One of the goals of the Operations Room is to equip its readers with the ability to converse knowledgeably on all-things operations. In our board meetings, we tend to imagine situations in which such knowledge will be of at-most importance. Thus, we were very happy to see that the NY Times (“A New Capital of Call Center“) covered a story we already covered before (“Call centers in Manila“,) so when a reader would be invited to an operations- oriented cocktail party, and confronted with the question “what’s the world capital of call centers”, said informed reader would not be left speechless.
Over the last several years, a quiet revolution has been reshaping the call center business: the rise of the Philippines, a former United States colony that has a large population of young people who speak lightly accented English and, unlike many Indians, are steeped in American culture. More Filipinos — about 400,000 — than Indians now spend their nights talking to mostly American consumers, industry officials said, as companies like AT&T, JPMorgan Chase and Expedia have hired call centers here, or built their own. The jobs have come from the United States, Europe and, to some extent, India as outsourcers followed their clients to the Philippines.
As several observers point out, this change reflects the maturations of the outsourcing business that now focuses on more than just pure cost and a somewhat superficial view of language. In the early days of this industry, as in many other industries that attempt to outsource, firms focused on finding call centers in English speaking countries with low wages. India was a good solution, and developed a whole industry around Business Process Outsourcing in general, and call center outsourcing in particular. Wages in India are still significantly lower than in the Philippines ($250 a month in India, rather than $300, at the entry level in the Philippines).
…but executives say they are worth the extra cost because American customers find them easier to understand than they do Indian agents, who speak British-style English and use unfamiliar idioms. “It helps that Filipinos learn American English in the first grade, eat hamburgers, follow the N.B.A. and watch the TV show “Friends” long before they enter a call center. In India, by contrast, public schools introduce British English in the third grade, only the urban elite eat American fast food, cricket is the national pastime and “Friends” is a teaching aid for Indian call center trainers. English is an official language in both countries.
First, I hope they don’t show them the “Friends” episode in which Phoebe works at a (heavily scripted) call center. But more seriously, this brings an issue that is not so easy to quantify: Call centers can track over time how many customers are being routed back to the US, because their issue has not been properly addressed. But can they figure out what part of it was due to language viz-a-viz training or technology. There are too many parameters here to allow for a controlled experiment, but if anyone is aware of data indicating such a comparison, I will be very interested to hear. I am not underestimating the importance of a proper accent and or knowing who is Adrian Dantley, but is it worth $50 per hour? What about $100? Some of the issues can be quantified though: Philippines has better utility infrastructure than India and cities have better public transportation, reducing the effective costs of the call centers. If you have followed our blog, you probably have read about the current trend of back shoring. This is also the case for many call centers:
This year, for instance, US Airways stopped outsourcing customer service to Manila and hired 400 agents in Arizona, California and North Carolina as part of an agreement with the Communications Workers of America union. Some American companies like Delta Airlines have said they moved call centers back to the United States to appease angry customers who wanted better English. Entry-level American call center agents earn about $20,000 a year, about five times as much as similar agents in the Philippines and six times as much as Indian agents.”
What is the solution then? As in many cases: tailoring. One of the main characteristics of a mature industry is that each firm identifies a tailored solution that best fits its needs and strategic position. What is a good model to make such decisions? For supply chains, we can resort to metrics such as Total Landed Cost to account for all the different costs. But for services, shall one use the cost-to-serve metric? How would you account for the cost of poor service? I am aware of some empirical work and some theoretical work in this arena, but will curious to hear how firms make such decisions.
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What about the effects of turnover in call centers? In my experience, the level of turnover is actually a significant (and easily quantified) consideration vis-a-vis wages. It’s also become a major hangup in offshoring low volume backoffice processes because training a new team often involves travel to India. I’d be interested to see what the fully loaded costs are between the U.S., the Philippines and India.
That’s an excellent question Brian. I do not have numbers, but I expect turnover to be somewhat higher in India than the in Philippines, primarily due to the maturity of the industry, and the ability of people to quickly switch from one call center to another.