King R. White, Founder and President, Site Selection Group (Spring 2011)
Once perceived as the source of those annoying calls received at dinnertime, the call center/back office industry has transformed into a highly diversified cluster of operation types that are a crucial component of U.S. white-collar job creation. These jobs are more critical than ever to help the nation reduce unemployment and recover from one of the worst recessions in history.
Based on research conducted by Site Selection Group, the domestic call center/back office industry created more than 94,000 U.S. jobs in 2010. This was approximately half of the 193,181 call center jobs created worldwide. After deducting the announced layoff of just under 20,000 call center/back office jobs, this equates to net new job creation of more than 74,000 workers being hired in various types of U.S. call center/back office operations. That is the equivalent of the entire labor force of Flagstaff, Arizona!
In order to understand why these jobs are important, it is critical to review historic call center/back office job creation around the globe. Site Selection Group has analyzed the market growth and geographic dispersion of this sector from the "dot com crash" through the height of offshoring. This analysis revealed that U.S. call center/back office job creation has surged in the last year. Why is this occurring? What types of corporations are expanding these operations and where? What kind of jobs are they creating? Is this simply a phenomenon or a real trend that is here to stay?
Let's first take a look at what types of companies are expanding. For simplicity purposes, we have categorized these companies into two types - captive operations and business process outsourcers.
Captive operations are those call center/back office operations that are kept "in-house" and are operated by the actual company to serve its own customers or employees. Examples would include any major Fortune 500 brand ranging from Apple to Verizon.
Business process outsourcers, on the other hand, are third-party companies that the captive corporations hire on an outsourced basis to service their customers or employees. The largest domestic business process outsourcers include companies such as Convergys, TeleTech, and Sitel. These companies typically work on very thin operating margins, requiring them to seek out low-cost locations to increase efficiency. As a result, they pay lower wages and typically experience higher employee turnover than captive operations.
Chart A identifies the top 10 deals (in terms of employment numbers) announced in the call center/back office sector in 2010 within each of these categories.
What's Driving Growth?
There are three core factors driving the growth of the call center/back office industry in the United States today. It should be noted that these factors have changed over the years as the industry has matured.
1. Business process transformation - The industry started from simple transactional functions such as data entry and simple call center activities. Today, the types of call center and back office activities have expanded to include more complex functions such as claims processing, accounting, employee benefit management, and clinical healthcare support. The following list outlines the transition of lower-end functions to more knowledge-based activities:
- Data entry: The industry started with simple activities such as manual data entry, application processing, transaction processing, and document imaging.
- Contact center: The traditional call center type functions that are most commonly found include customer service, collections, telemarketing, and technical support.
- Back office processing: More knowledge-based activities such as claims processing, employee benefit management, mortgage processing, concierge, and general research activities are now included.
- Corporate shared services: Internal corporate functions once found in corporate headquarters - including accounts payable/receivable, human resources, IT help desk, and procurement - are now also included.
- Professional services and support: There's been increasing growth in true professional service functions requiring specialty degrees and licenses for activities such as legal, clinical healthcare, financial services, research/analysis, and risk management. (Chart B illustrates this progression.)
2. Diminishing advantages of offshore and near-shore locations - Over the last decade, the movement of jobs to "offshore" locations (e.g., India and the Philippines) and "near-shore" locations (e.g., Canada and Latin America) has become a way of life. The financial benefits of offshoring have proven to be incredible for corporations, but they are often too good to be true. There are several factors diminishing the advantages of offshore and near-shore locations, including the following:
- Wage Inflation: Wage rates in mature markets such as India, the Philippines, Costa Rica, Guatemala, and Jamaica are increasing by 7-10 percent per year as compared to 2-3 percent in the United States. Wages have doubled in most of these markets over the last decade.
- Employee turnover: The annual employee turnover rates within these countries have increased from 10-20 percent in the early 2000s to more than 70-80 percent today. Training expenses have also increased and employee quality has diminished.
- Currency valuation: The weakened valuation of the U.S. dollar has affected near-shore locations like Canada and has impacted the savings opportunities in near-shore and offshore markets.
- Availability of qualified English-speaking workers: As the markets have matured, the fast pace of the industry's growth, combined with escalating employee turnover rates, has caused labor demand to exceed supply in almost all offshore markets. Wage wars will develop and training costs will increase further as companies are forced to compete for qualified labor.
3. Consumer, political, and business continuity pressure - There are outside forces that continue to put a dark cloud over the long-term viability of many near-shore and offshore markets. Among the factors presenting greater risk for corporations considering offshore and near-shore strategies are the following:
- Consumer pressure: Americans are completely fed up with the quality of offshore call centers. Consumers demand quality and corporations want customer loyalty. Offshore locations cannot satisfy both of these objectives.
- Political pressure: Local, state, and federal governments are pressuring corporations to create jobs in the United States. The federal government has tried to pass legislation to hamper offshoring, while state and local governments are trying harder than ever to attract call center/back office operations.
- Business continuity risk: There are three core business continuity risks that continue to plague the offshore and near-shore markets - terrorism, political stability, and weather. Many markets present one or more of these risks, which impact a corporation's ability to locate in certain regions of the world.
Call center/back office jobs have become a staple of the white-collar U.S. work force. It is critical that U.S. governments support the industry's growth and diversification as the nation is uniquely positioned to gain market share lost over the last decade.