How Does Call Center Outsourcing Affect the U.S. Economy?

Does Call Center Outsourcing Still Steal U.S. Jobs?

Definition: Call center outsourcing is contracting out call center services. It can either be done in-house, through a separate division within the company, or to outside companies who specialize in just that function. Call centers handle customer services problems for everything from your credit card to appliance warranties.

Call-center outsourcing began when large companies found it was more cost-effective to locate their call centers in areas that have a lower cost of living.

That way, they can pay their workers less. It helps if the area has few natural disasters to interrupt service and a strong telecommunications network. For those reasons, Phoenix Arizona became a hub for many corporate call centers.

How It Affects the U.S. Economy

As the standard of living in the United States increased, many companies found it was cheaper to locate call centers overseas. Countries like India, Ireland, Canada and the Philippines were the most popular. Not only were workers paid much less, but they already spoke English. For example, an U.S. call center employee, including labor, technology and phone routing, costs a company $20 per hour on average versus $12 per hour in India. From 2001-2003, over 250,000 call center jobs were outsourced to India and the Philippines alone. (Source: Technology Manufacturing Corp.)

However, when  the recession lowering costs in the United States, that trend started to reverse.

 Unlike outsourcing for technology,  manufacturing and high-skill industries, there is a much smaller wage discrepancy between call center workers in the United States and emerging markets.

Thanks to rising wages in India, and the high U.S. unemployment, call center workers only make 15% more than their counterparts in India.

This makes Nebraska call center workers more competitive, despite the higher cost. Why? Because their greater command of English and familiarity with American culture means greater satisfaction with customers. That means they receive fewer complaints than foreign call center workers. (Source: NPR, "Outsourced Call Centers Return Home," August 25, 2010)

Pros

There are at least four major reasons why a company would want to outsource its call center. They all have to do with offloading risk to the call center specialist, instead of keeping it in-house. Here's more specifics:

1. Flexibility: Call center outsourcing allows a company to be more flexible in responding to changing needs. If a business is moving into a new market, or adding new products, it's often difficult to estimate exactly how many call center employees to add. If the business expansion doesn't bring in as much business as anticipated, the fixed cost of the call center must still be paid for. When the call center is outsource, the company only pays for the time employees actually spend on the phone.

2. Expansion to International Markets: A company that wants to expand to foreign markets must establish a local call center staffed with employees that speak that language.

Otherwise, it must hire domestic employees that are bilingual. An outsourced call center can handle that problem on an as-needed basis.

3. Responsiveness: Companies often have spikes in their business. Retailers' sales spike during the holiday season. At the same time, companies whose markets are in the north often find a decline during harsh winter months. It's difficult to train, hire, and then lay off workers for those few months when demand is higher. A company that outsources its call center contracts out those risks.

4. Customer Service: The telecommunications infrastructure becomes worn, unreliable, or outdated.

Maintaining it is costly, and replacing it even more so. However, an outdated system can reduce competitiveness. Outsourcing the call center allows the company to focus on innovation in its goods and services, instead of the call center technology. (Source: Mike Hasler, "3 Signs It's Time to Write That Call Center RFP,"  Blue Ocean Contact Centers.)

Cons

The biggest reason why a company would want to keep its call center in-house is control. This is especially critical for a company whose competitive advantage is customer service. The call center is the interface with the customer, and the brand promise of customer service must be top notch.A company that is known for being innovative must also be careful to have its call center reflect that image. For companies that are known as low-cost, the following problems aren't so critical:

1. Communication:  One of the biggest complaints of outsourced call centers, especially in the beginning, was understanding foreign accents. Call center employees could speak English, but U.S. customers couldn't understand what they were saying because of the accents. 

2. Culture Shock: Employees in foreign call centers weren't familiar with common U.S. phrases, slang, and even geographic references. This reduced customers' trust in their expertise.

3. Product Knowledge: Call center employees that were far removed from the corporate base weren't as familiar with the company's products and services as those who worked in the company itself. This also reduced confidence and resolution of customer problems.

As a result, Compass Management Consulting found that companies using outsourced call centers could incur as much as a 60% drop in production. That made the 40% reduction in costs not worth the savings. (Source: Economy in Crisis). 

How These Types of Outsourcing Affect the Economy