Offshore outsourcing in perspective: the good, the bad and the ugly: a brutally honest assessment of the situation to help you decide to go or not go offshore!

As the publisher of the industry's preeminent magazine since 1982, which laid the foundation for what is now the multibillion-dollar CRM, contact center, outsourcing and customer interaction industries, it is my paramount responsibility to provide guidance to our valued readers, advertisers and other industry professionals.

As always, much research has gone into the development of this Publisher's Outlook; I have consulted with many industry leaders including presidents, CEOs and several highly respected consultants as well as the Customer Inter@ction Solutions[R] editorial staff. I hereby gratefully acknowledge all of their valued comments and contributions.

Background

In August of 2001, I wrote an editorial entitled, "Go Inbound Young Man And Keep All Eyes On India." At that time, a rosy picture was drawn for outsourcing to India largely based on much lower cost and highly educated labor. Now, the actual situation of the very high-pressure call centers in India is revealed, and as you will read in the following sidebar, the picture is NOT SO ROSY!!

The source for the sidebar is an IT supplement to The Tribune, Chandigarh, India, called "Log In ... Tribune." Assuming that this article is a true representation of what is going on in a typical call center in India, after you have read the sidebar, you need to ask yourself a question: Is it prudent for your company to let the TSRs who are under so much stress handle your customer service or technical support projects?

U.S.-Managed Offshore Outsourcers Are A Different Story

It is imperative to make the distinction between offshore outsourcers that are run by U.S.-based, established teleservices agencies and those that are run by an entirely non-domestic business entity. If an offshore outsourcing facility is run largely under experienced U.S. management and control, in all probability, even sophisticated projects can be successful in an offshore location. This is because the U.S.-based teleservices agencies that maintain off. shore facilities bring with them the experience and tight management that the neophyte offshore outsourcers lack. This difference is crucial and should be kept in mind as you read this discussion of offshore outsourcing, as those whom I have interviewed are largely basing their discussion on non-U.S.-managed outsourcing entities.

An Interview With Mike Budde, President And CEO, Advanced Data-Comm, Inc.

I've known Mike Budde for over 15 years, and regard him as one of the most knowledgeable and ethical professionals in the business.

When Mike and I recently spoke, he was ecstatic about his business' growth. I asked him for the reasons behind his success and one of his responses surprised me. He told me that, "Over a year ago, I lost some business to some offshore entity. Some of those customers have already returned because they were dissatisfied with their poor performance." When I asked him specifically why his customers were unhappy with the offshore outsourcers, he listed these reasons:

* Extremely slow customer service response,

* Poor handling of data,

* Poor handling of file transfers, and

* Lack of technical savvy, including an inadequate understanding of telephony.

He added that offshore accents created further problems for one of his customers. That customer's project was initially handled by a group of hand-picked agents who spoke English well and performed adequately. However, when the project expanded, the next group of agents had much thicker accents. As a result, communication became more difficult and the project's success rate declined dramatically. Mike then reminded me of a recent Wall Street Journal article, which reported that some Indian call centers were allegedly teaching agents to speak with a Southern accent to accommodate U.S. customers. Mike wondered whether such practices, coupled with existing accents, could further hamper communication--and reduce a company's image with their customers in the process.

In Mike's view, some offshore facilities are over-extended and lack the management or technical savvy to deal with problems. To be sure, Mike agreed that offshore outsourcing is here to stay. However, he believes issues like quality concerns, cultural obstacles, poor communication skills, insufficient telephony knowledge and a lack of middle management experience will hold offshore outsourcers back. Mike summed up his position perfectly: "If you go offshore because of low cost only, then you probably don't care about quality."

I asked Mike how he keeps his agents motivated and happy. He stated that, "In our company, we work to make sure our customer service people are happy with a smile on their face. I can't change the nature of the job, but I can change the environment where they work. That's why we treat our agents with dignity, with full respect for the individual and we truly care about them. That's what will always come across when they are on the phone." He also added that, "A poor environment creates negative attitudes, unnecessary tensions and that is also reflected in the voices of the agents. It is the responsibility of every manager, in each call center, to foster a pleasant, rewarding and innovative environment."

Mike concluded by quoting Advanced Data-Comm's credo: "Our mission statement calls us to be pleasant, polite, professional and accommodating at all times. Imagine a call center lacking these values. In all probability, a less-supportive environment, coupled with communication difficulties, will result in lower productivity. Companies that go offshore solely for lower prices--and that fail to take into account frustrations in customer experience --will likely have lowered customer retention and loyalty." Mike readily admitted that, "It is very difficult to quantify customer loss due to poor customer experience." However, he continued, "Even though it is difficult to quantify, you are ill-advised to ignore it."

Interview With Jon E. Kaplan, President Of TeleDevelopment Services, Inc.

Jon Kaplan, President of TeleDevelopment Services, Inc., a highly respected international consulting, training and management recruiting firm, stated that, "Some offshore TSRs have perhaps greater dedication to their jobs and consider call center work with high regard." He mentioned that commitment to their jobs and work ethics in some offshore countries are excellent. They consider telemarketing jobs as a great career opportunity. He then stated that, "If we could duplicate that kind of attitude and environment in our call centers domestically, there would be no need to go offshore."

He continued, "The major gap with most offshore providers is the lack of strong middle management. Because the industry is so young in these offshore locations, the depth of knowledgeable and experienced middle management is severely lacking. Many companies have to repeatedly send members of their management team to these offshore locations to assist in developing and implementing quality- and productivity-related processes. Often times they find that once they leave, their efforts are not carried on. So many companies are burdened with the expense of housing their U.S. staff with their selected vendors offshore to ensure and monitor knowledge transfer." Jon added, "Training also continues to be an issue. We see many offshore companies spending time and money to provide agent training for accent reduction, selling and customer service skills, but not investing properly in supervisor training."

Cost Per Hour

It seems that the going rate for offshore outbound calling is as high as $16 per hour. That brings the cost of offshore outsourcing to within $2 of some domestic B-to-C outsourcing, provided the domestic company is equipped with the latest technology and has excess capacity. Given that there is a minor difference between the domestic price and the offshore outsourcing price, then for $16 per hour, one should require the offshore outsourcing call centers to run flawlessly. At the moment, such is not the case. However, significant and anticipated turnover of offshore labor would make the possibility of a flawless operation much more remote. Therefore, the vitally important customer service matters should not be, at the present time, given to unproven offshore outsourcers. On the other hand, given the level of experience or lack of experience at the moment, there seems to be a general consensus that offshore activities to countries other than the U.S. and Canada be limited to back-office functions and other less-demanding applications.

Pay For Performance

If you pay for performance and you are happy with the quality of service, there is no need to go offshore.

Datamonitor's Take On Indian Outsourcing

According to a recent report from Datamonitor, "Newcomers to the Indian outsourcing market are utilizing aggressive strategies, such as significantly discounting services, to grab a piece of this $400 million market, resulting in shrinking margins and questions as to who will survive the inevitable shakeout." Couple these facts with the contents of our sidebar and you will see that an already unacceptable and unbearable situation will only get worse. Conventional wisdom dictates that one must keep all of these facts in mind before committing outsourcing work to India.

Interview With Gary Cohen, President Of ACI Telecentrics, Inc.

"It is my belief that over the long run, the call centers operating out of India, Pakistan, the Philippines, etc., will figure out how to recreate the level of services provided by firms operating in the U.S. and Canada.

"The question is not where a firm is located, it is about the value of service that it provides to its customer.

"We need to think of ourselves as citizens of the world. We need to broaden our thinking, to what is the best for the end consumer."

Interview With Rudy Oetting, Senior Partner Of Oetting & Company, Inc.

I have known Rudy Oetting for approximately 20 years. He has indeed been one of the most experienced, highly respected and successful international consultants on the call center industry since the early '70s.

During my interview with Rudy, he stated that, "American business history reveals clearly that companies traditionally migrate to where they find low-cost labor or alternatively, they import low-cost labor." For example, he stated that, "Car manufacturers build cars all over the world. Computer manufacturers do the same and even Nike is manufactured offshore." He continued that, "Telemarketing is looked up to in India." He stressed that, "At the moment, back-office projects, as well as less-stressful applications such as directory assistance, for example, are most suited, given the level of experience of TSRs in India." He stressed further that, "Heavy accents and improper English can be a major problem with some offshore countries."

Of important note here is that while offshore outsourcing has worked effectively for manufacturers of tangible goods, you cannot equate intangibles (i.e., services such as customer service, CRM and sales) with tangibles. When you talk about outsourcing work on tangible items such as automobiles and sneakers, you do not have to worry about the element of human interaction as you do with teleservices work. Certainly, the difference is clear.

Referring to offshore, Rudy pointed out that originally, the customers of business-to-consumer-type applications paid $14 to $16 per hour, and for more sophisticated technical support, the cost rose to $18 to $20 per hour. He then stressed the importance of quality by saying that, "The only way to save a job in any country is by maintaining the highest standard of quality." Then I asked Rudy what his opinion was about the FTC do-not-call regulations. He stated that, "This regulation is a mess." He said the exemptions; that is, the industries that are exempted such as political campaigning and charities, represent a generous percentage of all callers and yet the FTC has decided to pass regulations on the rest of the industry. This is clearly a case of discrimination and many lawsuits will follow.

He then indicated that, "The new FTC ruling may not be enforceable at all. If anything, it will force U.S. companies to move offshore."

CNN Documentary On Al Qaeda's Terrorist Activities

A large concern of many companies that might otherwise be interested in offshore outsourcing is the turmoil occurring in many of the hotspots of offshore teleservices outsourcing, especially in the Southeast Asia region. There is reason for their concern. In a recent documentary produced by CNN, the following information was provided:

Al Qaeda's network is firmly entrenched in the Philippines, Indonesia, Malaysia and most other countries in Southeast Asia. They have training operatives in the Philippines, Indonesia and most other countries in the region mentioned above. The young people are taught to hate Americans and are encouraged to blow up U.S. embassies or American interests, i.e., U.S. companies and nightclubs attended mostly by Americans, etc.

Source: CNN Documentary presented at 11:00 p.m., Saturday, June 21, 2003.

In Summary

The above facts speak for themselves. Three years ago, we could not hire enough call center staff ... since every company's existence depended primarily on the quality of customer service, customer relationship management, sales and marketing effectiveness, customer interaction centers will be here forever. The need should continue to grow since NO company can exist without it.

Having said that and as the economy continues to improve, we need to train and prepare the highest possible quality offshore options, not only for overflow, but also for the time when we face labor shortages for call centers as we did in the late 1990s to the year 2000.

Some of the problems encountered by the offshore companies that are not an arm of a U.S.-based teleservices entity are similar to those we encountered in the U.S. in the early to mid 1980s. Most of those were resolved over time. However, some problems such as culture, language, burnout, major time differences, light or heavy accents, poor management, poor training, poor quality control, slow pace of work, stressful environments and exposure to terrorist attacks might be extremely difficult, if not impossible, to overcome.

In addition, given that competitive pressure is mounting, in India, the Philippines and the rest of the offshore hotspots, it will lead to further price erosion and eventually there will be less and less quality of work. Lower profits will ultimately lead to cost-cutting in the area of agent training, resulting in poorly trained or untrained agents on the phone. Obviously, this is a dangerous situation, as it will lead to two outcomes: A) it will result in further legislation of call center activities, and B) it will result in exorbitant fines for U.S. companies that outsource offshore. Think about the impact of these fines for U.S. companies. Under the current TSR rulings, which will go into effect on October 1, 2003, an $11,000 fine will be levied for each violation. Now think about the volume of work outsourced to offshore, neophyte agencies. If only 10 percent of those calls result in a fine, it would literally put many U.S. companies out of business, as they would crumble under the burden of hundreds of millions of dollars in fines!

The Hidden Problem Is ...

While we wait for offshore outsourcers to become proficient, we will have irritated, annoyed and angered millions of consumers and businesses, thus further damaging the image and reputation of our industry. In my opinion, nothing is more annoying than improper calls made at the wrong time and for the wrong reason by poorly trained and inexperienced TSRs!! If the above is allowed to continue, we can expect another round of even more restrictive regulations, which will be damaging to ALL!

The Big Picture

Taken all together, logic and conventional wisdom dictate that it is not cost per hour that should be considered when considering offshore outsourcing, but also the cost of possible fines, loss of customers and the possibility of tighter and more restrictive legislation. The question each potential consumer of offshore outsourcing must ask him- or herself is: Given the tremendous, but real, potential of liability, is it truly worth it to go offshore simply based on the misleading hourly cost at the start?

Acknowledgments

I would like to gratefully acknowledge the considerable assistance and information provided by the following industry leaders and Indian publication:

1. Larry Kaplan, [e-mail]

2. Mike Budde, [e-mail]

3. Jon Kaplan, [e-mail]

4. Gary Cohen, [e-mail]

5. Rudy Oetting, [e-mail]

6. "Log In ... Tribune," the IT supplement of The Tribune, Chandigarh, India

(http://www.tribuneindia.com/ 2003/20030602/login/main7.htm)

7. Datamonitor, www.datamonitor.com

As always, I welcome everyone's comments. My e-mail address is [e-mail] or log in to forums.tmcnet.com.

Sincerely,

Nadji Tehrani TMC Chairman, CEO and Executive Group Publisher [e-mail]

RELATED ARTICLE: Indian call center scene not so rosy.

The following excerpts were taken from an article by Geeta Seshu, entitled "Stress Comes Calling In Call Centre Industry" that appeared in "Log in ... Tribune," the IT supplement of The Tribune, Chandigarh, India.

According to Seshu, the position of telemarketer in an Indian call center is not as ideal as most Americans have been led to believe. Seshu says in the article, "Long hours of work, permanent night shifts, incredibly high work targets, loss of identity ... are these the dark clouds that threaten to mar the 'sunshine' call centre industry in India? Many of these young persons --between 18 and 21 years--are seeking counselling." Quoted in the article, Dr. Jitendra Nagpal, a psychiatrist at the Delhi-based Vidyasagar Institute of Mental Health and Neurosciences (VIMHANS), said, "In the past four months we have been counselling at least two persons every week who work in call centres."

Nagpal told the article's author that the call center agents he sees are suffering from stress related to their work as well as "irregular sleeping hours, unhealthy food habits and chronic fatigue."

Seshu acknowledged that while executives understand that attrition is an inevitable part of the industry, she said zhat what is "privately admitted but rarely acknowledged publicly is the toll taken by the inherent nature of the job." She related a case of a call center worker in India that supports that theory. In the article she states: "Kokila Nath was a bubbly graduate before she joined a prominent call centre in Mumbai. Six months later, her eyes were puffy, her once-blooming skin was red and blotchy and her cheerful temperament lost to a short-tempered and edgy young woman." She quoted Kikila's parents as saying, "'We couldn't recognise our daughter. In fact, we couldn't even talk to her most of the time. She slept throughout the day, barely ate and sped off to work where she had to meet targets failing which the entire team would suffer.'"

In this case, the call center worker left the position within a year. According to the article, "The call centre did provide one-way transport between 10 pm and 6 am. If her eight-hour shift began at 2 am, she was brought to work but at the end of a hard night, she had to make her way back home at 10 am. Her holidays coincided with those in the USA, leaving her completely out of sync with her family and friends. But the worst part was the weight loss, the deterioration of her eyesight, skin problems, and creeping insomnia. She opted out to seek a more relaxed job with regular working hours."

In another case, a call center agent named Leda Swamy left for other reasons. According to Geeta Seshu, Swamy was "employed in a centre that did, among other things, telemarketing for a foreign bank, she found that the employees were at the mercy of their team manager for everything--from salaries to incentives and casual leave sanctions."

The article continued, "Her plight illustrates the manner in which basic labour regulations can so easily be given the go-by. Directed to make at least 250 calls per shift, the entire team was under high pressure to meet targets. The tension on the job got to her and Swamy fell ill. Although told she would be entitled to sick leave and casual leave when she was employed, she was greeted with a pay-cut on resuming duty."