Nearshore Outsourcing: Building a Business Case
February 27, 2019
By: Scott Newman
The Philippines has worn the offshore outsourcing crown for years, having claimed it from India in 2012. The country’s BPO sector is so strong the LA Times called it the “call center capital of the world.”
But the king’s crown doesn’t fit quite so well these days as more and more companies move their customer service call centers back to the U.S.
Political unrest was a major cause for concern at one time, but no longer. Duterte, despite his radical demeanor, has shown the economy is stable during his term, at least so far.
The political concerns did have an effect, however, which was to wake companies up to the fact they were placing an almost irresponsible investment and expansion in the country in a sprint to capitalize. Duterte made people stop for a second and say, “Hey, did we go too hard into this market?”
If the reasons for companies leaving the Philippines aren’t due to the political climate, what are they?
Three, in essence: labor force turnover, price increases, and market saturation.
Labor Force Turnover
The agent attrition rate in the Philippines is high (an agent’s average lifespan is just 18 months, says Customer Think).
You can attribute that to low wages — the starting salary in some regions is as low as 5,000 pesos a month, equal to $92.70 — and the fact that the Chinese gambling industry is luring many workers away with promises of better pay and better hours.
The Philippines BPO industry has benefited from low hourly costs, which is one of the reasons it has experienced explosive growth over the years.
But with that prominence comes a cost: As more and BPOs enter the market, established players are forced to increase wages to retain talent, driving up prices. (And let’s not forget competition outside the sector, such as that from the gaming industry.)
The annual wage inflation rate in the Philippines can exceed 10 percent, which is a lot higher than the typical three percent wage inflation rate in the United States — and there appears to be no relief in sight apart from migrating to less competitive parts of the country.
More than 850 BPO companies operate in the country, according to estimates. Such market saturation applies pressure on wages, attrition rates, and real estate.
“This level of competition draws concern that the market is becoming saturated,” said King White, CEO of Site Selection Group regarding growth of the Philippine BPO sector.
“The warning signs of high wage inflation and increased employee attrition are becoming a problem,” White added. “In addition, real estate availability is very low and real estate costs have increased significantly. This trend will continue until market activity cools down which makes it critical to consider locations outside of the Metro Manila where labor conditions are less competitive.”
U.S. Companies Returning Home
If U.S. companies are leaving the Philippines, where are they going?
According to domestic contact center provider, Anomaly Squared, the loss of revenue, complaints of poor-quality service, increased cost, and harsh criticism over security has prompted many businesses to come back onshore.
“Lured by the promise of lower overhead and wages, companies were blind sighted to potential problems that could arise from sending their Customer Service jobs overseas. More than half of customer service outsourcing projects that were sent to India or other countries turned out to be a customer service nightmare.”
Nearshore Outsourcing: A Business Case
But what if outsourcing offshore or bringing call centers back home via in-house or domestic BPOs weren’t the only options? What if you could have your proverbial cake and eat it too?
That’s the promise nearshore outsourcing offers: domestic quality (i.e., happier customers) at lower prices.
The per hour cost, while not traditionally as inexpensive as the Philippines, is lower than domestic contact centers by double-digit margins.
But what value is lower cost if the quality isn’t there?
I agree. However, most nearshore countries possess English proficiency, similar culture, and matching time zones, making it easier to communicate, satisfy customers, and visit the contact centers.
For example, Belize, where our contact centers are located, is within easy reach of many major U.S. airports.
Plus, our agents not only speak English well but also understand U.S. culture due to their strong affinity offered by a vastly-growing American tourist market (watch this short video, and you’ll see what I mean), all of which adds up to a better level of service than you are likely to find offshore.
And while I can’t speak for other Latin or Central American countries (or even other BPOs in Belize), I can tell you that a commitment to high quality is a core value here at Transparent BPO.
U.S. companies are moving away from the Philippines and back onshore to trade lower costs for higher quality and greater customer satisfaction.
Another option is on the table, one that offers affordability and quality in equal measure: nearshore outsourcing.
Take time to investigate why we say nearshore is a better bet than offshore and a valid option for U.S. companies that need to keep cost and quality in check — particularly those that need to scale their contact centers but can’t domestically due to cost.
To learn more about outsourcing nearshore, give us a call at 800-276-5140. We would be happy to answer your questions and address your concerns.