I read George Tillmann’s article, “Wait A Minute: If Outsourcing Is So Painful, Why Do It At All?” with great interest. The article suggested that when firms are able to successfully reengineer their troubled operations there is no need to outsource or offshore. This probably is true in some cases, such as when sales and relationship building skills are critical to call success.
However, it certainly does not address situations covered by run of the mill inbound customer care calls, or most types of outbound, survey and political calls. In today’s world, when sales operations are under severe cost pressures, this type of call can be typically handled by lower wage agents with a moderate set of skills, which is exactly what offshore centers offer.
The situation will be compounded when U.S. based call centers start to deal with the consequences of new federal and state programs during the next four years. Among them are higher minimum wage rates, and a whole host of workplace rules, including mandated sick leave, mandates child care, and mandated vacation benefits. In addition, The Health Care and Educational Reconciliation Act, signed into law on March 30, 2010, mandates that, as of 2014, employers who have at least 50 full-time employees (defined as working 30 hours per week or more) and who don’t provide health insurance will be assessed a penalty of $2,000 per employee per year.
Unfortunately, the current political dialog in the U.S. does not address this critical threat to domestic operations and jobs.
When the new mandates come into force, it is likely that many U.S. call centers will see their direct and indirect labor costs increase by 10%-20%. This will be equivalent to a total cost increase of 5%-10% because labor and benefits represent 50% of total costs for the typical telemarketing company. (Please refer to the table below for a hypothetical telemarketing company, which has 19 agents and bills 40,000 hours per year, before the new mandates go into effect and after.) To the extent that US centers are unable to pass on their higher costs to clients, some firms will have to close their domestic operations or to shift their work offshore.
Unfortunately, the current political dialog in the U.S. does not address this critical threat to domestic operations and jobs. Not only will current economic policies reduce employment opportunities available for lower educated and skilled workers, it will force many companies to shutter their domestic facilities. This tragically myopic policy mix will do more damage to our economy and social fabric than anything observed during the last two decades. And it is highly unlikely that reengineering, which is always a good idea, will be able to offset the higher costs of doing business in the U.S.
The example below depicts a U. S. based telemarketing company that decides to source 50% of its work from a near shore center, once again before the new mandates go into effect and after. While the data is accurate only to an order of magnitude, it suggests that off shoring provides a clear path towards maintaining the financial viability of the business.
What the numbers do not provide is an answer to the number one question firms must ask. Will the agents in the offshore center have the skills required to meet their clients’ needs? Firms must determine whether the offshore agents will be able to communicate in English, whether they will be able to understand American consumers or businesspeople, and whether they have a cultural affinity to the markets and products in which they operate. After all, saving a buck accomplishes nothing if performance and the quality of service deteriorate.
This paper purposely has not addressed other important topics, such as suitability of operating systems, reliability and costs of long distance and networks, and the ability of the U. S. firm to evaluate prospective partners and to operate a multi-cultural enterprise. It does suggest, however, that the economics of U.S. based centers is going to change for the worse, and it identifies one way domestic firms can protect their long-term interests.