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North American outsourcing to rebound

Backlash against offshore contact centers, new technology and distinct offerings is making North American outsourcers price-competitive again.

Pummeled by cheaper labor costs abroad, the North American contact center outsourcing industry can expect a resurgence in the next two years, according to a recent study.

Backlash against offshore outsourcers, the emergence of home-based agents and vertical market expertise will all contribute to the growth in the North American market, according to the 2006 North American Contact Center Outsourcing Market Report from West Orange, N.J.-based DMG Consulting LLC. In fact, the Canadian contact center outsourcing market is projected to grow by 5% to 8% to meet increased demand in 2006.

"We're actually seeing new call centers, new seats added in Canada, which hasn't happened in years," said Donna Fluss, principal with DMG and author of the report.

Labor costs in Canada remain 30% lower than in the United States, Fluss said, helping to make it more price-competitive. The recent surge in home-based agents is helping North American outsourcers cut costs as well. According to a recent study by IDC, thanks to advances in Voice over Internet Protocol (VoIP) and virtual contact center tools, the number of home-based agents is set to reach 300,000 by 2010, nearly triple its current number. And while the flexibility and convenience of working from home works to the advantage of agents, it can also mean a reduction in wages and benefits. Most of those agents are coming from the outsourcing ranks.

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 North American outsourcers are competing on more than just labor costs, however.

"One place is in proven vertical domain expertise," Fluss said. "There's just a lot more knowledge and experience in North America than in areas where [outsourcing] is new to them. You can import management, but the industry isn't importing hundreds of thousands of agents with proven vertical expertise."

Offshore outsourcers will eventually gain some of this industry expertise, but that will take another five to 10 years, Fluss predicted. Plus, some firms, particularly in India, are starting to see the effects of a maturing contact center industry. As they gain expertise they are also confronted with the challenges of rising wages and agent attrition.

North American outsourcers are addressing the competitive pricing pressures as well. For example, many are bringing down the costs of their basic services, such as call handling, and making it up in other areas where offshore outsourcers can't compete, like handling letters and packages or offering collections in vertical markets.

North American outsourcers stand to benefit from the recent rash of customer data breaches as well. As consumers and companies become more concerned with access and protection of private information, countries that have strict laws to enforce protections become more attractive.

"If it's very sensitive data, you have to be extremely careful where you move it and the laws in that country," Fluss said. "It's an absolute advantage for the North American outsourcers."

Additionally, customer backlash against offshoring is benefiting North American outsourcers. Some companies are forced to bring contact centers back to North America in response to language and cultural issues. However, that backlash will pass and offshore providers will always remain an option.

"Offshore outsourcing is not a fad that is going to pass," Fluss warns. "It's one of the single biggest activities that can reduce costs from 25% to 60% if you do it right. North American outsourcers watched this happen and have finally responded."

In fact, Fluss has noticed that global outsourcing firms are trying to buy their way into the North American market, part of the ongoing consolidation that already saw LiveBridge to ACS in July for $32 million.

Choosing what's right for your business

Companies looking for an outsourcing partner have hundreds of vendors and dozens of geographies and sites to choose from. It makes for a difficult selection process. Fluss has some advice for companies looking to outsource some or all of their customer service operation:


  • Select the geographies that are appropriate matches for your customer base, carefully considering customers' cultural needs.
  • Make sure the vendors on your short list have expertise in the services you require and in your vertical industry.
  • Be sure the location is in a politically stable place and somewhere your company is comfortable doing business.
  • Make sure the vendor has a quality service program and allows you to monitor transactions at will.
  • Be sure the vendor can scale to meet your needs whether they are large or small.

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