The benefits of outsourcing customer contacts to a domestic service bureau - low operating costs, quick ramp up times, and ease of adding and dropping programs, services and markets - are substantial. The benefits are still greater when outsourcing to an offshore company.

Outsourcing offshore can save 5% to 8% in Canada, and 10% in Mexico for Spanish-speaking Americans, compared with domestic outsourcing. The percentages jump to an eye-popping 20% to 40% when outsourcing to India, the Philippines and South Africa.

The higher offshore savings stem from lower wages and reduced turnover. That translates to less hiring, staffing and training expenses, plus fewer productivity lags as new agents are brought up to speed.

According to Geri Gantman, a senior partner at Oetting and Company (New York, NY), annual turnover rates are just 5% to 10% in India and the Philippines compared with 50% to 100% in US outsourced call centers.

You can channel those savings into revenue-enhancing investments and activities. You might, for example, drill deep into outbound lists to convert more prospects to customers and increase sales, says Dale Saville, executive vice president of global outsourcer SITEL (Baltimore, MD).

Outsourcing outside the US avoids the complex and costly site selection, legal and regulatory issues involved with setting up and managing in-house call centers in other countries. When serving foreign or domestic customers, you leave it to the international service bureaus to supply sufficient native language speakers and cope with unions.

"An outsourcer insulates clients from having to learn, and deal with, complex and frequently changing workplace regulations," explains Saville.

But outsourcing internationally - especially to outfits in emerging/developing countries - requires extra due diligence. That's necessary for vetting vendors and for ensuring contract compliance and quality service.

There are many international outsourcing options, which we discuss further. These include global outsourcers, direct to local outsourcers, joint ventures, subcontracting and brokering. Each method, and vendor, requires careful examination.

"We've seen service bureaus in India that opened but were never equipped or staffed because they didn't get licensing," says Gantman. "Indian outsourcers require about 42 licenses. That type of situation doesn't occur in the US."

Outsourcing internationally is safer for US companies and clients, but it does not completely avoid dangers to their personnel. And you may find outsourcing at home to serve foreign customers to be a better option, as we will see later on.

"Offshore mitigates some of the risk because you're flying fewer people abroad, for shorter periods of time," says site selection consultant John Boyd of The Boyd Company (Princeton, NJ; www.theboydcompany.com). "But outsourcing does not eliminate the risk because you still have to have people over there to check out the outsourcers, set up the programs and train the staff."

A RISING TIDE

The cost, quality and convenience of offshore outsourcing, accentuated by an uncertain economy, have pushed international outsourcing from a ripple to a wave. The biggest beneficiaries have been low-cost emerging countries like India and the Philippines.

"Outsourcing offshore, once thought of as a special case only for very large companies, is now becoming a viable business alternative for a wide range of firms," says Gantman. "There is also a growing base of experienced outsourcers."

"Many of our clients were ambivalent about offshore outsourcing in the first half of 2001, but they began doing more of it as they focused on cost reduction," adds SITEL's Saville. "The events of 9/11 compressed that outsourcing process. We now see a huge acceleration in offshore outsourcing as companies realize that they can achieve considerable cost savings."

Much of the offshore work is for e-mail response. But outbound collections and telemarketing, long the low-end of the business, are also going offshore.

As one indication of this, Katrina Howell, industry analyst with Frost and Sullivan, (San Jose, CA; www.frost.com) said the predictive dialer market will grow at a compound annual growth rate (CAGR) of 14% in the Asia-Pacific region and 15% in Latin America through 2006.

Datamonitor (New York, NY; www.datamonitor.com) CRM analyst Brian Huff also sees more outsourcing offshore, as American firms seek to reduce costs.

"Moving functions offshore occurred in manufacturing," he says. "It's happening in customer service and sales for the same reasons."

According to Geri Gantman, the typical US outsourcing rates ($25 to $27 per hour) have not changed much, even with the downturn and call center closures.

"Even if the US outsourcing rates drop to $21 per hour, it will still be 25% less expensive to outsource offshore to bureaus in countries like India," she says.

Outsourcing, especially to non-US service bureaus, is also becoming a popular strategy to serve the growing US Hispanic-speaking market.

Hispanic Teleservices Corporation (HTC), which is based in Houston, TX, but has call center operations in Monterrey, Mexico, announced in March 2002 an agreement with America Online to offer bilingual customer service to AOL's US Hispanic market customers.

"As our Hispanic member base expands in the US, we have made great strides in bringing this important audience the content and services they know and trust," says Keith Jenkins, executive vice president of America Online's Member Services department. "We believe this new agreement with HTC to support our bilingual offering will continue to improve the on-line experience for our US Hispanic members."

But analysts and consultants say that many outsourcers, especially in India, lack the customer service, sales, business and IT skills to manage bureaus, especially for quality-demanding US clients. Consequently, Datamonitor's Huff predicts there will be a shakeout of the Indian outsourcing market, which he estimates has 6,000 to 8,000 seats.

"There is an oversupply of especially the lower-end seats," he reports. "The companies that will exit the market are those that don't have the expertise to deliver the service that clients expect."

POLITICAL CURRENTS AND ALTERNATIVES

Political instability and, since 9/11, threats of war and terrorism (notably in India) have given clients pause for concern before outsourcing offshore.

Many don't think India and Pakistan will go nuclear. But Brian Bingham, program manager for CRM and customer care at IDC (Framingham, MA; www.idc.com), says the war jitters have made other locales more attractive. These include the Philippines, Ireland, Canada, Mexico and the Nordic countries.

The benefits of outsourcing customer contacts to a domestic service bureau - low operating costs, quick ramp up times, and ease of adding and dropping programs, services and markets - are substantial. The benefits are still greater when outsourcing to an offshore company.

Outsourcing offshore can save 5% to 8% in Canada, and 10% in Mexico for Spanish-speaking Americans, compared with domestic outsourcing. The percentages jump to an eye-popping 20% to 40% when outsourcing to India, the Philippines and South Africa.

The higher offshore savings stem from lower wages and reduced turnover. That translates to less hiring, staffing and training expenses, plus fewer productivity lags as new agents are brought up to speed.

According to Geri Gantman, a senior partner at Oetting and Company (New York, NY), annual turnover rates are just 5% to 10% in India and the Philippines compared with 50% to 100% in US outsourced call centers.

You can channel those savings into revenue-enhancing investments and activities. You might, for example, drill deep into outbound lists to convert more prospects to customers and increase sales, says Dale Saville, executive vice president of global outsourcer SITEL (Baltimore, MD).

Outsourcing outside the US avoids the complex and costly site selection, legal and regulatory issues involved with setting up and managing in-house call centers in other countries. When serving foreign or domestic customers, you leave it to the international service bureaus to supply sufficient native language speakers and cope with unions.

"An outsourcer insulates clients from having to learn, and deal with, complex and frequently changing workplace regulations," explains Saville.

But outsourcing internationally - especially to outfits in emerging/developing countries - requires extra due diligence. That's necessary for vetting vendors and for ensuring contract compliance and quality service.

There are many international outsourcing options, which we discuss further. These include global outsourcers, direct to local outsourcers, joint ventures, subcontracting and brokering. Each method, and vendor, requires careful examination.

"We've seen service bureaus in India that opened but were never equipped or staffed because they didn't get licensing," says Gantman. "Indian outsourcers require about 42 licenses. That type of situation doesn't occur in the US."

Outsourcing internationally is safer for US companies and clients, but it does not completely avoid dangers to their personnel. And you may find outsourcing at home to serve foreign customers to be a better option, as we will see later on.

"Offshore mitigates some of the risk because you're flying fewer people abroad, for shorter periods of time," says site selection consultant John Boyd of The Boyd Company (Princeton, NJ; www.theboydcompany.com). "But [outsourcing] does not eliminate [the risk] because you still have to have people over there to check out the outsourcers, set up the programs and train the staff."

A RISING TIDE

The cost, quality and convenience of offshore outsourcing, accentuated by an uncertain economy, have pushed international outsourcing from a ripple to a wave. The biggest beneficiaries have been low-cost emerging countries like India and the Philippines.

"Outsourcing offshore, once thought of as a special case only for very large companies, is now becoming a viable business alternative for a wide range of firms," says Gantman. "There is also a growing base of experienced outsourcers."

"Many of our clients were ambivalent about offshore outsourcing in the first half of 2001, but they began doing more of it as they focused on cost reduction," adds SITEL's Saville. "The events of 9/11 compressed that [outsourcing] process. We now see a huge acceleration in offshore outsourcing as companies realize that they can achieve considerable cost savings."

Much of the offshore work is for e-mail response. But outbound collections and telemarketing, long the low-end of the business, are also going offshore.

As one indication of this, Katrina Howell, industry analyst with Frost and Sullivan, (San Jose, CA; www.frost.com) said the predictive dialer market will grow at a compound annual growth rate (CAGR) of 14% in the Asia-Pacific region and 15% in Latin America through 2006.

Datamonitor (New York, NY; www.datamonitor.com) CRM analyst Brian Huff also sees more outsourcing offshore, as American firms seek to reduce costs.

"Moving functions offshore occurred in manufacturing," he says. "It's happening in customer service and sales for the same reasons."

According to Geri Gantman, the typical US outsourcing rates ($25 to $27 per hour) have not changed much, even with the downturn and call center closures.

"Even if the US outsourcing rates drop to $21 per hour, it will still be 25% less expensive to outsource offshore to bureaus in countries like India," she says.

Outsourcing, especially to non-US service bureaus, is also becoming a popular strategy to serve the growing US Hispanic-speaking market.

Hispanic Teleservices Corporation (HTC), which is based in Houston, TX, but has call center operations in Monterrey, Mexico, announced in March 2002 an agreement with America Online to offer bilingual customer service to AOL's US Hispanic market customers.

"As our Hispanic member base expands in the US, we have made great strides in bringing this important audience the content and services they know and trust," says Keith Jenkins, executive vice president of America Online's Member Services department. "We believe this new agreement with HTC to support our bilingual offering will continue to improve the on-line experience for our US Hispanic members."

But analysts and consultants say that many outsourcers, especially in India, lack the customer service, sales, business and IT skills to manage bureaus, especially for quality-demanding US clients. Consequently, Datamonitor's Huff predicts there will be a shakeout of the Indian outsourcing market, which he estimates has 6,000 to 8,000 seats.

"There is an oversupply of especially the lower-end seats," he reports. "The companies that will exit the market are those that don't have the expertise to deliver the service that clients expect."

POLITICAL CURRENTS AND ALTERNATIVES

Political instability and, since 9/11, threats of war and terrorism (notably in India) have given clients pause for concern before outsourcing offshore.

Many don't think India and Pakistan will go nuclear. But Brian Bingham, program manager for CRM and customer care at IDC (Framingham, MA; www.idc.com), says the war jitters have made other locales more attractive. These include the Philippines, Ireland, Canada, Mexico and the Nordic countries.