Scotland Beckons as a High-Quality Outsourcing Location, Especially for the Financial Services Sector | Article
Scotland is not a low-cost outsourcing alternative. In fact, most of the service providers in Scotland also have operations in low-cost locales. Yet Scotland has become an important part of the global mix.
Why? “We have been under a bushel. Now it’s time to come out into the limelight and show the world there are big advantages in Scotland,” says Jim Mather, Scotland’s Minister for Enterprise, Energy, and Tourism and a former IBM executive.
Mark McMullen, International Senior Manager, Scottish Development International (SDI), the trade and investment arm of the Scottish government, says Scotland is benefitting from the current outsourcing strategy of blended operations. “Outsourcing buyers want different levels of service for different parts of the business. Service providers want the capability to be able to handle all their clients’ business,” he explains.
For example, Nick Laird, Chief Commercial Officer for Ceridian, says the service provider’s customers prefer to conduct their personal HR activities with onshore call centers instead of offshore. “We are paying more because our customers have told us they appreciate working with people who are aware of their needs,” says Laird.
“Our challenge has been to blend the cost of offshore operations with the high popular acceptance of onshore call centers,” he continues. Ceridian found a good way to “blend cost and quality” was to have its first-level call center for the UK in Scotland but send some of the back-office work to Mauritius. (“People also love their great French accents,” he adds.)
Mather, who is also a member of the Scottish Parliament (MSP), adds that “London has priced itself out of the market. Scotland has the commensurate skills at a better price.” The Scottish Minister says Scotland has become “a strong outsourcing destination” because “we understand margins are low in the sector. And we have low turnover and high productivity.”
Why Scotland is a financial services outsourcing center
McMullen points out Scotland has a long history in the financial services sector. Investors opened the Bank of Scotland in 1695, a year after a Scotsman founded the Bank of England. “Financial services have been hot-wired into the Scottish economy for hundreds of years,” he says.
Scotland ranks as one of the top financial locations in Europe with Glasgow one of the few cities not to decline in ratings, according to the Global Financial Centres Index 8, September 2010, done by the Z/Yen Group. McMullen says the financial services industry is “one of the most important” in Scotland’s economy; this sector accounts for eight percent of the country’s GNP. It is also a major employer, employing over 95,000 people directly and another 70,000 in support companies, including outsourcing service providers, according to SDI.
“Scotland has a legacy of longstanding, indigenous financial services institutions. That makes the country strategically important to service providers that specialize in this domain,” McMullen says.
In addition, McMullen points out the country is “known for its customer service,” making it a good fit for call centers. He says Scots have a deep understanding of products like mortgages, pensions, and insurance products. But they also have empathy, which is often required when talking to customers about these personal products.
“Our workforce understands both the importance of personalized customer service and the intricacies of the financial sector. It’s in our DNA,” he points out. Adds Owen Kelly, Chief Executive, Scottish Financial Enterprise, a private business group, “Skills and the depth of talent are Scotland’s big attraction.”
The labor pool in the central belt (which includes both Edinburgh and Glasgow) has about 2.5 million people, providing a stable core of employees. In addition, it’s easy to travel between the two cities. Service providers can attract employees anywhere within the belt, he points out.
fDI Magazine’s European Cities and Regions of the Future this year ranked Edinburgh for a consecutive year as Europe’s “best small city of the future.” Les Torrance, Operations Director, UK, Ireland, and CPS for Sykes, a call center service provider, says Edinburgh is a “cosmopolitan city.” He says students from the world over study in Edinburgh and then stay to create a career. “That constructs a highly educated workforce,” he says.
Paul Chapman, Managing Director, Operations for Barclays Capital, feels the same way about Glasgow. “There’s a vibe here,” he says. When Barclays Capital was setting up its shared services center this year, the financial company had to hire 200 people. “We made no compromise on the quality of talent we hired,” he reports.
Laird says the Scottish universities work with employers to educate the students “so they are valuable in the workplace.” He says the professors are open to hearing about the skills Ceridian employees need and will provide “bespoke training.” Today there are 14 universities (plus the Open University) and 43 colleges in Scotland.
Real estate costs are reasonable, points out McMullen. Scotland has built business parks and central business districts for companies to settle. He says it’s not uncommon for companies to sign a 10-year lease with the first five years free as an incentive.
The government provides additional financial incentives, which McMullen calls “icing on the cake.” They include reducing employees’ first two years’ salaries by 15 percent. In addition, Scotland has one of the lowest tax rates in the European Union, at 28 percent.
The Financial Services Implementation Group (FiSIG) also works hard to help outsourcers. Laird says Ceridian was gearing up when IBM was downsizing. “We needed the IT skills,” says Laird. He says FiSIG helped Ceridian link up with former IBM employees.
In addition, SDI is helping Ceridian by providing customer leads. “They have been very helpful. I am surprised how unbureaucratic it is to work with SDI,” Laird says.
Finally, Mc Mullen says companies like settling in Scotland because the Scottish people believe in a good lifestyle balance. “People like living in Scotland. We attract people from all over,” says the Mather.
Scotland’s contact centers
Currently Phil Taylor, Professor at the University of Strathclyde’s Business School in Glasgow, estimates 86,000 work in the nation’s 400 call centers. (There were just 290 in 2003.) His bi-annual study reports the sector has grown 54 percent or 30,000 employees in the last seven years. He found outsourcing accounts for 71 percent of the sector’s growth in the last five years.
Professor Taylor believes the economic recession may have had less effect on the contact center sector than other parts of a business. “In an economic crisis, there are more calls to financial institutions because of customer uncertainty, the need for reassurance, and the requirement to make changes to products and policies,” he explains. “An IVR often can’t answer these tough questions. The banks and insurance companies need a knowledgeable person on the other end of the line,” he says.
Today, one in every 30 employees in Scotland works in one of the country’s contact centers. Glasgow has the highest percentage of contact centers, but they are distributed the length and breadth of the country. For example, there are now 30 centers in the Scotland’s Highlands and Islands region.
Professor Taylor discovered that a third of these centers support financial companies. He cites the “Guinness analogy” that a senior telephone manager with direct experience of migrating voice services to India used. Financial services companies can offshore easy-to-understand tasks to places like India or the Philippines. He likens this to the froth. But the complex tasks that require deep tacit knowledge, emotional intelligence, and higher value-added interaction remain onshore with experienced employees who have the ability to move beyond standardized scripted responses. This is like the body of the pint.
Taylor insists that Scotland and its vibrant contact center sector have become “a prime nearshore location” for Europe. Laird praises the Scottish accent. “It plays well in both the UK and the rest of Europe,” he reports. He says he received some backlash from customers unhappy with doing business with contact centers in India.
Today’s European customers “have become pretty demanding,” says McMullen. They expect to transact business in their own language. Scotland has the talent to provide the language capabilities, he reports. Currently its contact centers offer a mix of 26 different languages.
Taylor estimates there are 109,000 fluent language speakers speaking a foreign language. Ten percent of Scotland’s contact centers offer service in at least one foreign language.
Why Ceridian is in Scotland
Ceridian, a U.S.-based service provider in the HR space, outsources “all its UK people-driven activities,” reports Laird. Ceridian currently employs 280 people in Glasgow; they handle payroll, HR services, flex benefits, and employee assistance programs.
Laird says Ceridian chose Scotland for its UK activities for four reasons:
- Access. He says both Edinburgh and Glasgow have good rail, road, and airport access. It’s a 45-minute drive on the highway between the two financial services centers. The modern airport has direct flights to the UK, Europe and the U.S.
- Skill base. Laird says the Scots have focused on sharpening their midmarket skills (as opposed to high-end capabilities.)
- Business case. Competitive pressures have forced Ceridian to do less with more. “It costs fewer pounds to outsource to Scotland without sacrificing quality or customer satisfaction. Sending work to Scotland has created more value,” he says.
The service provider says its relationship with a high-end retailer in the UK demonstrates the Scottish value proposition. “We weren’t the cheapest option,” Laird reports. “But they wanted the quality we could find in Scotland.”