More Financial Firms See India as Call Center Option
American Banker, Dec 18, 2001.


Copyright (c) 2001 Thomson Financial, Inc. All Rights Reserved.

Sixty million dollars of annual savings is what attracted Conseco Corp. to it, while Citigroup likes the improved quality of service it offers.

It is the outsourcing of call center services to India, a practice that has begun to gain favor among the financial services set. Though General Electric pioneered the concept, financial firms have been quick to recognize the potential for this important customer-facing function. Not only is labor cheap in India, but workers there are technologically adept, multilingual, and very well educated.

Conseco, an $8 billion-asset insurance group in Carmel, Ind., apparently felt so strongly about the advantages that in August it acquired exlService, an Oakland, Calif., firm founded in 1999 to establish outsourcing operations in India.

Now the Conseco subsidiary provides inbound and outbound voice support services, transaction processing, and e-mail management out of two centers in Noida, a suburb of New Delhi. The first center opened in October 2000, and a third will open in February in Bombay, bringing exlService's employee count to 1,500.

Vikram Talwar, its chief executive officer, said its clients, which include Conseco and other companies, mostly in financial services, save at least $25,000 a year per full-time employee by outsourcing to India.

"At the very low end, if you move 1,000 jobs, that's $25 million," he said. "It takes a lot of revenue to make that."

Conseco estimates it will save $60 million annually by shifting customer service operations to exlService. Because turnover in the company's North American call center and back-office fulfillment operations has averaged about 30%, Conseco is not expecting any major layoffs.

Citicorp Electronic Financial Services has cut its call center labor costs by half since it began outsourcing its call center operations to Santa Monica, Calif.-based MphasiS, a software integration company that operates two call centers in India.

Even though higher telecommunications expenses and an increase in call volume eat up the savings, the Citigroup Inc. unit benefits from a more skilled work force, said Rick McKinney, the unit's senior director of operations.

"I think what we've learned is it's a very effective way to leverage a pool of talent on the other side of the world and improve the overall service we've been able to give," he said. "It allows us to serve the cardholder better for about the same money."

The Citi division, which provides account hosting, processing, and support for companies and government agencies offering debit card products, decided to outsource to MphasiS in mid-1999, when call center volume began skyrocketing, and had made nearly a full transition by the end of last year, Mr. McKinney said.

Arthur Flew, the president and chief executive officer of MphasiS BPO, the MphasiS division that runs the India facilities, pointed out that call center jobs in the United States are at the low end of the employment spectrum, typically attracting part-timers such as "stay-at-home moms or retired people."

By contrast, he said, call center positions are highly coveted in a Third World country like India. The 500 workers MphasiS employs at its call centers in Bangalore and in Pune are university graduates. The two centers have attrition rates of 12%, which is considered low in call center circles.

"Clearly there's a cost advantage -- but more importantly, there's a quality advantage," Mr. Flew said. "If you look at America today, our customer service operations are not doing a good job. To improve on that customer service, to improve customer satisfaction and get better customer loyalty, that's got to be worth more than the cost savings."

General Electric Co. is widely credited for starting the trend of outsourcing to India. The company opened a call center outside New Delhi in 1998, and another in Hyderabad last year. But offshore call centers are nothing new to GE, which opened its first in Leeds, U.K., more than a decade ago and now has call centers in about 15 countries and regions, including Japan, Ireland, Austria, and China.

John Oliver, a spokesman for GE Capital, a wholly owned subsidiary of General Electric Co., said that regions such as the Bergenland, an economically challenged area in southern Austria, offer the ideal mix of skilled, well-educated employees who have superior language skills, sometimes speaking three or four languages.

"Could that happen in the United States?," Mr. Oliver asked."Absolutely. Could it be done as efficiently and sensibly as it's done in Austria? No."

Combine the talent pool with the economic situation in a place like Bergenland, Mr. Oliver said, "and you've got a terrific business opportunity. The people in that region get great jobs, it works for the government because people are now paying taxes and helping the economy, and it works for us because it's an efficient way to run our business."

Despite these other benefits, the cost factor clearly looms large. A recent Jupiter Media Metrix report found that labor costs account for 80% of call centers' budgets and that attrition among call center staff averages 40% annually in the United States. It said the cost of hiring each new customer service representative totaled about $7,000. Turnover of call center employees costs a typical 150-seat call center more than $500,000 annually, the report found, and hurts employee morale and customer perception.

Conversely, the report found that call centers handling 300,000 inbound customer contacts monthly can save $2 million annually, or 15%, by outsourcing their customer support operations. "The battle to retain employees and contain staffing costs should impel businesses to consider outsourcing," the report recommends.

In an interview, David Daniels, an analyst at the New York firm and co-author of the report, said cost is the main driver for companies to outsource call center operations to other countries.

Ireland has been a popular choice for at least a decade, he said, as has the New Brunswick area of Canada, where a downturn in the natural resources sector prompted the Canadian government to provide subsidies for foreign companies that set up operations in the region. "Those have been typical places for companies to outsource, because of the language issue, but India is still more cost-effective," he said.

Companies outsourcing to India have found a way around language and cultural barriers by locating in parts of the country that are more accent-neutral.MphasiS hired a voice coach to teach new employees how to drop their accents and speak in American vernacular. Workers are trained in how to recognize regional accents, and told to keep up on American news and culture to be able to converse with customers.

Mr. Daniels said the practice makes customers feel reassured."American customers are largely used to calling the heartland here in the States," he said. "It gives the customers some comfort that the person they're speaking to really understands their issue."

GE does not ask employees to use pseudonyms, but Mr. McKinney said Citicorp's Indian employees use Anglo names simply for the sake of clarity and efficiency. "If a customer asks to have the representative's name and it's foreign to them in terms of the number of syllables or the spelling, it takes a lot longer to complete that exchange of information," he said.

Mr. McKinney said Citicorp makes no secret of the practice and has had no complaints about it. "We've had several of our state customers monitor calls and they felt the level of service was very good, and they actually had more difficulty understanding the callers than they did the representatives," he said.

Outsourcing to India gained a foothold about a decade ago with software development, but MphasiS president Jeroen Tas, who started the firm in 1998 along with fellow ex-Citibank employee Jerry Rao, said the "real boom" occurred as North American companies started noticing the quality of Y2K work done in India.

"People found out they could get the same quality, and in many cases better quality, for a fraction of the cost in India. That sort of took away a lot of skeptical remarks."

The outsourcing of call center operations to India is creating so much demand for employees that staffing is becoming a challenge. "It's becoming more competitive," said GE's Mr. Oliver. "As more call center operations go into India, labor has a value."

One major issue for foreign companies, Mr. Daniels said, is the paucity of employees with the experience required to run a call center and manage hundreds of workers under one roof. The situation will likely change over the next couple of years, he said, as American companies start to bring managers to India and local employees gain some managerial experience.

The pressure on India's work force may abate somewhat, as the increasing mobility made possible by technology prompts firms to seek out other parts of the world with similar opportunity. MphasiS, looking to replicate its work in India, is considering setting up call centers in Mexico and China.

"Other places will definitely become important," Mr. Tas said. "Technology is enabling us to come up with completely different models that are no longer location-dependent."

Mr. Tas said that though the September terrorist attacks caused many companies to initially delay strategic decisions, he believes there will be long-term benefits for outsourcing companies, as security concerns prompt financial institutions to further decentralize their operations.

The war in Afghanistan has raised fears about instability in the region, but exlService's Mr. Talwar said the company has not been hurt. On the contrary, he said, exlService has received more inquiries and visits from potential U.S. customers than it did before Sept. 11 as American companies look for ways to cut costs. When the economy swings to the other extreme, labor shortages prompt companies to consider outsourcing to India, creating opportunities on both ends of the spectrum, he said.

Unlike some other outsourcing companies, exlService has no plans to set up shop outside of India. "I think the value proposition here is so strong that at the moment we're not looking at anywhere else," Mr. Talwar said.