In the offshore outsourcing world, India is grabbing all the headlines. But a just released study of 360 respondents by the Aberdeen Group, an analyst firm based in Boston, Massachusetts, discovered that American and Canadian firms with call centers prefer outsourcing offshore to Canada over India. Of course, it comes as no surprise that about half of the respondents in North America prefer outsourcing their call center operations to U.S. providers.
Aberdeen’s September 2003 report, The Outsourced Customer Contact Center – Key Findings in Global Contact Center Outsourcing Services: 2003-2004, found Canada’s appeal is based on the balancing of two major drivers: quality and cost. A major factor in quality is the turnover rate.
One reason is the Canadian turnover rate is about one-third the U.S rate. “The turnover rate in U.S. call centers is abhorrent. A rate of 50 to 70 percent is not uncommon with some more than 100 percent,” notes Christopher Fletcher, vice president/managing director of Aberdeen Group.
“A lower turnover rate leads to greater stability and more continuity, which is much more important than the initial cost savings,” says Peter Ryan, customer relationship management (CRM) analyst for Datamonitor, a business information services company based in London.
Ryan continues. “Canada is an extremely attractive option. People are going into the call center market as a career. It is viewed as an extremely good job in Canada,” not a place to collect a paycheck until something better comes along.
As for cost, there is opportunity for labor arbitrage since the Canadian dollar is discounted to the U. S. dollar. “There is no question that U. S. businesses have the potential to save money if they were to outsource to Canada. The wages and the payroll taxes tend to be lower,” notes Ryan.
Offshore…Lower Costs, Greater Risk at High Touch Points
While outsourcing offshore can be effective for routine interactions, it becomes risky with high priority customers. The advantages of outsourcing to Canada over other offshore providers primarily fall into two areas: cultural affinity and geopolitical stability.
The table below from the July 2003 report, Dropping the Cost of Customer Service, Part 2: Call Center Outsourcing, by Boston, Massachusetts-based AMR Research, illustrates the three levels of interaction. Offshore provides advantages at level one, Canada at levels two and three.
Lance Travis, vice president of outsourcing strategies for AMR Research, points to the advantage of outsourcing to Canada. “You can effectively manage your most strategic customers at the higher levels at a lower cost and you have much better quality due to a lower turnover. You are not only saving money, but you are providing better service to those customers.”
Fletcher submits, “High value, low volume transactions are best done in-house or with a U. S. or Canadian outsourcer. The cost of making a mistake and potentially losing a customer is much more significant. While you can start to acclimate agents in India to U. S. culture, it takes awhile and there is something lost in the translation.”
Ryan adds, “On average, Canadian agents will have a greater understanding of the American consumer’s concern.”
Canada’s Stability a Plus
Canada’s geopolitical stability stands in sharp contrast to other offshore locations. Outsourcing is a long-term proposition and call center operations are vital to corporations. Does a business want to risk the location of its contact center being a headline in the news if that location is offshore?
“The stability factor goes a long way when you compare it to places like India where there has been a lot of saber rattling with Pakistan or the Philippines that has seen a number of violent controversies in the past two years. American firms need a good stable environment for outsourcing, which Canada is able to provide,” says Ryan.
Fletcher also expresses concerns. “The geopolitical atmosphere and uncertainty of relying on outsourcing to a company in India, Pakistan, China, or Korea can be a little frightening.”
Icing on the Cake
Canada is putting forth more effort at every level of government to attract U. S. business. Ryan elaborates, “Many provinces have slashed taxes to bring investment in from outside. Every province has gone out of its way to bring in call centers from the standpoint of business climate, direct incentives, or deferment of training. U. S. firms can’t go wrong by looking at Canada.”
The Canadian legacy of call centers as a profession, including related college degree plans, leads to impressive projected growth. In the August 2003 report, Profiting from Canadian Call Center Outsourcing: Lowering Risk and Maximizing Savings, Datamonitor projects outsourced call center agent positions in Canada to rise by 52 percent by 2007 as demonstrated in the figure below.
Ryan concludes, “American firms will look increasingly to Canada. The Canadian legacy of call centers and experience increases the value proposition. U. S. firms that want to outsource their call centers need to look no further than their northern border.” Fletcher adds, “There is a perception that there is better overall quality if you stay with a firm that is U. S., Canadian or UK oriented.”
Travis sees advantages to outsourcing to call centers in Canada. “Going outside the U.S. for call centers is becoming more mainstream. Canadians understand how to work with Americans.”
In other findings, Aberdeen found outsourcing call centers is gaining in popularity. It discovered that outsource providers managed up to half of all customer interactions for 30.6 percent of the respondents. And 21 percent expect to increase outsourcing in the next 18 months.
When asked their critical or important objectives for outsourcing, 71 percent of the respondents cited “improving the quality of customer service” while 68 percent cited “reducing costs associated with customer service.” As illustrated in the figure below, motivation to outsource is significant.
Lessons from the Outsourcing Journal:
- Canada offers high quality because of a lower turnover rate at call centers. Canadians view call center work as a career.
- Canada has lower costs compared to U. S. call center providers because its dollar is discounted to the U.S. dollar and payroll taxes are lower.
- Canada provides a cultural affinity to U. S. customers.
- Canada has political stability which many of its competitor nations do not.
- The number of Canadian agents in outsourced centers will grow by 52 percent by 2007.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].