Contact Center Outsourcing contract TCV is both shrinking and growing
Contact Center Outsourcing contract TCV is both shrinking and growing
Signs of Anti-incumbency in Contact Center Outsourcing: 2014 saw a much higher number of terminations while renewals and new contracts continued to grow at a steady rate
3 indicators of the increasing preference for onshoring in contact center outsourcing
Over the years we have seen Capita successfully expand from one market sector to another in the UK and Ireland. Since 1984 when it only served the UK local government sector, it has expanded into seven major verticals and over 15 segments of those. The latest expansion plans take it beyond the UK and Ireland borders into DACH, with Germany being a primary target market.
Capita’s new geographic growth strategy has seen it make three acquisitions in the DACH region (Germany, Switzerland and Austria) in the past year:
Capita has a formulaic approach to acquisitions with a budget of £200m to £250m per annum. It considers many potential acquisitions each year, selecting a dozen or more that fit its formula to:
In addition, the acquisitions have to make a Return on Capital Employed (ROCE) of 15 percent post tax return after 12-months integration into the group.
Capita recently also acquired 700 skilled, multi-lingual FTEs in Krakow and Lodz, thanks to its acquisition of SouthWestern in Ireland. It can tap into these centres to further boost its presence in DACH for outsourcing services, including insurance, finance and legal administration, and customer management.
The key drivers for Capita’s German gambit include:
The three acquisitions add scale to Capita’s existing customer management services in the service-line’s key sectors of retail, telecom and utilities. We expect to see some sharing of resources and skills across country units, driven by multi-country client requirements.
The combination of both customer care outsourcing and consulting services represented by these acquisitions also bodes well for CCO clients, who increasingly look to their service partners for guidance in strategic areas, such as the deployment of multi-channel services, enhanced uses of analytics and stronger vertical industry specificity.
Expansion into German local government is a possibility with avocis that has a number of contracts in the sector. This is Capita’s founding market and Andy Parker, the CEO, has already said that he sees much similarity between the UK and German local government sectors. However, expansion into this sector will be after that of avocis’ bigger private sector market. It is unlikely to target the German local government for the first 12 months after the acquisition.
Capita’s biggest challenge is integration of these companies along with all the other acquisitions that it has made recently. In recent years Capita has spent:
These have been in a diverse set of companies, ranging from software and data for utilities and transport sectors to residential and commercial mortgage administration. The company is also expanding its services portfolio into new verticals such as agriculture and science services.
Managing this expansive empire while building efficiencies into services and workforce management is not going to be easy.
Yet Capita continues to deliver growth year after year. In previous years, it managed to significantly boost its CCO business with the acquisitions of Ventura and Vertex in the UK. In DACH, it has to deal with challenges of a different culture and languages as well as the usual aspects of integrating businesses, so we will be watching this space with interest.
There is no doubt that Capita is a master at business expansion. Service providers that want to expand into new service lines and geographies would do well to follow Capita’s German gambit.
Despite changing market needs, key locations in Scotland, Ireland, and N. Ireland continue delivering value in the contact center space to the greater UK market. First off, these locations remain relevant in terms of the 3 C’s – cultural affinity, cost savings, and coordinates. But if you broaden the view, you’ll also see that the nature of the value derived from these locations continues to evolve, ensuring relevance into the future. Let’s take a closer look.
C#1 – Cultural Affinity: As with the rest of the market, about 83% of the traffic through UK nearshore contact centers involves voice-based interaction. Unlike the rest of the market, about 31% of such interaction involves supporting public sector needs. This combination underscores the draw for UK citizens to receive customer support from other UK citizens with a shared cultural compatibility. This dynamic, while most pronounced with public sector consumers, also resonates within banking, telecom, retail, travel, utilities, etc.
C#2 – Cost: UK nearshore costs remain compelling compared to operating costs elsewhere in the UK. Today ranging from 15-30% below that of locations in the southern UK regions, these nearshore locations are expected to continue offering favorable cost differentials for at least another 4-5 years. Further, this cost savings occurs in an environment with relatively low business and operational risk.
C#3 – Coordinates: Under coordinates, the most important element is the availability of talent. In cities such as Dublin, Glasgow, and Edinburgh, available entry-level and experienced talent in the areas of customer service, sales service, and order/payment services remains strong. In emerging delivery locations such as Derry and Limerick, similar skills exist, though fewer in number. However, these emerging locations typically have lower attrition rates, so talent volatility remains low. In the more mature locations, two sources keep the CC talent pool active, namely the influx of university populations and the growing base of experienced customer care professionals.
Beyond the core 3 C’s, the nearshore UK locations highlighted here continue to evolve their value propositions along with client requirements. One area involves voice interaction. Everest Group sees a future where the nearshore UK locations become increasingly specialized in complex customer voice support, with lower complexity interactions either moving to non-voice channels or to lower-cost offshore locations. This is especially true in the case of retail and telecom industry clients. We have also seen these delivery locations expand their scope of delivering value-added services. Activities such as customer retention and customer analytics are increasingly being serviced out of these locations. As evidence, over the past several years, spending on nearshore UK voice interaction has grown by 5-10%, notably above the global average of 4-6%.
The second key enhancement area involves expanded language capabilities. Across the region, we see many centers delivering services in the languages of Central and Eastern Europe, and to a limited extend, Asia. Whether Polish, Dutch, Norwegian, Lithuanian, and Hungarian, or Urdu, Hindi, Punjabi, and Mandarin, UK nearshore contact centers have expanded their reach beyond English-only populations to offer customers a more targeted and effective consumer experience.
Despite their relative maturity in the scheme of the contact center market, UK nearshore locations continue delivering value to clients and customers. The trick to staying relevant will be keeping the value proposition balanced between cost savings and differentiated capabilities and higher skill sets.
For more information, download a complimentary preview of our report, “Cultural Affinity, Cost Savings, Coordinates – 3 C’s of Targeting UK Contact Center Market.”
UK contact centers looking near- and offshore: Though most contact center services for the UK market are delivered from onshore, nearshore and offshore locations are rising
UK nearshore contact center annual operating costs: cost arbitrage among delivery locations is largely driven by compensation and facilities costs
The CCO service provider market in the UK is considerably more consolidated than the global CCO provider market, and recent acquisitions are driving further consolidation
Scotland accounts for over half of all FTEs serving UK contact centers
Philippines and India hold leadership positions for English language contact center work