Over-promising and Under-delivering: Why Trade Promotion Agencies Are Failing to Deliver

Economic incentives, government-funded training programs, and a sufficient, long-lasting labor pool are all factors that come into play during the site selection process. But what if some of those benefits were not as robust as regional promotion agencies make out?

King White has amassed 20 years of experience in the site selection industry, completing over 1,000 projects for call centers, data centers, distribution centers, headquarters, manufacturing plants, and software development operations. Under his direction as CEO, Site Selection Group has become one of the largest independent location advisory firms out there,representing clients such as Amazon, Convergys, Sykes, Teleperformance, and Teletech, to name a few.

We caught up with White to find out about the new challenges in the site selection process, and how some nearshore markets might be overselling the benefits they can provide.

Nearshore Americas: Over the last couple of years, have there been any significant changes to the way that site selection process is conducted?

King White: The biggest challenge right now is that the markets most people want to be in are all maturing rapidly, and performance levels are dropping in them as competition for labor increases. This is making it more frustrating and challenging for site selectors and companies, because it’s no longer that obvious about where to set up shop. Wherever you look, there is always some major BPO player planning to set up there, and there are not really any true “emerging” markets left out there that have some sort of significant advantage over someplace else.

This was an issue that the Philippines ran into and Costa Rica is already running into. Once the markets start migrating up from a skills perspective, call centers become second generation while first generation becomes IT services, shared services, or some higher functioning positions. After that, call center attrition rates start increasing, quality goes down, wages go up, and customer satisfaction goes down. The next thing you know you’re looking at finding the next location, so the longevity of these markets is the biggest challenge ahead.

Call center agents are going to work for higher-end operations. Just look at the amount of shared services operations that have gone into Costa Rica over the last few years. They are pulling those agents from the lower-end operations because they have the skills. You also have captives like Amazon’s in San Jose, which is pulling the agents from the BPOs, meaning they just can’t operate efficiently there anymore. This is driving attrition rates and creating a churn in these markets.

Nearshore Americas: What impact do you see economic incentives and government training programs having on this challenge? Are they contributing to the problem?

King White: People love to talk about economic incentives, but we’re not seeing them in any of these regions – the economic benefit is the cost of wages, generally. There’s no doubt that companies are instead going to private enterprises, like staffing agencies, or setting up some of their own preliminary training, simply because the government infrastructure is not there. I’m sure there are some exceptions to the rule in the region, but I haven’t really seen them.

I’ve spoken to a lot of government officials and locals in a number of regions and there is a clear trend that national promotion agencies are also not doing what they say they are in regards to training programs that prepare people to work – it’s more a case of they want to do it, but they’re really not truly doing it. When first entering a country, they do provide a good service: they help you get in, meet with the right people, and give advice on setting up the business. But these are all traditional economic development activities, which is part of the reason they call them “promotion agencies”.

Nearshore Americas: With all that in mind, what advice would you give clients when looking at nearshore locations for their next sites?

King White: There’s a lack of quality data for the nearshore markets, so the data is not apples for apples, or you may not be able to even find the data in the same way that you could find in other global geos. The best approach is to take that limited amount of data and combine it with market intelligence before filtering it all down to get a shortlist of markets.

This filtering process starts with gathering data from consultants, like Site Selection Group, and then filtering it down to two or three countries or cities, before going to tour them on the ground. It would be a very time-consuming process to send someone to each of the six or seven potential markets before doing this research, because it takes at least a few days to get familiar with it.

Then the cost factor comes into play. There’s usually a reason for some markets to be more expensive, because if it’s too low a price, then there’s more of a risk that they won’t have the infrastructure or the climate to provide success. There’s definitely a sweet spot of wages to look at that sits between $2.50 and $3.50 per hour in the region – that is where the most growth in the labor market takes place.

Nearshore Americas: If incentives are lacking and markets are becoming too mature, how should call center companies decide on whether or not to enter a new nearshore geo?  

King White: It really comes down to how you analyze the markets. We’ve seen saturation rates where the markets cap out above 10%, which means 10% of the labor force are working in call centers. In the U.S., if you had 4-5%, that is considered really high. In the nearshore markets, we’re seeing a tipping point of around 10% of the total labor force working in the industry, after that you need to look at how long it could really last, especially in the lower end of operations.

Nearshore Americas: With the inauguration of the new Unites States president coming up this week, what sense are you getting that the political climate is affecting site selection decisions in the region?

King White: There is clearly a little more demand domestically right now. Outsourcers are aggressively coming into the US. We’re seeing Indian outsourcers and Filipino companies coming in and setting up operations in the US. They are clearly attempting to have presence in both locations.

Figuring out how the government will tax or influence voice or IT development is something yet to be seen. It’s easy to tax manufacturing, but it’s a grey area when thinking about voice. The challenges the government will face in this could be the true saving grace of the nearshore and offshore industry.