The falling cost of a US-based call center

Last week, the Financial Times had an article claiming that call center costs have fallen enough in the US that they were getting close to matching the costs in India (US matches Indian outsourcing costs, Aug 17). This garnered enough attention that it was even parodied in the Onion. As the FT tells it, there are two sides to this cost comparison. On the one hand, the recession has suppressed wages here. On the other it is getting more expensive to operate in India.

Pramod Bhasin, the chief executive of Genpact, said his company expected to treble its workforce in the US over the next two years, from about 1,500 employees now.

“We need to be very aware [of what’s available] as people [in the US] are open to working at home and working at lower salaries than they were used to,” said Mr Bhasin. “We can hire some seasoned executives with experience in the US for less money.”

The narrowing of the traditional cost advantage is also spurring other Indian outsourcers to hire more staff outside India. Wipro, the Bangalore-based IT outsourcing company, started to recruit workers in Europe, the Middle East and Africa during the global economic downturn. Suresh Vaswani, joint chief executive of Wipro Technologies, forecasts that half of his company’s overseas workforce will be non-Indians in two years, from the current 39 per cent.

Now NPR adds a little more detail (Outsourced Call Centers Return, To U.S. Homes, Aug 25)

Phil Fersht, an outsourcing analyst, says even before the recession started, companies were starting to realize that offshoring wasn’t the best option for other services. In some cases, workers in India are making only about 15 percent less than workers in Nebraska, he says. That’s the threshold where companies start thinking about whether it’s worth it to hire an American worker instead of a foreign one.

So this certainly makes sense. If reducing distance and cultural barriers improves service, then it is certainly worth a small price premium. And it may, in fact, make a difference. The NPR story features this spiffy graphic:

I am not sure I want to make too much of these numbers. They are based on a survey of people who called some contact center in the past month. How they know that they spoke to someone outside the US, I don’t know. Thus it may not be the case that they got worse service because the call went overseas. But it certainly seems that they believe they got worse service when they believe they were speaking to someone outside the US.

The final twist on the story is hinted at by the quote from the Genpact executive above: the US is getting cheaper in part because people are “open to working from home.” As NPR tells it, having people work out of their homes lets outsourcing firms dramatically cut costs.

Home workers, such as Quigley-Hogan, represent one of the cheapest models for customer service. There are an estimated 60,000 people doing call center work from home.

“It provides a lower cost point than other traditional means of onshore customer service,” says Chris Carrington, who runs Alpine Access, the Denver-based company that Quigley-Hogan works for. Carrington says the low overhead of having home-based workers allows him to charge 20 percent less for the same services provided by brick-and-mortar call centers in the U.S.

“We don’t have big buildings and we don’t have all of that infrastructure cost, and so we’re able to pay our people more and as well as lower our price for the customers we serve,” he says.

Contact centers with a distributed workforce that largely works from home are not new. See Emily Yellin’s book Your Call Is (Not That) Important to Us for a discussion of how these arrangements play out. While they save on overhead, they raise some challenges with regard to training and monitoring. Of course, monitoring what every one is doing in a 200+ agent call center is also not an easy task.

These stories are interesting but at the same time I wonder how much the press is playing up a small market move into a big trend. Yes, I accept that there are more good workers available in the US at reasonable wages and I understand that overseas markets have seen rising costs. On the other hand, some US firms were pulling back call centers several years ago out of quality concerns or just because it was hard than they had anticipated that to manage the relationship over such distances. The same applies for home-based call centers. As I noted above, they have been around for a while but still 60,000 workers is a relatively small slice of the US call center labor force. It will be interesting to see if these “trends” continue to hold up over the next several years.