Looking for Labor in All the Wrong Places
1 Jul, 2008
By: Linda Driscoll-DobelIn his hit song, Waylon Jennings realized, “I was looking for love in all the wrong places.” Are contact center employers making the same mistake -- looking for workers in all the wrong places?
Contact center employers face a difficult challenge -- you are looking for workers to present the face of your company at wages that are almost 45 percent below the U.S. average. In fact, if a worker earning the average U.S. contact center wage, about $10 per hour, is the only income earner in a family of four, that family would be “living in poverty” according to the U.S. Census Bureau. At the same time, call center activities are requiring higher skill levels as many traditional activities are completed through “self-service” activities on the Internet or through automated telephone systems.
Far Away Places
Offshoring proponents continue to promote offshore locations as the right places. According to an analyst from the Everest Research Institute, call center offshoring “continues to grow aggressively in key geographic locations (India, Philippines, central and eastern Europe) while areas in Central and South America and the Caribbean are emerging as smaller-scale hubs.” He notes that “companies have faced challenges related to performance metrics, cultural compatibility and customer satisfaction levels for call center work, but they’ve successfully addressed these through resolution mechanisms such as measuring the overall customer experience in addition to process and cost efficiency measures.”
The numbers from the Site Selection Group tell a slightly different story. True, we are seeing new contact center jobs in foreign markets, but the country contributing the most job growth is the United States. Forty percent of new contact center jobs were in the United States compared to just six percent for India.
The low share of new jobs in India reflects the challenges of offshore locations. As companies flooded into the Indian market, competition increased labor costs and turnover rates. Language difficulties led to customer frustration and inefficiency. According to the U.K. firm, Compass Management Consulting, “communication failures occur in an average of four percent of calls in onshore call centers, but the figure rises to 18 percent in offshore centers with each failure lengthening the call by 39 to 105 percent.” When a call takes twice as long, that’s the same as doubling labor costs.
With India losing its luster, the search for lower labor costs is driving contact centers to other offshore markets. Among offshore locations, the Philippines and Latin America (Mexico, Central America and South America) captured the most new jobs with 27 percent and 14 percent respectively. In addition to low labor costs, interest in the Philippines reflects hopes that a “more American culture” will lead to better customer satisfaction. But once more, popularity and resulting increasing wage rates are likely to reduce the Philippines’ advantage.
Contact centers in the Caribbean, Mexico, Central America and South America benefit from their presence in the same time zones as the U.S. In India, where evening shifts were required to match U.S. time zones, call center jobs became more difficult to fill as competition increased. In Bangalore, a nightlife culture developed around call center jobs, increasing their appeal, observed CIO Magazine blogger Stephanie Overby. But when the Bangalore government implemented an ordinance to close bars and nightclubs at 11:30 p.m., labor availability declined significantly.
Latin America provides another benefit -- the flexibility of a bilingual labor force. Almost 15 percent of the U.S. population is Hispanic, with approximately 10 percent of the U.S. population speaking Spanish at home. That share reaches more than 30 percent in California and Texas.
While Latin American markets may be attractive now, expect them to suffer the same increasing labor costs as other offshore markets. According to Dennis Donovan of WDG Consulting, Latin American countries currently have less than one million English-speaking workers to fill call-center, back-office, IT and other jobs requiring English-language skills. Certainly these numbers will increase, but how soon?
The weakening dollar has also reduced the attractiveness of offshore markets, especially Canada. In the last five years, changing exchange rates have led to more than a 50 percent increase in effective labor costs. In Alberta, the booming oil industry has also increased labor demand and thus wages rates, leading to numerous call center closures.
Back in the USA
Responding to challenges offshore, contact center employment continues to grow in the U.S. Even as U.S. job growth slowed to less than 1 percent in 2007, CBRE’s Labor Analytic Group estimated that contact center employment grew by more than 5 percent.
The search for the “right place” in the U.S. has led to increased activity in smaller cities. According to CBRE Labor Analytics Group, in 2005, 19 percent of job announcements for new call centers were in communities with populations less than 250,000. By 2007, these small cities represented 30 percent of the total. In 2007, more new contact center jobs were announced for small communities than for cities with populations of more than one million.
Small communities have several advantages. Wage rates are lower and it’s less likely that competition will force wages higher in the future. Small communities provide a natural “barrier to entry” because it’s more obvious when adding one more call center will saturate the market. With less competition, there’s also less turnover. Among small communities, the most attractive are near colleges, military bases, and interstate highways.
“Satellite cites” provide a variation on the small city strategy. Located in the growth path of larger cities, these small cities have small city benefits plus access to big city amenities such as major airports and entertainment.
Small communities are not right for every contact center. When companies need workers with specific skills, such as financial investment advisors and health care professionals, smaller communities can’t provide enough workers. Many of these jobs are landing in mid-tier markets, avoiding the high labor costs of first-tier markets with populations greater than one million.
As call centers plan for the future, rising oil prices are likely to have an impact on strategies. In the U.K., access to public transportation is already a major consideration. In the U.S., expect to see the distance employees are willing to drive decline. At the extreme, home-based agents don’t have to drive at all. As technology to manage home-based agents improves, we may also see a return to more decentralized call center strategies.
What Next?
Contact center location trends suggest that more companies are recognizing the importance of good customer service. Eventually, with globalization, more offshore workers will develop strong English-language skills. Until then, companies must carefully consider the trade-offs between lower labor costs and the impact of poor customer service on revenues.
