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Outsource magazine: thought-leadership and outsourcing strategy | September 21, 2017

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Opinion: offshore paradise or peril

Outsource Magazine

Once again, issues of offshoring and outsourcing are in the news – Datamonitor suggests that more UK companies are now looking to outsource their customer services, and there are regular reported instances of major firms shifting their contact centres either to or from offshore locations. Stuart Mackie, Business Development Director at Genesys Telecommunications, examines the offshoring debate: the pros and cons of outsourcing abroad or at home, and the key reasons behind success or failure.

On the surface, it appears that many companies were initially driven to “cheap-labour” countries to boost profits, and a concern for service levels has brought them back on-shore. Many companies go abroad and return to the UK every year, but one of the most high-profile offshoring moves has been Apple’s decision to bring its customer service operations back from India last year. Industry speculation suggested the reasons for Apple’s decision was Bangalore’s tightening labour market and increased wage demands from Indian agents, and not an issue with service quality as many would initially believe.

Datamonitor analysis shows that the largest proponents of offshoring by industry tend to be telecoms, manufacturing, retail and financial services – and it expects this to be the case until 2012. However, according to Peter Ryan, senior analyst at Datamonitor focusing on contact centre outsourcing and services, the pace of offshoring will slow down considerably. Growth of contact centre agent positions (APs) in these industries is set to continue – albeit dropping to 3 per cent annually, from 10 per cent, between 2007 and 2011 – as companies continue to invest in customer services. The rate of growth will slow primarily because established and mature customer service operations optimise their resources more effectively and so need to add fewer agents to generate significant improvements.

However, the same research shows there will be an increase in the energy and utilities, healthcare, the public sector and travel & tourism markets, which Datamonitor projects to collectively grow from an estimated 154,000 APs by year end 2007 to 229,000 in 2012 – a compounded annual growth rate of over eight per cent. Industries with less established contact centre operations will go through many of the same situations and decision processes as Financial Services or Retail organisations, for example, had to go through ten years ago. This will ensure that the offshoring debate continues as new organisations realise the opportunities of outsourcing offshore as a service alternative.

Business costs v agent quality?
Offshoring gives you immediate cost savings. Wages for agents and maintenance staff are far lower than in the UK, and there’s a long list of companies that outsource their customer services to offshore locations because of these savings. Royal and Sun Alliance offshored 1,200 jobs to Bangalore and was able to achieve £10 million a year in savings. With offshore wage bills only 20 per cent of those in the UK, it’s easy to see why outsourcing abroad is a sensible business proposition. Cost is not the only key factor in the contact centre though, and businesses must consider how well offshore agents can deliver customer service.

Many analysts show that offshore contact centres deliver an effective service. Education levels in many offshore countries are of a good standard and continue to rise. A career in customer service is a viable and enticing choice for many university graduates. Many foreign-based contact centres are able to employ some of the brightest young people in the country, which can translate into a highly effective service operation.

When Norwich Union cut 4,000 jobs in UK-based contact centres last year to create 8,000 jobs in India, Sean Egan, COO of the company’s offshore activities, said: “as well as wage savings, another reason to go to India is the jobs market. We were not confident that we could recruit enough quality staff in the UK.” And they’re not the only ones: companies such as Oracle, IBM, EDS, Microsoft and SAP have all shown confidence in India and outsourced abroad more than just their customer services, many have sent complex operations such as R&D offshore, such is their level of confidence.

The onshore case
Offshore contact centre agents are more cost-efficient, and many are well qualified, but there are intangible factors influencing success as well. Dealing with a customer’s needs takes more than just a good education – empathy and an understanding of customer perspectives are both vitally important in establishing sustainable, profitable customer relationships. Powergen managing director, Nick Horler, brought customer services back onshore in 2006. Commenting on the decision he said: “We believe that we can best achieve industry-leading customer service by operating solely in the UK. When customers contact us they need to be confident that their query will be fully resolved quickly.”

An increase in anti-offshore outsourcing marketing campaigns has helped to fuel the perception that offshore contact centres cannot do the job – and any company that does not have UK contact centres is not looking out for its customers. Natwest, for example, has invested heavily in an advertising campaign based around its contact centres being in the UK, whilst Alliance and Leicester ensures its agents give out their name and location as an introduction to calls. The result of these highly visible attacks is a distrust of offshore contact centres.

Is it just poor management?
Cultural differences are the primary reason why this distrust has been able to develop. Service from UK or nearshore contact centres is not automatically better or worse. There are well managed, high quality customer service centres in the UK, as there are abroad. Similarly, there are poorly run operations that cause frustration and churn throughout the UK, as is the case in every location throughout the world.

The National Rail Enquiries service has two in-house and two offshored contact centres. There are no more complaints for the offshore sites than for the UK operations. Levels of service effectiveness are high – irrespective of location. This shows that many preconceptions of service levels dependent on location can be wrong.

What businesses need to concentrate on is delivering effective service through their contact centre, wherever it is located. Businesses must implement the correct technology solutions to meet customer requirements and at the same time define processes that make the most of the agent resource. A Dynamic Contact Centre that operates on the basis of high-level service goals will generate far greater customer satisfaction, retention and loyalty – which have the most telling impact on the bottom line for any business.

Is security an outsourcing issue in general?
Security is a question mark over the contact centre industry. Channel 4’s undercover investigation discovered that confidential information was being stolen by call centre agents in India, and then being sold on to criminal organisations. However, many analysts believe that just as much theft and fraud goes on in the UK, it is simply harder to trace.

There are instances though: Strathclyde Police claimed, at the end of last year, that at least one in ten contact centres in and around Glasgow had been infiltrated by criminal gangs seeking access to personal and financial data records. The contact centre industry is one of Glasgow’s biggest employers, with around 18,000 employees.

There are on-going initiatives at home and abroad to tighten up the security of contact centres, and business confidence has been restored as a result of greater focus on stamping out any instances of fraud.

Service is the key
Businesses can enjoy significant benefits from offshoring projects. Others have attempted the move, but have been forced to return home. Delivering high levels of customer service is dependent on a wide range of issues, and certainly more significant factors than location. Many markets need customer service to differentiate themselves from their competitors, so will bow to significant pressure, but what they must all understand is: wherever the contact centre is administered from, if the design of the infrastructure, individual systems and agent processes are not customer-centric, service levels will not be high.

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