As we provide consultancy services for companies looking to outsource call centre activity, I am often asked as to the state of the industry as a whole. The answer to that question is often difficult as some companies are doing well and others quite simply aren’t. The call centre outsourcing industry has always been dynamic and those who are able to anticipate and respond to client-led demand are always the ones who succeed. The sudden and dramatic financial meltdown of late 2008 created a “wait and see” approach from many businesses before they would commit to new outsourcing deals which existed for many businesses into 2009. Not only has this pretty much come to an end, many now believe that 2010 will see these on-hold deals now come to fruition especially if the dreaded double-dip recession doesn’t materialise.
The call centre outsourcing industry has had a topsy-turvy decade. At the beginning of 2000, there was significant growth in outsourcing domestically within The UK. Many thought that the rise in offshoring would kill off UK based providers but what essentially happened was that those who responded to the offshore challenge now have a far stronger offering than before. Buyers of outsourced services are now more sophisticated and well-informed than ever. We increasingly see that those in the buyer community have previously worked on the vendor side and vice-versa. We also see an increasing number of companies use consultancies such as Info Valley to improve their outsourcing. In many aspects, this has meant that the gulf between client requirements and vendor offerings has been reduced.
Impact of The Recession
Recessions always create both opportunities and challenges for outsourcers and this one is no different. Many thought that the recession would spur a second large wave of offshoring but this hasn’t been widespread for many reasons including the increase in staff availability domestically. The back-lash we have seen against the lower quality offshore facilities now means that many companies now have a strongly held view on offshoring. One key challenge for outsourcers in the downturn is that many large companies are trying to find use for their over-capacity of both office space and staff. This is clearly a major challenge for outsourced vendors, particularly those who rely heavily on a limited number of large clients.
The Rise of Technology
The internet continues to create challenges for outsourcers engaged in the more transactional side of contact centres. For both captive and outsourced operations, much of the “easy” work has either gone on-line on been replaced by other forms of self-service. Given that much of this work had migrated offshore in recent years, this has had a relatively minimal impact on the domestic outsourcing industry. A survey we commissioned showed that the British public was actually more concerned with excessive self-service than offshore call centres and so it’s difficult to see how technology can realistically replace many more call centre agent positions either in-house or outsourced.
Home Working
A number of the established call centre vendors have been joined by new ventures in offering “home-workers”. However, demand from the risk-averse British buying community has been relatively weak so far with little evidence that this is changing. Overall, the volume of outsourced home agents is low compared with the huge publicity this area has received over the past 18 months.
The Return of Outbound
The outbound telemarketing part of outsourcing has grown rapidly after a difficult period. The commission based telemarketing work appears to have pretty much moved offshore or disappeared but a number of very small vendors still participate in this area and there are still a number of deals among the larger vendors where sales performance still constitutes at least part of the pricing model. Outsourced outbound activity is now very different to the “land-grab” scenario of the last decade which existed in the telecommunications and utilities sectors. The collections and recoveries sector tend to use vendors with high levels of industry expertise or conduct the work in-house. However, this is one of the areas where there is still widespread interest in offshoring.
Sector Specific
The story across different sectors could not be contrasting. There have been very limited significant deals in most areas of financial services and retail but strong demand from utilities and the public sector. However, trying to differentiate across sector doesn’t always show the true picture as some businesses even in both financial services and retail are looking to outsource contact centre activity more than ever.
Offshore Call Centres
The untold story of outsourced call centres is diminishing revenues for a huge number of offshore vendors particularly those who are Indian-based. Many of these vendors believed that their double and triple digit growth of 5 years ago would continue. In contrast, demand has waned and many are now burdened with high overheads and half-empty call centres. Most of the smaller outsourced vendors in India have gone bankrupt over the past 24 months and many of the larger vendors are already adjusting their cost base to meet demand. That’s not to say that there still isn’t demand for offshore centres from a cost-conscious client base. Some Indian vendors continue to perform strongly and we have seen growth in The Philippines and to a lesser extent in South Africa. There hasn’t been the expected growth in Eastern Europe at least from a UK perspective due to the limited cost arbitrage. There are pockets of Africa who have seen some growth including Kenya and Egypt but their total industries are still insignificant compared with India. The Philippines is now firmly positioned as the 2nd largest offshore call centre destination. Although over 90% of their work still comes from The United States, an increasing amount is coming from The UK. The on-shore/off-shore split of contact centres seems to have found a relatively happy medium. The huge growth in India led to both recruitment and retention issues which had a dramatic impact on quality and consumer perception. Businesses have learnt the mistakes of trying to push too much offshore too quickly. Those businesses which made very public statements about bringing call centres back to The UK have discovered that implementing this wasn’t as easy as the rhetoric suggested. British business now has a more clear idea of what should be outsourced offshore against domestically so we are unlikely to see the percentage split between offshore and domestic outsourcing fluctuate dramatically over coming years.
Ironically, The UK is increasingly becoming an offshore location itself. The rise of the Euro against Sterling now means that the UK is better placed to be a Pan-European call centre location than at any time since the mid 1990’s. Outsourcers in the low-cost base of Northern Ireland and the cosmopolitan areas in and around London have now realised that they can compete again in this area.
Overall
2010 will be a far better year for outsourced call centre vendors than 2009 or the latter part of 2008. UK based providers no longer have to pitch head-to-head against offshore vendors as they did a few years ago as clients typically have their on-shore v offshore strategy better determined. However, their competition domestically and clients tend to be more savvy in their decision making. For many clients, multi-sourcing is now far more of a strategy than simply a position they find themselves in. This can often mean that there are more deals available but they can be smaller in size. This may mean that larger vendors have to need to rethink their criteria for the work they want. The last recession of the early 1990’s saw rapid growth in outsourced call centres but the market has matured considerably since then and so we are unlikely to see dramatic increases or decreased in demand as a result of the apparent sluggish upturn. We will start to see some vendors become more specific in the industries they serve. Although it might sound cliché, clients really do want solutions from their outsourced vendors and not just a resource. For mid-sized and smaller vendors, this may mean that they focus on a limited number of sectors and build solutions which cater to those needs. For the larger vendors, this may increasingly mean the adoption of the American model so commonly used among Indian vendors of dividing the organisation into divisions focussed on specific sectors.
About the author
Rob O’Malley is the founder and Managing Director of Info Valley Limited, a specialist consultancy focussed on strategy and operational improvement within outsourced call centres both in The UK and offshore. Rob has spent the past 17 years in the outsourced call centre industry and is currently The Chairman of The British Philippine Outsourcing Council