in the United States. An unpleasant experience can hurt a company's brand image and erode customer loyalty at a time of fierce business competition.
"In general, American companies don't have a level of confidence yet in outsourcing customer care overseas," said Roger Nunley, managing director of consultancy Customer Care Institute of Atlanta.
Plus, there's growing emphasis after the Sept. 11 terror attacks on security, including travel required for U.S. staff for training and other management functions overseas.
"I've heard of outsourcing projects being put on hold in India. Do you want to do a training program in a part of the world when they may be lobbing nuclear weapons at Pakistan? I don't think so," said Call Center magazine's Read.
That explains why some firms are looking more to neighboring Canada than more far-flung locales to cut costs offshore.
"If your corporate center is in Seattle, you don't even have to get on a plane to reach a call center in Canada," Read said. "You can just drive" across the border on a major highway.
Furthermore, it takes plenty of money and patience to develop call centers overseas and make them profitable.
Consultants note the call-center business has low-profit margins. It's tough for small mom-and-pop firms to master the ropes to open a call center overseas; some have failed. The most successful operations offshore tend to be linked with large, global companies that have enough cash and international expertise to navigate the permitting process, find overseas partners, build centers and produce enough volume of business to eventually turn a profit.
"If you don't have deep pockets," said Gantman, "you fall by the wayside."
Beyond financial or safety concerns, there's the weight of political backlash against companies expanding overseas -- as HP learned in pulling business from The Answer Group in Fort Lauderdale.
HP said it needed to consolidate call-center operations after it bought Compaq Computer Corp. The Answer Group handled Compaq's computer help-desk business, with 800 employed directly on the account and as many as 1,200 working on Compaq business altogether. Some of the consolidation will mean a shift of work to India, some to other U.S. and global locales, HP spokesman Tim Marklein said.
For The Answer Group, which publicized the move, the shift offshore is unpatriotic.
"This is … a clandestine trend," said Dennis Quinn, executive vice president at The Answer Group. "A lot of it has been deceptive, with foreign workers trained to say things like `this is Mike or Bob from Atlanta.' … Now that it is coming out where this work is going, it may backfire on some of these companies."
Yet consultants say flag-waving and calls for boycotts likely won't stop expansion offshore, just as protests have failed to halt U.S. manufacturers from shifting some operations to lower-cost sites to better compete in the global economy.
"Consumers can get outraged and talk about "Buy America," but they're not going to pay more for tech support. They're just not," consultant Gurney said. "No boycott will make a difference."
Longer term, that leaves U.S. companies to look for ways to boost competitiveness. One area consultants see for major growth in South Florida: call centers with Spanish-language staff handling calls and e-mails for the booming U.S. Hispanic market.
Peter Gurney is the Managing Director of Kinesis. A well-known customer experience management expert, Peter has worked with dozens of brand name companies, including Expedia, E*Trade, Westin Hotels, Starbucks, Microsoft and Bank of America, among others. Peter Gurney can be reached by calling 206-285-2900.
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