We’ve all been there. You’ve got a problem with your PC, your bank statement or your phone bill and ring up your service provider to sort it out. After being put in a queue that seems never-ending, you eventually talk to somebody at the other end of the planet who has all the answers – as long as your question fits within a narrow list of common enquiries.
If it doesn’t, brace yourself for a frustrating 45-minute conversation repeating your request over and over again, receiving the same non-satisfactory answers. Add to that a foreign accent you’re not familiar with and you’re ready to reach boiling point.
Call centres have given offshore outsourcing a very bad name indeed. From the outset, it should be irrelevant whether the call centre is located within your supplier’s HQ in New York or Paris or somewhere in the backstreets of Bangalore. For many customers it isn’t, however. They feel ripped off by an expensive phone call (a result of the length of the conversation as call rates are usually local) and resent their supplier making even more money through its offshoring practice while at the same time providing an unsatisfactory service.
Media coverage of the offshoring debate hasn’t helped in generating public acceptance of the trend, fuelling the notion that companies should in fact employ local people and support local economies. All that said, plenty of companies, so far mostly global corporations, have embraced the practice and set up very successful offshore operations. A whole raft of tech firms, as well as companies like Reuters and online travel firm eBookers have either outsourced some of their business processes offshore, set up shared service centres in low-cost labour countries, or a mixture of both.
The question is often what to offshore. Jim Downey, managing director of Outspan Consulting, says: "Any back-office service can be offshored very successfully, including data entry, transaction processing and simple reconciliations. Manual and repetitive tasks that are difficult to find people for in your home country are also suitable.
"Basically, anything that’s non-core to your business lends itself to offshore outsourcing. Customer call centres are very much part of that core business and the prospects for call centres and other voice processes tend to be more mixed."
That was certainly the experience of George Karibian, managing director and co-founder of Euroffice. "We went through a really tough learning phase with offshoring several customer-related functions at Euroffice’s sister company Esco Telecoms to India. We pulled a lot of it back to the UK now, on the basis that it really hurt our service levels."
Karibian admits though that it hasn’t put either company off the concept as a whole, and refers to what Downey says. "There are areas where offshoring to India makes a lot of sense. Where it works well, for example, is where it’s technical and can be scripted very tightly such as with broadband services. If your broadband isn’t working, those guys in India are great because they are very technical. The other area where it works well is price comparison. We offshore that to India – it’s a very labour-intensive process and our people are doing a very good job there."
Wall of silence
How widespread the practice of offshore outsourcing is in the OP industry is hard to gauge. OPI‘s questions on the subject were met in equal measure by a wall of silence, references to the non-disclosure of third party providers, and defensive and even dismissive comments about customers being key and the offshoring practice at large.
Online operators appear to be somewhat of an exception to the rule, with Euroffice’s Karibian and Shoplet.com’s Tony Ellison referring to the benefits that offshore outsourcing can bring to this price-sensitive channel.
For the average independent dealer, however, the concept has had limited relevance so far. That is partly the result of independents’ tendency to remain local in the majority of their functions and services.
Dave Guernsey from large US independent Guernsey Office Products explains: "I don’t know of anyone seriously considering sourcing even the most remote functions outside of their trading area. One strength independents have is the ‘local’ nature of their brand and the strong ties to the community that arise as a result of sourcing close to home. This approach builds bridges which promotes reciprocity.
"Of course, dealers do source products offshore, but we keep most operational functions close to home. A dealer may outsource delivery or even warehousing, but the activity is performed by someone in their trading area.
"One reason that may have inhibited outsourcing as a viable possibility for dealers is that our requirements may be too minimal for an offshore or nearshore company to reach out and try to capture our business. The typical independent probably doesn’t show up on the radar screen so contact is not made and the dealer may not even be aware that some potential exists in this regard."
For Guernsey Office Products, its offshoring experience has so far been limited to an IT project that was outsourced to India.
Apart from carrying out extensive feasibility studies that approach the subject from a mere business and costing viewpoint, such as cost of labour, legal and tax requirements etc, being able to work together on a cultural level is also highly important and often underestimated.
Denise Colgan from outsourcing consultancy firm TPI says: "It’s not about putting processes out to the lowest cost destination anymore. Of course, that’s always an issue, but companies are beginning to think more about the cultural affiliation as well. People go to locations that are culturally acceptable to them and that is primarily led by language, not by proximity. Clients in Germany, for example, are happier to go to the Czech Republic then to India."
She adds: "If it’s just cost, perhaps you should rethink it. We always advise people that offshore outsourcing should be cost plus better services, cost plus new services, a good pool of talent – a combination of benefits."
But while manpower quality and infrastructure facilities in a nation decide the attractiveness of that country as an offshoring location, it is ultimately labour cost and overall savings that lie at the heart of the offshoring debate.
In the case of Henkel North America, the savings expected are in the region of $5 million per year. VP Jeff Piccolomini is forthright about why his company is going down the offshoring route. "We are doing this to save costs and to maintain our competitive position in the marketplace."
Henkel’s chosen destination is Manila in the Phillippines and the offshoring process that began in earnest last January is set to become operational this autumn. Piccolimini is refreshingly open about his experience so far. "We chose Manila for two reasons. One is that we already have a regional shared service centre there for Asia, so we have an existing infrastructure, although on the small side.
"Secondly, we found Manila to be fairly competitive with India from a cost and capability point of view. The cost of labour is comparative to India, perhaps a touch higher, but labour and wage growth will be a bit lower over time in the Philippines."
In terms of services outsourced, Henkel North America is primarily concentrating on transactional activities such as accounts receivable, credit collection and general accounting functions as well as some human resource activities. And while there are no call centres involved, Piccolomini admits that there’s plenty of telephone work to be done, making good communication essential. He says: "I was very impressed with the language skills of people in Manila; they have only very minor accents."
Getting your communication right applies to virtually all steps in an offshoring process, but from a company morale point of view, it is never more important than in the home country where staff are likely to be laid off.
Says Piccolomini: "We announced what we’re doing to our staff at the end of January. It was a tough message to give to the folks who would be affected by this, but we try to be fairly forthright about this at Henkel and communicate with employees when a decision has been taken.
"It wasn’t taken well, but on the other hand, I think that by communicating clearly and early, people understand what the goal is. We need to maintain our competitive advantage and a lot of our competitors are doing or have done these types of things, but the HR side is always a challenge."
Specifically, about 100 people will be made redundant in their current jobs at Henkel North America, with some expected to find other opportunities within the firm. Because of high attrition rates in the outsourcing sector of emerging countries, Henkel will start its outsourcing venture with 120-130 staff in the Philippines, expecting that figure to move down to about 100 within a year.