Outsourcing: West Corporation Interview (Part 5)

By guest author Tony Scott

Labor Arbitrage and Fully Burdened Costs

Tony: What’s the general price differential that you have in terms of percentages between a domestic at-home agent versus a similar quality offshore agent?

Matt: That depends on the market that you are in and the client program. The Philippines and Central America can be roughly 45%–50% of what you would charge in a domestic center. A home-based agent can be roughly 15% less than a traditional agent working in a traditional facility.

Tony: Are you finding that there are management issues or added costs related to managing more far-flung call centers versus domestic or near-shore [centers]?

Matt: We manage locally, so that limits some of our exposure to those elements, but margins can be slightly better offshore because of the labor arbitrage. As I mentioned, we are seeing competitors discount prices simply to fill seats, so I don’t think that margins are going to be able to remain what they traditionally have been in offshore markets.

Tony: So you are actually seeing that change in the offshore markets now?

Matt: I definitely think that prices are coming down. You have outsourcing companies that have put in thousands of seats that they need to fill, and therefore they have lowered prices. As they lower their prices, they are doing one of two things: they are either shrinking their margins, or they are reducing the cost associated with the price they are offering. The most obvious way to do that is to decrease your variable labor costs. If they do that, then I think they are eventually lowering the quality of individual they bring to the role.

Tony: Do you anticipate that as the world economy grows, the labor rates that you may have to pay both domestically and offshore will create additional issues?

Matt: If you are chasing a pure labor arbitrage play, as a market gets saturated you are going to see that labor rate come up. We have seen that in the Philippines. I think that India saw it first, and as the market became saturated the price of the labor came up, so people moved on to the Philippines. Now the Philippines is in a similar boat, and companies have moved on to Central America. Central America starts chasing qualified labor; now they are off to Egypt and South Africa.

I also think that as the economy rebounds you probably will see call center workers exploring their options even more. But we believe that our home agent model offers some advantages and perks to employees, helping us to control and maintain our cost models domestically.

Tony: The flexibility of an at-home work lifestyle is obviously very attractive for many people, particularly people for whom it may not be convenient to work in a traditional work environment, or for whom travel to work would be a problem from a time and cost perspective.

Matt: Yes – and that’s where we think one of our key differentiators is in our virtual model. We are not tied to any particular geographic region or around a specific call center switch, so we can go out to Western Nebraska or some remote location where somebody might otherwise have to drive 50 miles to her job. We can offer that person a job that has flexibility, and she doesnt have to make that drive.

This segment is part 5 in the series : Outsourcing: West Corporation Interview
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