How to win the globalization game

Despite five years of solid growth in the world economy, globalization continues to spark political controversy, anxiety amongst employees and conflicting media coverage in every corner of the world.

In the United States, many believe globalization to be synonymous with the loss of industrial and service sector jobs, from the Sunbelt to the Rustbelt.

In particular, the call center or business process outsourcing (BPO) industry has come under the spotlight, becoming a lightning rod for job losses and anti-globalization sentiment in the US. When in need of help with their credit cards, computers, bank loans or online shopping orders, millions of Americans now find themselves speaking with someone in Bangalore or Manila instead of Columbus or Omaha. Foreign call center workers are the new poster children representing the loss of US jobs to overseas competition, just as Japanese workers were for the loss of jobs in the US auto industry in the 1970s and ‘80s.

So is globalization a game the US is destined to lose? Does it necessarily mean lost jobs in this country? CXO caught up with someone very much in the eye of the globalization tornado, Vikas Kapoor, President and CEO of iQor, one of the world’s leading call center companies.

CXO. With the Doha round of global trade talks stalled after five years, could globalization on its last legs?

VK. Absolutely not. The current wave of globalization was enabled by – or at least accelerated by – the internet. As the internet and other associated technologies continue to gain traction, globalization will continue to gain momentum. 10s of millions of jobs across the world will get reshaped by this tsunami before things settle, so I believe we are still in the very early stages of this wave of globalization.

CXO. But globalization is surely in for a rough time in the US. The Democrats have re-taken leadership of Congress, our trade deficit grows larger every year, and a new presidential campaign is just getting started.

VK. A lot of political points are scored on the topic of globalization, but in reality unemployment in the US is still very low, the economy remains strong, and the fear of net job losses has proven to be a myth.

Globalization does, however, cause job disruption in certain sectors and locations, even while it creates opportunities in others. Those disruptions are painful and they receive a lot of attention from politicians and the media. In the long run, however, I believe regulators will be about as successful in stalling globalization as dams are in stopping the Colorado River from carving a Canyon through the American Southwest.

CXO. Tell us how the US call center business became such a central symbol of globalization and lost jobs.

VK. There are nearly three million call center jobs in the US. In fact, if you include other back-office functions performed in operations, which resemble call centers, the number approaches seven million. That’s five times larger than the American automotive labor force!

In the aftermath of the market crash in 2000, large companies started to hunt for functions that could be performed at lower cost in countries like India. Call centers and back office functions were one of the largest and easiest targets in sight And so began the phenomenon of business process outsourcing (BPO).

Companies scaled back their call center operations in the US and shipped them offshore. At this point, roughly half a million jobs from this sector have been sent overseas, around half of those to India.

CXO. And, are these functions being performed as well in India or other countries as they were in the US?

VK. There are certainly many success stories, but the grass hasn’t always been greener on the other side of the globe. A college graduate in India can transcribe information from a mortgage application into a computer just as accurately as a worker in the US. They may even be more qualified to analyze the creditworthiness of the applicant. However, they’re not necessarily as skilled when it comes to calming an irate customer. It’s not just a matter of accent or language fluency; many of these high-touch tasks require judgment and emotional savvy that can take years, if not generations, to develop.

In cases where companies have rushed to take advantage of lower costs without grasping all the nuances and ramifications, there has been a great deal of customer dissatisfaction. The instant bottom line gratification was followed by pain from the loss of unhappy customers.

CXO. So is a reassessment under way?

VK. Many companies are indeed rethinking their call center strategy. While India and the Philippines continue to be prominent in most companies’ plans, the US. is re-emerging as a destination of choice for call center work.

CXO. So do you think call center jobs are returning to the US?

VK. Well, at iQor, over the last two years we have created two jobs in North America for every job we have created offshore. Our business model is perhaps going against the grain of conventional wisdom, but for us globalization has meant expanding in the US as much as it has meant expanding offshore.

CXO. Really, how are you doing that?

VK. Very simply, by not throwing the baby out with the bath water. I recognize that many functions such as data entry or analytics might be better performed in India, but also see that high-touch customer service or collections work is more effectively done in the US. Indeed, for any individual product, certain calls or customers are better handled here, while others are better sent offshore. We are trying to segment very finely so that each call can be handled in the location best suited for it.

CXO. That sounds pretty sophisticated.

VK. Well, the technology and analytics to do this kind of stuff have existed for nearly a decade. We are simply using existing technology in a clever way. One of the fascinating things about India’s recent success is that it is based as much on superior technology as it is on low labor costs. In many functions, we find that operations in India are more efficient because they deploy newer or better technology. Very often, it’s the technology in the US that is a few years old.

But US operations can often surpass these levels of efficiency and effectiveness if they deploy the right tools. Advanced technology has always been one of the hallmarks of US competitiveness and, in my view, it is the key to re-establishing our nation’s competitiveness in the call center industry.

CXO. But can it really overcome the disadvantage of labor costs that are 2-3 times higher than in India or other emerging economies? And, if so, how?

VK. Absolutely! Indeed, I really believe that in many instances, the way for US companies to compete is by raising wages in the US.

Let me explain by giving a specific example. All-in call center costs – including wages, telecommunications, etc. – are about $15 per hour in Phoenix, Arizona, but are roughly half that in Delhi or Manila. While that sounds like an overwhelming disadvantage, we routinely see that workers using thoroughly optimized technology can handle 2-4 times as many calls per hour as those using older or poorly configured new technology. Therefore, the disadvantage in labor costs is overwhelmed by the gain in productivity.

What’s more, the worker in Phoenix is likely to have a better understanding of American customers. While that may not mean much if all the customer wants to know is their account balance, it could be the difference between keeping or losing a customer if they have a complex problem or are particularly distressed.

Now, we may not be able to attract quality labor in Phoenix at $11.00 an hour, but we can do so at $13.00 an hour. Sticking to the lower wage is penny-wise and pound-foolish. While it’s not the answer in every case, for many types of work paying a premium is absolutely the winning strategy against low-cost competitors.

CXO. Isn’t that a just temporary solution? Won’t lower-cost countries in due course copy the technology or train their workers to deliver the same quality?

VK. While that’s always possible if we stay stagnant, there’s no reason why American operations can’t continue to improve productivity and quality. Remember also that the wage advantages enjoyed by new offshore competitors are not permanent. Two years ago, costs in Canada were 50 percent lower than the US, while today they are higher. Costs in India have doubled in the last four years and I expect they will continue to rise. In fact, India is now losing jobs to lower-cost competitors in the Philippines.

Labor and currency markets now move so fast that cost advantages can be very temporary. Advantages in capabilities – skills, processes and technology – on the other hand, can last for a long time. As Jon Gruden often says: “We have to stop worrying about the other guy’s game and just stick to our game plan!”

CXO. So what’s the bottom line in terms of offshoring trends for the call center industry?

VK. We’re still only in the early stages of globalization and many call center and back office operations should and will go offshore. However, many of these operations will be better performed in the US for many years to come. More importantly, US companies have dominated this business for many years And, if they play it right, can continue to dominate the business in a global environment. Certainly, that is our goal at iQor.

CXO. Is this true also for US companies in other industries?

VK. American companies have encountered many competitive threats before. When they have rallied aggressively around their core competitive strengths they have always prevailed. Conversely, when they have been slow or unintelligent in their response, they have ceded vast territories to foreign competitors. Globalization and low-wage countries are just the latest onslaught to arrive on American shores. With fast enlightened responses, this too can be overcome.

Vikas Kapoor is President and Chief Executive Officer of iQor, a premiere provider of call center services, with nearly 7000 employees around the world, including 3500 in the US

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