Is the Nearshore Ready for Customer-Driven Centers of Excellence?

2013 has seen rapid evolution in the customer contact space, especially with the evolution of call centers into omnichannel customer experience experts. This progress is expected to continue …

Michael DeSalles, Principal Analyst, Customer Care, Frost & Sullivan.

2013 has seen rapid evolution in the customer contact space, especially with the evolution of call centers into omnichannel customer experience experts. This progress is expected to continue with 2014 projected to be an “evolve or extinct” year for many still working within the traditional dial-for-support paradigm. Meanwhile, as WAHA (Work At Home Agent) initiatives continue to mature in North America, infrastructure constraints still hold the CALA region (and much of the rest of the world) from fully embracing this revolutionary business model.

In the USA, legislators continue to try to use outsourcing as a boogie-man, with protectionist initiatives such as the recently introduced “Dial-One for America” legislation.

This year, Nearshore Americas sat down with Frost & Sullivan Principal Analyst Michael DeSalles, to pick his brain and benefit from his industry insight regarding the state of the business in Customer Contact and BPO. With Frost & Sullivan for almost a decade, DeSalles has a long history, spending decades in the trenches managing customer contact centers for AT&T across the United States. At Frost & Sullivan, DeSalles specializes in the ICT area, with a focus on monitoring and analyzing emerging trends in the contact center industry for CALA and EMEA region.

Nearshore Americas: You recently returned from Panama. While we see lots of contact center traffic from Colombia and Costa Rica, why is it that we hear less on Panama? Why does it appear to lag behind its neighbors in BPO and contact centers?

DeSalles: Yes, I’ve just come back from Panama, visiting two call center sites operated by APAC Customer Services. They were modern, clean, secure and well-managed. When I plugged into calls (in English and Spanish), I could sense the passion for customer care work among the agents. Our research shows that Panama has been a great nearshore market that has attracted a lot of business over the years, but the reason we hear less about it is because it represents a mature market for U.S. volumes. Because it is mature, Panama also comes with relatively higher costs. Providers and clients tell me that Panama has great agent talent, loyal employees, excellent English and good infrastructure. I witnessed all of that first-hand. However, when companies are looking at markets in Latin America, they seek out lower cost locations. For some, Panama doesn’t fall into that category. You have to pay more for higher quality interactions.

I was in neighboring Costa Rica in October and toured Aegis’ delivery site there with capacity for close to 1,000 agents. It is an extremely positive work environment and teeming with multilingual language support (English, Spanish, Dutch, Portuguese and German). It’s a terrific nearshore option with what some might argue, is the highest education level in Central America. There’s a high degree of expertise in customer service, collections, sales, and technical support. Combine that with very low attrition and lots of growth potential in retail gaming, telecom, financial services, and healthcare, and you have a winning combination.

Make no mistake; Panama certainly does not lag its neighbors in BPO. Another major BPO provider, Sitel, has been in Panama for 13 years now – with 3,000 agents spread out in three sites. Sitel has a strategy that involves them being a “first mover” in emerging markets. This “first-mover advantage” takes good infrastructure, political stability, cultural affinity and available labor into account as part of the due diligence. As you know very well, in a near shore destination, government support is critical to the mix along with excellent English language skills. The key challenge is being able to leverage high-quality educational institutions as part of a “feeder” ecosystem from which to hire a skilled labor force.

I am constantly surprised that there is not as much discussion about Mexico, where I heard outstanding English while listening to a customer book an extensive travel itinerary. I was in Mexico last year for a week. I felt very safe. Teleperformance, for example, operates 17 sites with more than 12,000 workstations throughout Mexico (Monterrey, Guadalajara, Aguascalientes, Durango, Mexico City D.F., Durango, Hermosillo and Chihuahua). 

Finally, we believe that the best kept secret for native English in Latin America is Guyana. Look at what Qualfon is doing there. Qualfon Georgetown has 1,250 employees in one center, is opening a second center, and recently broke ground on a 7th building; a 3,500-seat contact center campus that will open in 2014.

NSAM: Do you believe that the recently introduced “Press 1 for America” legislation has any chance at all of passing? How dangerous is that?

DeSalles: It’s too early to tell if this bipartisan bill will pass. It’s important to note that it would not stop brands or BPOs from moving contact center jobs to Latin America, but rather would place restrictions on federal grants and loans. It’s also worth noting that the current version of the proposed Trans-Pacific Partnership trade agreement would provide the opportunity for other nations to challenge or effectively veto the law, if it passes. 

Service providers with delivery sites in Latin America tell me that they don’t believe this legislation will pass. It may be a bit of political theatre and overall, we don’t believe that it is a threat to the long-term growth of the BPO industry. It is my opinion that our government should incentivize BPO companies to expand their WAHA programs and create more jobs, not look at simply penalizing them. I have lots of comments about work-at-home.”

NSAM: How are Latin American call center operators handling the evolution from “Call Center” to “Contact Center,” ­integrating multichannel customer contact strategies such as social media, e-mail support, chat, and video?

DeSalles: Multi-channel skills sets (chat, email, and social media) are becoming increasingly important in key sectors like telecom, BFSI (Banking, Finance, Securities & Insurance), healthcare and consumer goods across Latin America. Social media and other non-voice channels are new and rapidly evolving modes of customer care in every geography, not just Latin America.

Historically, the operating model in the BPO space goes something like this:

1. Divide the communication channels across locations for cost and competency advantages.

2. Put voice work in the near-shore markets where prices are higher but the English competency and customer experience is stronger.

3. Place chat, email (i.e., “accent-neutral” work) in lower cost markets like India.

So it follows that Latin America has been voice-centric not because of lack of competency issues on these types of mediums, but because of the economics. Latin American locations are higher priced than the Philippines and India. What they do provide is very good English competency and a high degree of familiarity with American culture. In our studies, we are writing extensively about multichannel and how customer care is moving to an omni-channel environment.

Clearly, contact centers are becoming multichannel service hubs. We believe that the trend will be to centralize multichannel operations in one location to further simplify operations and minimize costs.  I predict these will no longer be “call centers” by name, but rather will be transformed into “Centers of Excellence” in the next two years—and video and web collaboration will play a much larger role. Since the year 2000, more than 65,000 offshore BPO jobs have been added in the Latin American region. Given the influx of new business, Central American countries have increased infrastructure capabilities. BPO operators are quickly training the workforce to manage a high-level, multichannel consumer interaction.

I was in the Dominican Republic in April, visiting Alorica’s new site. The Dominican Republic is a prime geography for handling English volumes for PC, technology and electronics companies. I was quite surprised to see a learning lab on the premises where agents could try out and trouble-shoot the latest tablets, phones, TVs and major appliances. This is a big plus in the move toward supporting an omni-channel consumer!”

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NSAM:  Let’s talk about the “balance of power” in Latin America between local operators and the global giants. How rapidly are the CALA locally owned call center operators gaining market share from the global giants?­ Are there any up-and-coming locally owned firms that we should take notice of?

DeSalles: Perhaps the discussion isn’t about balance of power, but rather about where is the market along the maturity curve. New markets represent great opportunities for local operators. When a market is new, the global players typically don’t yet understand the market, or how to successfully do business in the region.  Historically, clients are reluctant to go with global players until they get three to five years of experience. Over time, the global players drive operational excellence. As markets mature, clients often move to the global players from the local players to leverage the latest technology, best agent training and the same premier support as global brands. These same global brands often prefer to retain a single BPO company for their business in all geographies. I feel that the majority of the local domestic BPO players might not be able to scale across operations and services beyond their jurisdiction and face difficulty in capitalizing technology platform upgrades. I think market forces may drive a healthy combination of cooperation and competition, where there will be ample opportunity for partnerships and building consortiums. It’s simply a matter of the pie getting bigger for all of the players. 

NSAM: Domestically, many contact centers are employing at-home agents. Has this trend caught on yet in Latin America? If so, who are the leaders and effective implementers of this “telecommute” strategy? If not, what are the barriers standing in the way of increased implementation of the work-at-home agent?

DeSalles: Just about every US-based provider, large or small, has a work-at-home agent (WAHA) program. My wife has been a home agent for the last seven years. Frost & Sullivan has been writing on this topic for several years now and is a big supporter of work-at-home solutions, since it provides careers for Americans regardless of their proximity to physical sites. Alorica, for example, specifically targets disabled US veterans and their spouses with its “Aloricares” WAHA program—Talk about giving back to our servicemen and women who sacrifice so much for us.

I think BPO companies want to trial work-at-home and that clients would like the choice. Unfortunately, this trend has not caught on in Latin America for two basic reasons:

This is fundamentally an infrastructure problem. The barriers remain technology-related challenges like bandwidth and reliable electricity:  Infrastructure (DSL/Cable/HS Internet) in the home and network reliability is just not ubiquitous.

I am told that often homes do not have that spare bedroom or quiet workspace that is essential to operating in a home agent environment.

Providers have confided in me that they are exploring the possibility of scaling the work-at-home solutions program in Latin America, but it’s not a primary strategy at this time. I also suspect there are some client concerns in reference to compliance, data security and infrastructure (BFSI and healthcare, in particular) across the CALA region. It is a great delivery model for so many reasons and I really do hope that it catches on in the near future.

NSAM: What about SSCs/Captives? While it’s obvious that a CALA or global company could operate a captive contact center in the CALA region, are there any notable North American companies that have had success with opening and operating a CALA customer contact center, or are the logistics of such an endeavor “best left to the professionals?”

DeSalles: Yes, there are big companies that have some success in operating their own centers in CALA. It is our opinion that the best efficiencies and performance come from outsourcing companies. It’s simple. It’s their core competency and in their best interests to innovate on behalf of clients.

HP and Dell have opened many centers in Costa Rica, El Salvador and Panama. However, over time they realized that having these centers doesn’t give them flexibility or the ability to operate centers efficiently. A number of these captive centers run at 30-50% occupancy. They have lots of lots of physical office space and but not enough people – not a full center. They are able to weather the up and down cycles that every industry encounters.   Most often the economics, efficiencies and performance aren’t there. So, they end up selling those captives to the experts. Additionally, for companies to operate in these markets, they have to meet all the country-specific legal and administrative requirements. There is a lot of “red tape” to wade through in order to create a legal entity. They have to figure out the process, become a legal entity, and work through all administrative requirements. Then there’s the issue of filing taxes. These are all big challenges. The outsourcing giants makes it easy to sign a contract and not worry about any of that; “your mess for a lot less.”

BPOs shoulder the costs (capital equipment, overhead, payroll, etc.) that may not be immediately apparent. In addition to the significant up-front costs of building contact centers, BPOs assume the risk of service volume spikes and dips. There are also often tax benefits for BPOs that SSCs don’t receive.

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