Maple Leaves, Kettle Drums and Sombreros: U.S. “Nearshore” Options
1 May, 2005
By: Rhonda ProctorNo matter where you stand on the issue of outsourcing, one thing is certain: Many contact centers have begun to stand on the shores of countries near their U.S. headquarters to take advantage of real, tangible business benefits. This bodes well for places such as Canada, Central America and the Caribbean that often share time zone, language and travel advantages that make the tough outsourcing decision much easier to bear.
To get an unbiased perspective on the emerging trends in the U.S. “nearshoring” process, Contact Professional interviewed Daniel Hong, an analyst with Datamonitor, who tracks the contact center industry. Hong described nearshoring as a method for U.S.-based businesses to reduce costs, as well as achieve closer geographic proximity to the company base and closer cultural ties for their customers. “Incessant pressures to cut costs and reduce capital outlay have triggered the offshore and nearshore movements in the call center industry,” Hong says. Further, “For call centers, labor accounts for the majority of overhead costs, which Datamonitor estimates to constitute roughly 66 percent of contact center costs. To reduce costs, enterprises and outsourcers have had to seek labor arbitrage opportunities; this has led many U.S.-based businesses to countries across the globe.”
Relevant to the U.S. market, nearshoring is an industry term used to describe the expansion or relocation of contact centers to geographically close, lower-wage countries outside the borders of the United States. Nearshore locations for U.S.-based businesses include Canada, the Caribbean and Mexico. “While offshoring to foreign countries such as India and the Philippines provide greater cost savings, it can often be difficult for many U.S.-based businesses to expand or relocate call centers to countries halfway around the globe,” Hong explains.
Interestingly, the nearshoring phenomenon does not appear to be about maintaining a sense American pride or nationalism. It seems to be focused on intelligent, customer-focused business decisions. “Nearshore locations provide low-cost labor options with the added benefit of being located in close geographical proximity to the United States,” Hong states. “The close proximity of nearshore locations provides an added comfort for clients, as they are able to frequently visit the facilities in these locations for agent training, product orientation and call center inspection purposes.
“Although labor costs in nearshore locations tend to be higher than offshore locations, labor costs are roughly 30 percent to 50 percent lower, compared to those for U.S. labor,” he continues. “The United States’ neighboring countries, Canada and Mexico, remain two prevalent nearshore locations for U.S.-based businesses.”
Hong supplied the following data on each of the primary U.S. nearshore markets:
Canada
- Benefits: Canada remains the most prevalent nearshore outsourcing location for U.S. outsourcers. Canada offers access to a geographically close, highly skilled, English-speaking labor pool. Moreover, there are few inherent differences between Canadian and American cultures. As such, Canadian agents are able to speak and relate to U.S. customers with ease. Canada also offers a favorable currency exchange rate, resulting in labor wages that are up to 30 percent lower than U.S. labor costs.
- Caveats: Canada’s labor costs are markedly more expensive than other nearshore countries. Datamonitor estimates that Canadian labor can be more than 100 percent more expensive than labor in countries such as Mexico.
Mexico
- Benefits: Mexico represents a geographically close locale with inexpensive and bilingual labor. A recent Datamonitor report titled “The Global Pricing Guide to Offshore Outsourcing” found that Mexican labor is more than 50 percent less than U.S. labor wages.
Additionally, outsourcers are setting up shop in Mexico in their efforts to service the growing Hispanic population in the United States. A 2004 census bureau report indicated that the U.S. Hispanic population will rise from 36 million today to more than 100 million by 2050. This means that the Hispanic population would be the largest minority in the United States, comprising nearly a quarter of the U.S. population. In addition, 87 percent of the U.S. Hispanic population speaks Spanish in their homes as the preferred language, according to the Direct Marketing Association. - Caveats: Mexico’s call center market is relatively immature and telephony costs remain high relative to U.S. standards. Moreover, the availability of educated English-speaking personnel remains low.
Caribbean
- Stats: Jamaica is the largest call center market in the Caribbean, followed by Puerto Rico, Trinidad and the Dominican Republic, Barbados, St Kitts, Grenada, St Lucia, Guyana, Antigua and St Vincent.
- Benefits: U.S.-based businesses are attracted to the Caribbean due to lower labor rates, close geographic proximity, comparable time zones and the availability of English speakers. Moreover, businesses have reported overall satisfaction with the quality of labor in the Caribbean.
- Caveats: Although Datamonitor expects growth in the Caribbean call center market, its English-speaking agent population is saturated and cannot support increased capacity.
Why Canada Why Now?
The world’s largest two-way trade partnership currently exists between Canada and the United States, with more than $441.5 billion in goods and services exchanged between the two countries in 2003. It may be surprising to some, but this relationship supports 5.2 million U.S. jobs and ultimately strengthens the economies and standard of living in both countries. For U.S. companies seeking business expansion to Canada, the benefits are significant.
Consider the experience of LiveBridge, a Portland-Ore.-based global call center services company that integrates onshore, nearshore and offshore operations as part of a three-pronged growth strategy. With an existing successful call center in Edmonton, Alberta, the company sought to open a second Canadian call center in late 2002. After looking into various sites, it settled on Prince George, British Columbia. In just over a year, the call center has become the largest of its two Canadian facilities and the second largest company facility worldwide.
Why would a company choose to locate a call center in Prince George? After all, the city is a former timber stronghold, situated in the middle of British Columbia, far removed from the bustle of major urban centers. The answer is simple. Canada and Prince George in particular offer key resources needed for a call center to thrive. The English-speaking workforce is young and well-educated, infrastructure costs are low, the transportation system is strong and there is access to a high-tech communications network. Most important are the efforts of pro-business government leaders in Prince George who are eager to bring new businesses to the community and willing to provide top-notch incentives to attract and retain them.
Financial support from Initiatives Prince George (IPG)—a local economic development organization—and the backing of the mayor and city council enabled the firm to open in 2002. Only one year later, IPG funded a repayable loan for the expansion of the facility that allowed more inbound customer service calls and expansion of up to 750 employees.
Gurjinder Sarohia, LiveBridge center operations manager and a Prince George native, promotes the business and community with enthusiasm. “I know the Prince George facility will be a true center of excellence for years to come because the workforce here is diligent and produces results.” Sarohia appreciates the U.S.-based company’s presence in Prince George and feels that call center work offers a great opportunity for people to learn practical skills and expand their careers.
