With the trend of relocating call centres to low-cost countries gathering pace, how can property professionals turn this exodus of requirements to their advantage? By John Snow
The call centre industry has been one of the success stories of the past decade, particularly for economically disadvantaged parts of the country.
Today it employs around 1.5% of the UK working population, or around 400,000 people. Demand forecasts for call centre workers have shown no sign of a downturn in the sector, with recruitment specialists Adecco predicting a 50% rise in employment to over 600,000 workers by 2008 (according to an October 2002 survey). This year Adecco expects four out of every 10 new jobs created in the UK to be in call centres.
But there is a fast-emerging threat to these growth predictions, a threat that has precedent in both manufacturing and software programming, and one that is leading to calls for strike action in this country and legislation in the US to stem its rise. It is known as business process outsourcing or process offshoring: the migration of business processes to low-cost countries, such as India, where cost savings of 40-60% can be achieved, and where the pool of skilled and motivated labour is considerably larger than in Britain.
Many of the companies that have gone to India (see box, right) have at present only small Indian operations, relative to their total workforce. They are testing the water, making mistakes and learning lessons, assessing viability. The real threat to the UK call-centre market will arise from the success of their experiments, and the subsequent ramp-up of Indian back-office operations.
As a result, the lure of Mumbai (formerly Bombay), Delhi, or Manila may become irresistible. As a spokesperson for BT recently stated, “the economics are simple and the case compelling”.
The economics of call centres are dominated by labour costs, which make up two-thirds of the total cost of operation. In India, call centre workers start on £5 per day, compared with £5 an hour in the UK.
Addressing the Financial Times’ heavily over-subscribed “Outsourcing to India” conference in January, Chris Gentle, director of research for Europe at Deloitte Touche Tohmatsu, estimated that the top 100 financial services companies could save between $700m and $1bn each over the next five years if they switched back-office operations to low-cost countries.
But cost isn’t the only factor. Adecco’s study of 150 call centre operators revealed a skills shortage in the UK. Of those surveyed, 93% reported trouble hiring well-trained staff, up from 77% in 2000. Half of all UK call centre workers had no qualifications at all. And a fifth of operators said they were losing more than 40% of staff a year.
By contrast, applicants for call centre posts in India are young graduates, often with masters degrees or MBAs. A thousand applicants per call centre vacancy is not uncommon in some regions of the country.
Reconciled to the trend
In an interview with the Times of India, white-collar union Amicus appeared reconciled to the process offshoring trend. One union official was quoted as saying: “We understand global capitalism and we don’t oppose the expansion to India. But we do not want compulsory redundancies for call centre staff here.”
Another official stated: “British call centre jobs were meant to replace manufacturing jobs and now call centre jobs are going as well, because India offers lower wages and skilled graduate call centre workers.”
But it may be premature and irresponsible to talk of a “crisis” in UK call centres when there is so little consensus among trusted commentators with regard to future market prospects. Awareness of the threat, however, should be maintained. Landlords of properties in call centre use should ask their advisers to track the progress of the process offshoring trend, and assess the likely impact on their holdings.
In the 1980s and 90s, advances in IT and communications facilitated the migration of back-office processes out to the regions in search of lower employment costs and deeper labour pools. In turn, this changed the profile and geography of many service sector companies’ occupied property portfolios. Offshoring has the potential to drive similar changes.
Assessing alternative locations
CRE surveyors have important roles in assessing alternative locations for UK call centres and other back-office functions. Such roles often involve generating location profiles that include data on the skills pool, labour costs, property costs/availability, government grants and other investment incentives.
Extending this service to include the assessment of offshore locations in India, China, the Philippines or South Africa must present business development opportunities for CRE specialists. However, the complexity of decision-making will increase considerably. Political risk, infrastructure reliability, management control, working practices, and taxation are all issues that must be addressed by the location profile.
But as the past month has shown, domestic economic downturn and declining service sector profitability has led many of our largest companies to seriously examine the viability of process offshoring. Surveying firms with access to local knowledge in low-cost, developing economies will be well placed to expand relationships with UK corporates seeking to jump on the next wave of globalisation.
John Snow is chairman of iX Consulting
|
The exodus Firms look to Asia |
|
The impact of process offshoring on our domestic call centre industry was acutely illustrated last month |
|
● Insurance giant Aviva announced plans to create 1,000 call-centre jobs in India for its Norwich Union general insurance operation, resulting in a reduction of its UK workforce. |
|
● Hot on its heels, BT confirmed it was considering developing two call centres in India, employing 2,200 staff, within 12 months. The move has sparked union fears that UK directory enquiry jobs will be lost. |
|
● Powergen continued the theme, with a company spokesperson confirming that the company was seriously considering an initiative that could see 300 call centre jobs switched to India. |
|
● Fidelity Investments, the UK’s biggest retail fund manager, thought it a good time to announce that it was expanding its back-office operation in Delhi by several hundred to handle work from the UK. |
|
● And to add to the pessimism, a new study by Mitial Research, released last month, into the state of the UK call centre market predicted that 80,000 jobs would be lost over the next two years, in part owing to the outflow of positions to India and other low-cost countries. |
|
● These are not isolated examples of organisations seeking the cost savings promised from workforce migration to India. They join what is becoming a who’s who of corporate Britain, including Prudential, Royal & SunAlliance, HSBC, Lloyds TSB, Axa, BA, BUPA, Churchill Insurance, Friends Provident, GE Capital, AmEx, Citibank, Standard Chartered, Channel 4, Ebookers, Great Universal, Zurich and AOL. |
