Magazine article Workforce Management

The Backshoring Myth

Magazine article Workforce Management

The Backshoring Myth

Article excerpt

Despite media hype about the recession driving jobs back to the U.S., the business case for outsourcing to the emerging markets remains overwhelming.

ANECDOTAL reports of some U.S. companies repatriating jobs from offshore locations have whipped up predictions that the economic downturn may reverse the flow of jobs out of the United States. There is, however, no evidence to support these predictions.

Offshore outsourcing growth slowed briefly during the recession but came roaring back in the second quarter of 2009, with every indicator pointing to heady growth rates ahead.

Real earnings in the U.S. have plunged 2 percent over the past year, but that has not altered the fundamental cost equation that drives offshore outsourcing to emerging-market locations. Sitel, a Nashville, Tennessee-based global business process outsourcing provider, reports double-digit growth in the work it handles in the Philippines, where its contact center clients see cost savings of 40 percent or more compared with work done in the United States.

"The VaIk about backshoring is a lot of rhetoric," says Andrew Kokes, Sitel's vice president for theAmericas. Sitel opened a new contact center in Pasig City in June, its sixth location in the Philippines. The company employs 60,000 workers in 27 countries, including 1 1,000 in the Philippines, 4,000 in India and 9,000- including many bilingual agents - in six Latin American nations.

Sitel's Latin American contact centers offer cost savings of 30 percent or more over U.S. contact centers, in 2008, Site! opened two centers in Nicaragua, where its i ,400 agents have university degrees and 75 percent have lived in the United Stales.

Across all of its emerging- market locations, the company can staff its contact centers with college graduates who view their jobs as career opportunities and not temporary positions. Attrition in the company's emergingmarket locations is equal to or lower than attrition at its U.S. centers.

Rumors about backshoring find support in reports that wage inflation in the emerging markets and wage deflation in the U.S. have upended the labor cost equation that supports offshoring. But sophisticated outsourcing providers have successfully offset wage inflation by raising the skill levels of the offshore workforce and achieving cost efficiencies in workforce management. Arbitrage is intact.

THE WAGE EQUATION

Neo Advisory reports that India's market share for English-language contact center outsourcing is 35 percent, followed by the Philippines at 17 percent and Latin America at IO percent. Latin America is the fastest-growing region in the world for call centers, according to Dalamonitor. Sitel established centers in Colomb/a more (han a decade ago and then expanded to Brazil, Panama, Mexico, Chile and Nicaragua.

Wage inflation in most Latin American nations is running 4 to 6 percent, but with contact center base pay averaging $4 ?? $6 per hour, providers can still offer substantial cost savings for their U.S. clients. Comparable contact center base pay in U.S. Tier II cities, such as San Antonio, and among home-based agents ranges from $ 10 to $12 per hour.

Sitel and other offshore providers can maintain cost efficiencies with modifications in workforce deployment.

"In the U.S., if a client is billed $27 an hour for contact center work, two-thirds of that is direct labor costs, including supervisor)' and agent labor, and one-third is facilities and technology costs," Kokes explains. "Offshore, that's flipped. One-third of the total cost is labor, but we face higher fees for facilities, telecom and networks. The way to drive savings offshore is to get better value from the facility, which means improving seat utilization, or the number of shifts you can run."

Sitel closely monitors the gap between wages in the emerging markets and the United States.

"We've modeled this, and under steady-state conditions, it will take decades to reach parity," Kokes says. …

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