“Good morning, I am Agustin. How can I help you?” That’s how Agustin responds to the hundreds of calls that he receives every day in his place of work, a call center in Buenos Aires where he tends to customers who speak Spanish and English – and who are, in many cases, thousands of miles away. Agustin has a degree in information technology from a Buenos Aires university and, although he never thought about working in a call center, it wasn’t easy for him to find work in a labor market where the unemployment rate approached 22%.
Now Agustin is one of 100,000 “call center” workers who provide customer service to buyers from Latin American countries, mainly Argentina, Brazil and Mexico. That figure is, in all probability, going to grow significantly over the next few years. A recent study by Giga Information Group shows that Latin America is converting itself into a very attractive place for locating call centers, with an annual growth rate estimated at 25%.
The growing importance of call centers has raised global forecasts for revenues in the industry to $16.8 billion, according to Teleperformance, an international call center company. One of the major keys to the boom the business is enjoying in Latin America is “offshore subcontracting.” What does offshore subcontracting involve? And what can the region offer to multinationals that are looking for sources of call center services?
Model of “Offshore” Subcontracting
These days, it is a widespread practice among enterprises, both large and small, to subcontract call center services to third parties. That’s because, as Emilio J. Castilla, Wharton professor of management, asserts, it pays for companies to subcontract “because they don’t have to incur new labor costs, such as hiring, training, compensation and motivating workers in the telephone centers … There are companies that are specialized in call center services that provide a better service to the customers than these companies could offer. This permits companies to focus on their business and removes the burden of offering good service to their customers.”
Castilla adds, “It is extremely important for this sector to provide corporate customers with a level of service that is both high quality and fast. These third-party companies, which are specialized in responding to calls, are very capable of providing greater productivity – for example, processing a larger number of calls with higher quality, shorter waiting time, etc. – as well as providing lower wage costs and important economies of scale and doing all this with higher utilization rates of offices and personnel.”
The current economic climate is especially positive for call centers. Because of the economic recession, companies are immersed in a frenetic effort to reduce costs and increase their competitiveness. A common goal of companies that have strong brands is to take these tasks outside their borders to countries where costs are lower, known as “offshore subcontracting.” “This involves a very simple model of how to use the human resources of those companies that are specialized in providing customer service by telephone in order to obtain a competitive advantage in the area of customer service,” notes Castilla.
In an article published by Universia-Knowledge at Wharton, Kadab Mukesh, manager of a North American communications company, affirmed that between 65% and 70% of the costs of a call center in the United States are personnel costs. As a result, locating call centers in countries where labor costs are more economical is tempting for multinationals. For example, an American company can save up to 10% if, in attending to the domestic [U.S.] Spanish-speaking market, it subcontracts its call center to Mexico instead of inside the U.S. And it can save up to 20% or 40% when it does that in India, the Philippines and South Africa, according to data published in the industry magazine, Call Center Magazine.
Same Service, Different Location
In countries such as India, Mexico and Argentina there is an abundance of workers who are young and very qualified – and relatively cheap. There are 1,300,000 university students in Argentina – and 400,000 in the capital city of Buenos Aires alone. In Argentina, call centers are commonly located near the universities. Despite the fact that struggling with ill-tempered customers for eight hours doesn’t seem the kind of work that college graduates dream about, because of the crisis the country is undergoing, many graduates are thankful to be able to work in a call center, according to Norberto Varas, director general of Teleperformance Argentina.
According to this company, working in call centers is viewed as an acceptable profession in socio-economic levels, and workers have good buying power. Given an unemployment rate of 22% as a result of the economic crisis, the result is a low level of absenteeism and worker turnover.
One of the major reasons why major multinationals are beginning to take a look at Latin America involves the use of the Spanish language. Mastery of that language is essential for Spanish companies that are looking for providers of customer services. That is also the case for North American companies. Nowadays, the Hispanic population of the United States is the largest minority in the country. More than 35 million Spanish-speaking people live in the U.S., and they have an annual buying power of $432 billion. Moreover, according to Ravi Ramu, CFO of Mphasis-MsourceE, an Indian company that recently opened a call center in Tijuana, Mexico, to attend to Spanish-language calls from customers in the United States, “almost 18% of the calls to the 1-800 free information number [in the U.S.] are made in Spanish.”
Another important statistic is that, “in contrast with the United States or the United Kingdom, there is a higher percentage of people in other countries who have mastered several languages,” Castilla notes. In fact, according to Teleperformance, an estimated one-third of all Argentine university graduates have mastered a second language. “The contract operators for this country are bilingual, but in many cases [firms] require only that they are native English speakers and will only speak that language.” This is an especially interesting consideration for American multinationals that are counting on “offshore outsourcing” and are thinking about diversifying into other countries.
According to Giga Information Group, “you need to lower the risks involved in putting all your outsourcing resources into just one country. As a result, Latin American countries are beginning to become an excellent alternative for many companies. Although the market is not as developed as it is in India, it is rapidly maturing. Soon [Latin America] will offer a level of service that is similar to other [regions].” On the other hand, adds Castilla, “When a specialized company has call centers located in several countries – for example, in both Mexico and Hungary – this strategy allows it to continue providing the same service despite the different locations, even when there is an overflow of calls or a change in scheduling. This makes it easier to provide customer service in several different languages.”
Such an advantage also presents a major challenge, however, since it is important to be able to offer the same quality of service from every location. “You have to provide standardization, so that customers don’t notice any difference,” Castilla says. “In the end, what the customer wants is good service, irrespective of whether it comes from Hungry, India or Mexico.”
That sort of diversification strategy has its own limitations. Implementing call centers in developing countries requires a certain degree of economic and political stability “in order to make sure that they are going to provide, for example, basic [phone] services. The companies that open call centers do a lot of thinking in advance of coming into a country, especially regarding their options for investing,” says Castilla. In general, Latin America can count on a certain degree of political stability and, according to Giga Information Group, “in the case of Mexico, there is strong support from the government for the development of information technologies.”
The existence of labor laws that are flexible and very favorable for this type of enterprise is another advantage of the region. In that regard, Castilla affirms, “in countries like Mexico and India, labor regulations are quite basic and you can operate a call center for 24 hours [a day]. That’s something unimaginable in developed countries where the labor unions have more power. The governments are even very interested in implementing assistance programs to this type of company – [developers of IT, communications, software, etc.]”
He adds that the great majority of Latin America countries have a highly developed infrastructure – in Argentina, 99% of the telephone lines are digital. “The environment those countries provide is very favorable for establishing this kind of company,” Castilla says.
Lower Absenteeism and Turnover
In developing countries, Castilla notes, “when you set up basic practices of human resources, it has an immediate impact. Hiring and selecting workers, providing them with competitive salaries, and giving them incentives such as commissions and other benefits, social security and health insurance – all of that can allow you to select very qualified workers who have a lot of motivation and loyalty.”
Moreover, he continues, “many call centers in those countries offer extremely good compensation, not only in terms of salary. These companies offer a benefits package that is incredible. It includes social security, scholarships and financial assistance for study programs; insurance for health, vision and dental care.” These basic practices, which are common in developed countries, “are not the norm in developing countries and, when they are introduced in certain companies such as call centers, they have a huge impact, and help attract more qualified and motivated people,” notes Castilla.
“Moreover, they contribute to and improve the productivity of workers, reduce their absenteeism rates and improve personnel retention. Productivity, quality and retention are the major concerns that directors of these telephone centers have in the United States.”
For these companies, it is very profitable to be able to contract employees who are generally more loyal and better educated. In addition, rates of absenteeism and labor turnover are generally lower in Latin America than, for example, in [call centers in] the United States. In the U.S, according to Castilla, “the turnover rate in call centers is very high. It is estimated at between 25% and 45%, on average, although it can wind up being even higher.” It is a real problem for employers if they spend large amounts of money on educating and training operators, and they then quit after a few months on the jobs.
Castilla, in a recently published research project, proposed to call center companies that they use “reference programs” for solving the high turnover rate of personnel. That sort of program is common among specialists in human resources in the United States. It involves having employers pay workers for recommending other people to fill specific positions. That way, workers have a more realistic and appropriate idea about the job that they are hoping to get. Moreover, “as a result of having been recommended by another [worker], the new job holder can enjoy his job more, if only because one of his friends is also working in the same enterprise,” Castilla notes.
“With offshore subcontracting, companies don’t have to worry about retaining their workers, as is the case in the United States. Workers are delighted to have a stable job with a good salary, good incentives, and benefits. And even if the salaries are high by the standards of the [local] country, wages are always lower than in the United States or the European Union, which is why subcontracting this service continues to pay off for large companies.”
Castilla is optimistic about the growth rate of this sector in Latin America. One of the reasons he believes this trend will continue is that call centers in the United States that offer this service in Spanish only provide it in “basic” Spanish. “It is clear that people speak Spanish perfectly in any country of Latin America and, in general, companies that are outsourcing are going to opt for lower costs, as well as higher quality calls.”
Juan Manuel Caserza, director of new business development in Spain for the Atento Group – a subsidiary of Telefónica that has a presence in more than 13 countries – agrees that “all the experts point out the growth potential of the [Latin American] zone. A study by International Data Corporation projects an annual growth rate of 33% annually between 2000 and 2005. Moreover, this in a region where there is still a large number of companies that do their own telephone customer service in-house, but the trend is to subcontract these services to a specialized company.” In his opinion, “although the percentage of offshore subcontracting is still small, nobody doubts the potential of these countries because of the globalization of telecommunications and the quality-price relationship.”
Perhaps for many of the same reasons, Hispanic Teleservices Corp., a call center company located in Monterrey,Mexico, has won the competition to provide telephone support in Spanish for America Online Services. This company has 550 operators, which permits it to provide service, 24 hours a day, for 365 days a year. Its staff members are 100% university graduates and bilingual – and Spanish is their mother tongue.
Mexico belongs to the so-called “nearshore” countries that, according to Teleperformance, “benefit from their proximity to the United States” and, moreover, can count on the added advantage of having a larger cultural affinity with the Hispanic population in the United States. Of the 35 million Hispanics in the United States, an estimated 20.6 million are Mexicans.
Atento leads the market in Brazil and Argentina, and its thousands of workers provide call center service to multinationals in the region. According to Caserza, “For some time, Atento has provided service to customers in the United States through its subsidiary in Colombia. And there are other markets with important potential. For example, Central America can become a provider for the Mexican market. In Argentina, the leaders in this sector are setting up partnerships or are looking to make alliances.”
For its part, Argentina is converting the economic crisis into a competitive advantage for its call center companies. According to the report by Giga Information Group, “considering the current scenario regarding declining costs, Argentina can even wind up being able to compete with India. In fact, some Indian software companies are beginning to look for providers of call center service in Latin America. Argentina offers labor costs that are eight times lower than in the United States for this kind of work. Moreover, its [labor] turnover rates are very low, because of the [economic] crisis.”
Teleperformance has experienced significant growth in that country, expanding from only 65 [corporate] customers in 2001 to 700 today. More than half of its employees now deal with calls regarding products that are sold in other countries. By the end of 2003, “they hope to be able to have 1,000 such offshore posts.” Most of its revenues come from Spanish companies, including local operations of Tele2. As for Microsoft, the American company, Teleperformance now takes care of its customer service support for the entire Southern Cone.