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Foreign Call Center’s Inherently High Cost

Call Center

© H3C Technologies Co., Limited

Last month, I spent a significant amount of time talking with representatives at two different RCN call centers; one in the Philippines, and one in the United States.  I was trying to get their new invalid URL request hijacking service, also known as PoxFire, removed from my account.  The situation spurred me to analyze why call centers are located in foreign countries.  I also wanted to review the factors that should be considered when making the decision to export a domestic call center.  After coming up with a structure that can be used to determine if a call center could successfully be exported, I applied my theory to RCN’s business model.  Finally, I determined if my interactions with RCN supported my theory.

Call Centers

Moving call centers to foreign countries has been a tremendously popular trend during the past decade, predominantly as a way to reduce costs.  The trend and momentum of their migration reminds me much of the dot-com internet bubble.  An initial few companies’ relative success spurred businesses in other industries to attempt the same.  Many of the latter businesses’ endeavors were, and are, destine to fail.  I believe call centers, in foreign countries, frequently foster higher overall costs of doing business because of the low wage employees, culture, and complex incoming calls.

Low Cost Labor

Before discussing foreign call center’s unique problems, I need to discuss an inherent problem of low cost labor that is nearly impossible to overcome; turnover.  The low end of the labor force is more apt to move from company to company, if given a better opportunity, because employers are not looking for specific skills or knowledge from their employees. Every time a seasoned employee leaves, and a new employee takes their place, the new employee must go through a training period in which they learn the industry and review policies.  Once they are allowed to act independently, they must also go through a “learning curve” where their work is less productive and less accurate than a more experienced employee.

Both the training and learning curve periods have a cost associated with them; a cost that is incurred each and every time an employee is replaced.  Therefore,  higher turnover, means higher costs.  Unfortunately for the business, it has little impact on how frequent turnover is, other than compensation.  And in this case, the goal is to reduce compensation, so it is unlikely that that a company will raise compensation in order to reduce turnover.

Foreign Countries

External factors have more influence than internal factors when determining turnover rates.  The two most significant external factors, that are pertinent to my argument, are the country in which the labor is located, and one business’s proximity to other similar business.

The culture of the workforce, determined by the country in which it resides, is extremely important; it plays a tremendous roll on how likely workers are to move from one job to another.  As seen from my personal experiences, in some countries, employees are a lot less likely to change employers because of the importance of relationships.  This causes a distinct commitment to their employer.  In other countries, the population would not think twice about changing employers; their personal status and wealth is their only motive, and relationships are broken all the time.  Coincidentally, the countries in which most call centers are located are the countries in which I have come to expect people are likely to switch jobs on a frequent basis.

The concentration of similar businesses, in the same geographic area, is the second most important external factor in determining employee turnover.  Thanks in large part to global trade; generally, many countries specialize in specific industries.  Furthermore, the more recent a country’s industrial revolution was, the more geographically concentrated similar businesses tend to be. When similar businesses are located close to one another, it eliminates one of the barriers of switching employers.  A laborer is much less likely to switch from working on a cotton plantation to an Internet Service Provider’s, or ISP’s, call center, than they would be switching from a bank’s call center to an ISP’s call center.

A mass migration of call centers has occurred over the last decade, a migration to countries with recent industrial revolutions, like India and the Philippians.  This migration has created business parks full of call centers; call centers that are located in close proximity to one another. Many of these countries are also the same countries where there is a cultural tendency to move from one opportunity to another. The combination of these two factors creates the perfect conditions for employees to move between different call centers, with relative ease, and low switching costs.

So, in addition to the inherently high turnover frequency of unskilled labor, foreign call centers, especially in the South Asian region, have many other possible cost disadvantages.  The already high turnover frequency is increased by both cultural tendencies and the close proximity of many call centers.

Customer Satisfaction

The most important effect of turnover is poor customer satisfaction. A new worker is generally slower, less accurate, and less likely to find a solution to a problem than a seasoned worker.  All three of these reduce customer satisfaction, especially in a call center.  Even though customer satisfaction does not directly impact the cost of a call center, it has a direct cost to a business’s overall operating costs.

Reduced customer satisfaction is actually one of the highest costs to any business.  Because call centers are frequently the one and only connection a customer has with a business where a discussion between the customer and business takes place, they play a very important roll in customer satisfaction.  For arguments sake, if a foreign call center’s costs were able to stay below a domestic call center’s costs, poor customer satisfaction has the ability to indirectly erode any potential cost savings by dramatically increasing the cost of marketing.  If a customer’s discussion with a call center occurs with negative results, the customer is likely to bring their business elsewhere.  And, as most business owners know, obtaining a new customer costs many times more than retaining a current one.  When customers start to leave, a business has two monumental problems; revenue plummets, and marketing costs skyrocket.  Ask the executives at Sprint, Motorola’s handset division, or Chrysler; they are all well aware of these problems.

Call Complexity

Call complexity can refer to either the depth or breadth of knowledge required to complete the call. Previously, in regards to turnover, we discussed the frequency of training and learning curves.  Call complexity has a different effect; it impacts the length of the training.  The cost associate with training is directly related to the length of the training.  Less complex calls would have a short less costly training period, and highly complex calls would have a long costly training period.  Complex calls also mean longer learning curves; increasing call length and decreasing the quality of and quantity of call solutions during that period.  These all directly impact a call center’s cost.

The indirect impact these call centers have on marketing costs, due to different levels of customer services is also important.  If call complexity was high, the length of calls would most likely be longer, and have more frequent unresolved or poorly resolved calls.  All of which would likely cause a loss of customers, increasing the costs of marketing.

Call Center Decision Making Framework

  • Turnover
    • Culture will directly affect turnover
    • Competing call centers will directly affect turnover
  • Complexity of Expected Calls
    • Highly technical problems and/or solutions will increase complexity
    • High variety of problems and/or solutions will increase complexity
  • Training and Learning curves
    • Increases in turnover will increase the frequency of training and learning curves
    • Increases in complexity will increase length of training and learning curves
  • Call Lengths
    • Increases in sophistication will increase call length
    • Increases in learning curves will increase call lengths
  • Customer Satisfaction
    • Increased call length will decrease customer satisfaction
    • Increases in unsolved or incorrectly solved calls will decrease customer satisfaction
  • Cost Savings
    • Increased Call length will increase direct costs
    • Turnover will increase direct costs
    • Decrease in customer satisfaction will increase indirect cost

Solving the Problem

Potentially, a foreign call center could be successful.  It is possible, if done right, to create a lower cost call center abroad.  It has been done before! If calls were extremely simple and very short, training time for new employees would be short and cheap; the high frequency of low-cost turnover may not be an issue. However, if the call center is expecting complex calls, training time would increase, and the highly frequent low-cost turnover would cascade into highly frequent high-cost turnover.

As logical and elementary as these principles are, it is astonishing companies continue to promote the exportation of call centers. Why do so many companies invest so heavily in foreign call centers, when, on nearly all fronts, they are likely to fail?  Especially if these call centers are expecting complex issue resolution. It is apparent that executives make the strategic decisions to export call centers based solely on the hourly cost of labor.  Many companies, like the ones previously listed, operate primarily in business silos, where each major business operating unit is connected only at the executive level.

To judge the overall success of any cost reduction project, including call center exportation, I believe it is vital that both the cost reduction projects and marketing cost impact be combined.  Business silos must communicate and think of the bigger picture.  Regardless of who is at fault, or for what reason, low wage labor and frequently complex incoming calls many foreign call centers receive, inevitably cause them to fail on both their cost savings and customer satisfaction metrics.

ISP Specific Call Centers

Hypothetically, with the formerly given framework, and the fact ISPs receive many highly complex calls, it is likely an exported ISP call center, where all types of calls were routed abroad, would incur high costs and low customer satisfaction ratings. If I were responsible for making the decision on whether or not to export an entire ISP’s call center, I would make the decision that it is undesirable to export the call center.  The combination of high turnover, location, and extremely complex calls would damage the profitability of the business.


With hypothetical analysis out of the way, I would like to analyze the direct cost, and impact, my situation had on RCN.  If my interaction with RCN is any indication, the customer satisfaction ratings of calls directed to the Filipino call center are extremely low.  And, from my experience, it is apparent that turnover is quite high as my interactions with each representative gave me the feeling that each was in the midst of their learning curves.  None of the employees I talked with were able to answer simple questions without putting me on hold for several minutes, or even the majority of an hour.

In terms of cost, I spent over three hours on the phone with RCN’s Filipino call center, which accomplished no positive outcome.  In fact, there were numerous times where the representative had to call me back after researching the problem.  I would estimate my inquiries consumed 5 Filipino people hours.  The cost of the connection to the Philippines is likely negligible, and, although the cost for the 800 number could add up to something substantial with three hours of talk time, I would consider that negligible as well.  Irregardless of what costs were incurred, my problem was never resolved during the 5 hours of Filipino support.

The United States based technician was able to resolve my problem in 15 minutes.  It took 1/20th of the time to solve my problem using the US call center/technician as opposed to the Filipino call center.

Now, let’s assume the the Filipino service was 1/5th the cost of the US service on a per hour rate.  The Filipino based support cost at minimum 4x as much as the US based support.  Keep in mind my problem was never even solved with the Filipino support, so in this particular case, the entire cost of Filipino service was a complete loss.

The impact of my call on RCN customer relations is another matter that must be considered.  My frustration with RCN’s lack of competent support reached a point at which I was frustrated enough to blog about my problems AND tweet my frustration to all of my followers on Twitter, which is number in the hundreds.  The public relations impact I had on RCN is hard to valuate, but it most definitely had a negative impact on RCN’s business.

Prior to calling RCN’s Filipino support center, my opinion on whether or not an ISP should locate a call center in a foreign country would have been no.  Experiencing it first hand only serves to reinforce that opinion.  Locating a call center in a foreign low wage country is not always successful. In this case RCN’s decision to outsource their call center has not only cost them money, it has detrimentally impacted how at least one customer perceives their brand.

  1. March 25, 2010 at 11:28 PM

    Maybe with some different rate they are cost so high.

  1. December 31, 2009 at 7:00 PM
  2. January 8, 2010 at 8:13 PM

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