US Congressional Bill Would Penalize Offshoring

The US Congressional initiative House Resolution 3596 (HR 3596) is the most recent effort on the part of certain US legislators to inhibit the offshore outsourcing of contact center services. However, no matter how sincere the spirit of this and other previously proposed and similarly worded resolutions, Ovum believes such a law would badly hurt outsourcers and ultimately impact the US consumer negatively. Therefore, vendors need to come out swinging against such initiatives.

If enacted, HR 3596 would stop CRM outsourcers from delivering services offshore into the US. Among the more draconian provisions is the cataloging of all firms that are moving agent positions overseas in order to disqualify them from federal loans and loan guarantees for five years. This is in addition to requiring any firm that plans to move contact center operations overseas to give 120 days’ notice to the US Labor Secretary (with failure to do so meaning a penalty of $10,000 per day for late notification). In addition, agents overseas would be forced to inform callers of their location and offer the option of a US-based agent.

Although bill sponsor Tim Bishop states that he sees these moves as common sense to secure jobs in the US, Ovum believes that if this bill were to become law, the political motivations of wishing to appear patriotic in an election year would have negative impact on CRM outsourcers. With US unemployment rates moving south (albeit slowly, falling from 10% in October 2009 to 8.5% in December 2011), outsourcers are already beginning to consider the possibility of attrition rates increasing in domestic facilities as competition for talented labor within the contact center space (and from other verticals) ratchets up through the recovery.

In addition, the cost factor of this bill would be compounded when servicing the burgeoning US Hispanic market, considering the labor cost of domestic Spanish/English bilingual agents (which is known to be higher than US-based, English-only talent) relative to the more affordable nearshore. Outsourcers’ only alternative to taking on more domestic agents would be to leave callers on hold for excessive amounts of time – which would undermine service-level agreements with clients.

Consumers Ultimately Affected

In addition to the negative effect that HR 3596 would have on the CRM outsourcing community, Ovum believes it is important to recognize the extent to which it would also hurt consumers and clients of third-party services. From the perspective of the latter, there is no question that the price per hour that enterprises would pay their outsourcing partners would increase with the growth of agents based in the US; this would invariably be passed on to the end user, negatively affecting inflation, quality of service, and overall cost. In addition, should clients decide not to increase the size of their domestic capacity, US consumers would feel the pinch from the standpoint of considerable wait times for overloaded US agents should they choose not to be served by an overseas contact center.

Outsourcers Need to Aggressively Counter

Ovum does not believe that HR 3596 will pass a vote in the House of Representatives or the US Senate, which is good news for the outsourcing community. Far too often, such pieces of legislation are presented in election years in order to endear politicians to specific segments of the electorate or politically influential pressure groups (in this case, a number of US unions that have endorsed HR 3596). However, Ovum believes that no matter how unrealistic such pieces of legislation may be, the outsourcing community needs to be vigilant in their response to the growth of protectionism. Despite the drop in US unemployment levels, confidence in the economy remains fragile and the growth of protectionism in the 2012 election cycle is worrying. CRM outsourcers must forcefully counter these types of initiatives by outlining the potential impact they would have if they were to become law. Failure to do so would cede years of offshore market development and badly impact the bottom lines of outsourcers that have adopted this business model.

Peter Ryan is a leading analyst with Ovum and contributes regularly to Nearshore Americas. This article is reprinted upon permission of the author.