After squeezing out all the potential productivity improvements in their North American and European call centers, GE, American Express, Sprint, Dell, AOL and Amazon went "offshore" to further improve their cost-effectiveness. After moving their call center volumes to lower cost locations like India, the Philippines and Malaysia, these and many other Fortune 500 companies have improved cost-effectiveness by 50% as well as improved quality and increased overall customer satisfaction.

Outstanding offshore results Multinationals are increasingly transferring parts of their business systems to remote locations, given the "proof of concept" by several other players across multiple verticals and advances in technology that are creating more and more opportunities. These companies have seen the benefits of launching software-writing centers in lower cost countries. In India, for example, educated workers are plentiful and can be hired for a fraction of the cost of their North American and European counterparts and infrastructure expenses are much lower. Furthermore, with today's increased bandwidth capacity and the emergence of universal networking standards, more opportunities are opening up to move many parts of a company's system — including front-end customer-facing functions — to lower cost locations. These offshore call centers will continue to create dramatic results as seen with IT offshoring. Several companies have already achieved a 50-60% reduction in costs (after adjusting for higher telecommunications and management expenses).

Lower labor costs, a plentiful and highly skilled workforce, and increasing offshore capabilities across global majors and Indian providers are driving these results. Lower labor costs: In North American and European call centers, labor makes up the lion's share (60-70%) of operating expenses. In India and the Philippines, labor costs are much lower — a mere 10-20% of those in the U.S. Consequently, operating expenses are more evenly distributed across labor, systems and telecom, and real estate and utilities. The savings, resulting from these cost advantages for some companies have been outstanding — up to $250 million annually. As offshore facilities increase so will the risk of demand exceeding supply, which will affect the sustainability of the cost advantage.

In relatively saturated offshore locations like Ireland and the Netherlands, it has taken nearly 10 years for wages to increase from 50 to 75% of those in the U.S. However, this will take 25-30 years in the most aggressive cases for locations such as India, because of their much lower initial wages and large educated workforce that is continually expanding. Plentiful and highly skilled workforce: Lower cost labor does not necessarily result in lower skilled, lower quality employees — in most offshore cases, the opposite is true. North American call centers are filled with high school graduates. They often appear to lack commitment to the job or the company, as evidenced by an attrition rate of 40% or higher. In contrast, Indian and Philippine call centers employ university graduates from their enormous pools of skilled labor (India alone produces 2 million English-speaking college graduates and 300,000 post-graduates annually). These employees are committed to a career in a call center — it's not just a temporary job. Companies like GE have also started investing in local Indian communities so they can attract people to and train them for their call centers.

These multinationals have created a new career opportunity for a slice of India's huge college graduate pool. With higher skilled employees, GE has achieved total satisfaction ratings of 92% for Delhi versus 85% for the U.S. and HSBC has achieved 20% more transactions per hour in Hyderabad than in the U.K. Increasing offshore capabilities: The functionality and types of services offered by offshore call centers are growing rapidly, mirroring the evolution of original outsourcing in the U.S. and Europe. Outsourcing started with simple, transaction-oriented, non-customer-facing work like back-office processing. Then it evolved to e-mail and live inbound and outbound calls. These interactions were initially relatively simple but are now much more complex. For example, GE and others handle much of their collection volumes through their Indian relationships — a task in the U.S. that typically requires a higher cost skill level. The training wheels have come off. As long as the commitment and investment in people are maintained, offshore agents can handle the same situations as their U.S. counterparts.

Setting up an offshore call center By following a three-step approach, companies can create successful offshore operations. Step 1: Create an overall strategic game plan. All too often companies have a very short-term vision — e.g., quickly get a 50-seat pilot up and running — and fail to think through the broader strategic, longer term opportunity. The strategic game plan requires: Determining which functions can be moved offshore — and the magnitude of the opportunity each represents Sequencing the activities to be transferred Selecting the appropriate country based on factors including infrastructure, regulatory and political environment, skills available and cost-savings potential. Step 2: Define the operational approach to moving operations offshore. The three offshore options — captive facilities, third-party outsourcing and joint ventures — all work well under the right circumstances. More advanced companies are now using a combination of these approaches. For example, Dell started with a third-party arrangement and now has a captive facility as well. American Express and Citibank started with captive facilities and then added third-party outsourcing. AOL is the latest entrant with a multi-option approach. The captive facility option provides the greatest savings and control.

However, it is often the most difficult and takes the longest. In India, GE and American Express have led in setting up captive facilities — in part because they already had significant presences in that country. Others, like HSBC and Standard Chartered, are also setting up greenfield operations. The third-party outsourcing option reduces the risk and time of setting up operations — but it also reduces cost savings. Daksh, Spectramind, Vcustomer, 24/7 Customer.com and Transworks are among the leading Indian call center outsourcers. Their global clients include Amazon, Yahoo, Dell, Avis, Ramada and several other players. Large traditional North American-based outsourcers are also setting up operations in India to supplement their existing facilities. For example, Convergys opened up a 500-seat facility in Gurgaon at the end of 2001. Sitel also opened a facility in 2001 and now has more than 1,000 employees.

These facilities have enabled Convergys and Sitel to offer their customers more service delivery options and more price points. Joint venture is the third option. For example, Stream set up a joint venture with Tracmail to establish its operations in India. A recent innovative JV arrangement is Build, Operate and Transfer (BOT). Under this model, an Indian company helps set up the Indian operations that the JV partner has the option to eventually take over. BOT benefits both parties. It enables the foreign company to get its operations up and running quickly, while guaranteeing a takeover option. And it gives the Indian company the references and credibility to become an established player. BOT usage is expected to increase over time. The right approach for a company depends on how quickly the offshore operation needs to be up and running, the degree of control required, the company's knowledge and experience in the offshore location, the financial implications and the availability of management resources. Step 3: Effectively manage the transition and implementation. A seamless execution strategy covering technology, human resources, communications and management is critical for success. Technology includes determining the appropriate telecommunications network (with redundancy), systems architecture and contingency planning. Human resources involves creating the right training for the remote agents on operating processes, the customer geography (e.g., Midwest U.S. versus the U.K.) and the company's culture.

Communications strategy must be proactively developed for employees, customers and other stakeholders (e.g., political, regulatory). Management resources also need to be assigned at both the corporate and the remote sites for training, systems, telecommunications and vendor management. Companies must find employees willing to relocate for at least 1-2 months and sometimes longer, depending on the approach taken to establish and maintain offshore operations. * * * Offshore call centers bolster cost-effectiveness and improve customer service. Is your company fully leveraging this opportunity? If not, you should determine how a remote location strategy could benefit your company and your customers. Otherwise, you risk being left behind.