Contact Centres in Scotland, Global BPO and India

1. Contact Centres in Scotland, Global BPO and India Professor Phil Taylor US & EUROPEAN FINANCIAL SERVICES MEDIA TOUR SDI/SE Glasgow 10 November 2010

2. Background • Contact centre sector important to Scotland’s economy • 16,000 (1997), 46,000 (2000) and 56,000 (2003) • Sector not being eliminated by offshoring to India • Detailed FS study (2006) showed limited offshoring impact • Scotland’s potential role within the emerging global services delivery model • Accurate at late 2008 – bottom-up methodology – new study to refresh data in 2011 • Core questions enabling comparisons over time • no.s of centres, current and projected employment, sector, size, location, workforce demography, reasons for location, foreign language provision - availability of skills • Additional questions - multi-channel contact, automation • outsourcing and scale, nature and impact of offshoring

3. Scotland’s Contact Centre Sector • 400 contact centres – up from 290 in 2003 • 86,000 employed • 74,000 ‘customer facing’ agents • 12,000 supervisors, manager, technical support roles • 3.4 per cent of Scotland’s workforce • 1 in 30 now works in a cc (1 in 43 in 2003) • Growth continued at faster rate than expected • Differential impact at the sub-national level • Glasgow most important - 25,000, Lanarkshire - 12,000 then Edinburgh & Lothians, Fife, Tayside, W.Lothian, Greenock, Highlands & Islands - 30 centres • Despite dispersion 86% employed in central belt

4. 1 in 10 of all employed in Glasgow and Greenock • 7% in W.Lothian, 4% in Fife and Lanarkshire • Reasons for Glasgow’s pre-eminence • Majority predicted growth over the next two years • Outsourcing accounts for 71% of projected growth • Many expressed uncertainty over future prospects • Market volatility, re-structuring, re-engineering, offshoring, outsourcing, technological innovation

5. More than half centres operated by organisations with HQs in Scotland, 40% England, 7% overseas • US the most significant foreign ‘source’ • Scotland has made some progress as a nearshore destination within global services delivery paradigm • 32,000 in FS – 37.5% of Scottish c.c. workforce

6. 12,000 in public sector (14.7%), • 11,500 in media/telecommunications (13.7%) • 10,000 in telecoms (11.4%), 6,500 utilities (7.9%) • Outsourcing grown faster than any other segment • Now 3 in 10 of all employed, 1 in 4 in 2003 • Vitality of outsourcing confounds predictions • Dynamism resonates with Scotland as global BPO hub • 12% of centres dedicated foreign language services • Another 20 organisations draw use language skills • Highlight multilingual centres as key EMEA hubs • Language availability at relatively low cost • Diversity of size and quality of service • ¾ on full-time contracts, 1in 7 a temp, 58% female

7. Reasons for Locating Centres in Scotland • Availability of skilled labour at relatively low cost • Historical reasons • Location of company headquarters • Outgrowth of existing operations • Success of established operations • Decisions to locate strategic sites in Scotland • Overall lower costs – accommodation etc. • Provision of grants, incentives, assistance • Importance of a combination of factors rather than one dominant reason

8. Availability of Skills, Resources, Facilities • Majority reported no shortages • Episodic shortfalls in particular languages • Smallish numbers reported shortages in customer service or sales skills, supervisors or managers • Not generic skills but their scarcity incombinationwith other skill sets – languages, technical abilities • Public policy issues • provision of adequate out-of-town transport links • training provision at local colleges • Training needs relating to emerging technologies

9. From Call to Contact Centre and Automation • Transition from ‘pure’ voice to multi-channel contact centre • Telephone services increasingly combined with other customer contact – email, internet, web chat • Non-voice and voice contact have expanded • 2/3 expected growth in automated provision • Cut costs, reduce labour costs by automating transactional callflows =►customer self-service • Adoption of voice technologies: IVR & recognition • Automation leading to increase in call complexity and generate skills and training challenges • More than 1 in 5 outsource to a domestic provider

10. Offshoring • Increased no. of companies offshoring but... • Overwhelming majority do not offshore • FS companies are the most prominent • Key conclusion in 2003 was that domestic industry would grow as offshoring would increase • India remains the dominant location • Beyond India - Philippines, S.Africa and E.Europe • Range of possible contractual relationships • Audit confirms that the majority of services are standardised and transactional • Rationalisation, ‘slicing off’ and re-engineering • Segmentation– complex at home, simpler migrated

11. Around half reported that little impact on Scottish operations, while many stated increased complexity • Majority had no plans to increase overseas capacity • Reasons given for not having offshored • - public sector organisations • serving localised markets, local knowledge • complexity of services delivered • customer resistance • client opposition, related to linguistic/cultural issues • cost case not compelling

12. Perceived advantages of offshoring • costs, particularly, labour costs • other labour qualities – skills, language, work ethic • extend customer service • provision of services that would be prohibitive • Perceived disadvantages of offshoring • languages, accents and dialects, communication • difficulties in remote management • customer opposition x managers’ perceptions of real difficulties • damage to brand or reputation • inability of Indians to go ‘beyond script’ • problems in Indian labour market • regulatory issues, data security and risk

13. Comments • Open question – valuable insights, distinct themes • limitations of offshoring – the Guinness analogy • difficulties in delivering complex services • attrition and retention • need to develop skills and enhance careers • work becoming more complex • evolution of multi-channel contact centre

14. Global BPO – Global Service Delivery • The overseas migration of business services based on ICT extends far beyond experimental phases • Remote delivery now a core element in corporate re-structuring and process re-engineering • From tactical, to strategic to transformational • As the scale, diversity and complexity of ITES-BPO has grown so too has geographical reach • Need to alter prism – global services delivery • Less a series of one-to-one relationships between organisations in developed & developed countries • Multi-locational, multi-site strategies capitalising on differing combinations of available skills & resources

15. e.g. English-speaking voice to India/Philippines, Spanish voice to Latin America, IT to E. Europe • Companies developing ‘cluster’ footprints • Onshore, offshore, nearshore, rightshore • Supply and demand dimensions • Transformative role of TNCs in shaping the global landscape– IBM, Convergys, Sykes, Accenture • Generalists (IBM) or specialist providers (e.g. Hewitt in HR, Teleperformance in contact centres • Local acquisitions– IBM (Daksh), EDS (Mphasis) • Indian companies emulating MNCs (Genpact et al) • Indian cos in UK – FirstSource, HCL, Tata, Hero

16. The global sourcing world is not ‘flat’ apropos Thomas Friedman but hugely uneven • Employment- India – 790,000, Philippines - 300,000 • Sheer range of locations on offer e.g. Malta, Egypt • The potential of some locations should not be confused with the actuality e.g. Baltic States • Importance of language capability – in part the contours of old empire and colonialisation • Tension between geographical mobility and fixity • Globalisation heightens the importance of place • Where to locate, what to locate, outsource or not, voice or non-voice • An ensemble of factors – not a ‘race to the bottom’

17. Evidence from India • Information Technology Enabled Services – Business Process Outsourcing (ITES-BPO) • Employment – 790,000 (2009) from (107,000) 2002 • 50+% in voice services, despite back office growth • US – 60%, UK – 22%, Europe – 11% • Sectors – BFSI 41%, Telecoms – 20% then manufacturing, retail, travel, utilities • Location – clustering – Mumbai, Bangalore, NCR, Hyderabdad, Chennai – 98% within 7 locations • Within cities remarkable concentrations – Malad Mindspace & Powai in Mumbai, Gurgaon & Noida • Tier 2/Tier 3 cities – escape high cost, overheating

26. India’s cost advantage in 2003 – 40-60% • 2004-6 reports suggested (40-50% • 2006-9 industry leaders conceding 30% • Employee costs rising 10-15% p.a. reducing labour cost savings • Labour management problems of a very young workforce in context of very high growth • ‘The biggest challenge is in managing the HR issues in recruitment and training of such a large number of people’ (Nasscom, 2003) • Perhaps 2004-2007 the problems were most acute • Recruitment – 3-5% of applicants employed

27. Accent neutralisation and training • 15 years education in English does not necessarily mean nuanced linguistic and cultural capability • Staggering turnover rates 65-75% on average • Sometimes as high as 100%, even 160% (eServe) • People leaving ‘for a few dollars more’ • Crisis often in front-line and middle management • Dell’s ‘Platinum Club’ – rewarded if stay on phones • Drives to improve productivity and effeciencies • ‘Process excellence’ agenda • Saturday working introduced • Intense pressures of work – night shifts, travel, gap between aspiration and reality

29. Impact of Recession • Inevitable impact – how could it be otherwise when US – 60% and UK 22% and BFSI – 40% • Nasscom predicted growth of 16-17% in 2009 • Contradictory evidence a) ‘clients telling us they are in trouble’ and b) the need to cut costs leading to renewed wave of offshoring • Price/contract re-negotiation, decisions being taken • From supply side – systematic moves to ‘process excellence’, ‘performance management’, ‘lean’ • ‘If 12 people are required for a process, I would now look for 8 people...no flab, no buffer, flexibility’ • Discipline, attendance attrition

30. Scotland as a Global BPO Hub • Huge growth in BPO predicted in global terms • Scotland cannot compete in terms of labour cost arbitrage with India, Philippines etc. • What matters is the combination of relatively low UK costs and other factors - notably skills, labour quality, accommodation costs, infrastructural links, maturity, linguistic and cultural empathy etc. • Scotland can promote itself as an onshore and as a nearshore destination • Can attract global services providers that serve UK/domestic and European markets.

31. Identify the services where offshoring is weaker and Scotland stronger • e.g. KPO, linguistic strengths, multilingual capability, automation and self-service, end-to-end hubs • Scotland projecting itself as high quality, relatively low cost, low risk BPO and KPO hub • ‘Flight to quality’ • Strength of Scotland and parts of the UK as onshore, nearshore and global service deliverers • Use the language of the BPO industry

32. Some Conclusions • Accurate picture of the contact centre market in Scotland in 2008 • Elements of continuity and profound change • Difficulties in FS will have impact on employment, but precise consequences for cc’s not clear • Recession can have cross-sectoral impact on demand and in turn on cc employment • But CC emerged as a cost-efficient innovation • Call centre precipitated by early 1990s recession • Employment grew post dot.com crash • Telemediated customer contact may be less vulnerable than other roles

33. Need to cut costs becomes a central objective • Apart from downsizing, closure & creative synergies four potential options • Restraint on pure cost reduction is the premium on customer retention in tight competitive marketplace • Draconian solutions – impact on employee morale • Offshoring was never about ‘everything will go’ • Lesser constraints on offshoring the back office • Scottish sector showing real strengths in 2008 • Scotland’s place in global service delivery map • Need for cutting edge and reliable research