Tag: nearshore

Central America and the Caribbean: Calling all Nearshore Locations | Sherpas in Blue Shirts

Over the past several years, Asia has been leading the offshore growth momentum in provision of English-language contact center services. But recently, there has been a steady movement towards nearshore delivery of these services to North America, particularly the United States. Nearshore, in the context of this discussion, primarily refers to Latin American locations that have the advantage of being in the same time zone as North America and share cultural similarities.

Central America and the Caribbean are also gaining importance as part of this burgeoning group. Cities like San Jose, Guatemala City, and San Salvador have established themselves in this market, while locations such as Santo Domingo (Dominican Republic) and Montego Bay (Jamaica) are emerging as strong contenders. What makes this geography unique when compared with the rest of Latin America?

Overview of the nearshore contact center market

Distribution of contact center industry 2014

The figure above depicts the nearshore contact center market in terms of FTEs among Central American and Caribbean locations. As is shown, well established Costa Rica and Guatemala comprise 50 percent of the market, while El Salvador, Panama, Dominican Republic, Jamaica, etc., make up the rest of the pie as emerging locations. Consistent with trends observed in other regions of the world, global/regional service providers are the primary adopters of the emerging areas, while buyers’ global in-house centers (GICs) continue to be concentrated in established locations like Costa Rica and Guatemala.

And out of the confluence arises talent

The key attractiveness of this geography lies in its talent pool. Most of these locations offer large relevant graduate pools, especially for Spanish language delivery. However, challenges with employability of talent for English language skills affect the scalability potential in the region, especially for emerging locations. To overcome this issue, companies typically augment the graduate pool with part-time university students and high school graduates not pursuing further education.

An interesting trend emerging in these locations is that the service providers have tied-up with investment promotion agencies and other government bodies to set up language training institutes. Other providers have adopted staffing models that enable constant access to the best talent in the country. One example involves co-locating the contact centers within university campuses. Part-time university students are employed as contasct center agents, and are given incentives in the form of subsidized tuition fees. This arrangement also helps reduce attrition, which is a constant challenge in the contact center space.

In addition, many locations are taking proactive steps to increase the visibility of the nearshore contact center industry, and make it an attractive and viable employment option. For many, these jobs create the difference between poverty and prosperity. It is no wonder, then, that the Dominican Republic has been dubbed “The Call Center Republic.”

Everest Group has conducted a deep-dive analysis of this region, covering the current nearshore contact center landscape, relevant talent pool, and costs and risks associated with setting up operations. For more details, please see Everest Group’s latest report,Central America and the Caribbean Answer the Call for English-language Contact Center services.”

Nearshored GICs Experiencing Significant Growth among UK-based Buyers | Sherpas in Blue Shirts

Over the last 18 months, we have seen a significant shift in the global in-house center (GIC) location strategy of UK-based firms, with many more embracing Central and Eastern Europe (CEE) over offshore countries for their GICs.

GIC delivery footprint of UK based buyers

Factors driving the growth in nearshore locations include:

  • High attrition rates in offshore locations, and far more expensive talent in onshore regions, make nearshore locations a suitable alternative. Relatively lower-cost locations in CEE are equipped with skilled workforce with multi-lingual capabilities
  • Nearshore locations offer cultural and geographical affinity, and a favorable time zone
  • Concentration risk in offshore locations. Realizing the value of diversification, well-known companies such as Barclays, BP, HSBC, PwC, Rolls-Royce, and Vodafone have expanded their location portfolios beyond offshore in-house centers and established GICs in CEE

Some of the popular nearshore locations being leveraged for IT, F&A, and call center (CC) services are depicted in the diagram below:

Key nearshore locations by functions

While some companies are leveraging their existing nearshore offices and expanding them into GICs, others are setting up greenfield centers. Recent examples of new GIC set-ups by UK firms in nearshore locations include:

  • Barclays opened a human resources service center in Lithuania
  • Vodafone opened a new shared services center in Bucharest, Romania, to cater to Germany, Ireland, Italy, Spain, and UK-based clients. The center will also provide IT services for the Vodafone Group headquarters in London
  • PwC opened a service center in Bratislava, Slovakia, to carry out its internal finance function for the CEE region
  • Toumaz Group opened a software development center in Timisoara, Romania, to develop IT-based solutions for Toumaz and Frontier Silicon, a Toumaz division.

What are the implications of this trend? Are we saying offshore locations will lose their draw for UK-based buyers? Certainly not! Although the CEE region will continue to maintain its growth momentum, several factors will still drive GIC activity in offshore geographies among UK buyers:

  • For first-time adopters of the GIC model, offshore locations (e.g., India, Philippines) offer a proven and established value proposition
  • For companies highly focused on cost savings, the arbitrage offered by offshore geographies remains unbeatable
  • Companies looking to set-up large scale centers (1,000+ FTEs) may not find many scalable options in nearshore regions, making offshore geographies more attractive
  • Several offshore locations are also becoming attractive for their domestic market opportunities. Thus, some organizations are leveraging offshore centers for dual purposes; for their UK operations and to tap into local sales prospects

Beyond the traditional offshore locations, there is increasing acceptance of South Africa, Egypt, and Mauritius as delivery locations for UK and other European buyers due to accent similarity and strong cultural affinity. But the battleground is now definitely becoming hotter between nearshore and offshore locations.

For more insights into the GIC space, please see the following additional Everest Group research:

  1. GICs Creating Business Impact Beyond Cost Arbitrage
  2. Quantification of GIC Impact Accelerates Internal Value
  3. Global GIC Market Activity Heatmap

Photo credit: Charles Clegg

The Changing Delivery Location Landscape of the UK Contact Center Market | Sherpas in Blue Shirts

To participants in and watchers of the UK contact center market, it’s obvious there are many changes afoot. These include the third-party service provider landscape, the nature of outsourcing deals, and the maturity of buyers.

One of the key changes Everest Group is seeing is in the locations UK buyers are leveraging for their contact center activities. Let’s examine the contributing elements.

Offshoring

UK companies only offshore 10-15 percent of their contact center work, which in actual job numbers equates to 70,000 to 90,000. Consider this quantity in contrast to the U.S., which offshores greater than 25 percent/400,000 to 500,000 contact center jobs – a comparison we make given English as the common delivery language – and the fact that offshore locations offer 70-80 percent cost arbitrage advantage over locations in the UK There are two clear reasons for the limited share of contact center offshoring from the UK:

  • Increasing buyer maturity often leads to increasing openness to move from outsourcing to offshoring. But as adoption of outsourcing in the UK has been relatively narrow due to comparatively lower buyer maturity levels, offshoring uptake has also been limited.
  • UK buyers place heavy emphasis on cultural and accent similarity, and native English language speakers. Although the U.S. has comfort level with the Philippines as a key go-to destination for contact center delivery, the UK has not yet found its “Philippines.” Indeed, while India still has the majority of offshored UK contact center jobs, pure voice delivery has decreased over the years, with buyers increasingly leveraging the country’s capabilities for non-voice contact center services such as website, e-mail, and chat support.

UK contact centers

However, the forward-looking view on offshore locations for the UK contact center market is much more promising. There is increasing acceptance of South Africa as a delivery location for voice-based and domain specific delivery (e.g., insurance), due to accent similarity and strong cultural affinity. Recent market activity, such as the Serco-Shop Direct deal, WNS’ acquisition of Fusion, and Capita’s purchase of Full Circle are indicators of this affinity. We expect India to continue its uptake of non-voice contact center services from the UK.

Onshoring/Nearshoring

Contact center work within the UK is moving to low-cost locations in Northern England and to other areas such as Scotland and Northern Ireland. While there is still a higher concentration of contact centers in Southern England (the Greater Thames region), this is more of a legacy effect rather than the result of new or recent activity. The new/greenfield activity is largely moving contact center work up north to Liverpool, Leeds, Manchester, and Newcastle-Gateshead in England, Glasgow, Edinburgh, and Kilmarnock in Scotland, and Belfast and Londonderry in Northern Ireland, driven by:

  • Lower operating cost
    • Salary: Locations in Northern England (e.g., Liverpool) offer 5-10 percent savings over established locations in Southern England (e.g., Twickenham), and locations in Scotland and Northern Ireland (e.g., Glasgow and Belfast) offer 10-15 percent savings
    • Real estate cost: Real estate rentals in the northeast (e.g., Newcastle) and northwest (e.g., Liverpool) are 10 percent lower than in the south of England (e.g., Twickenham); and rentals in Northern Ireland are 30-50 percent lower than locations in England
  • Sizeable agent pool: Birmingham and Leeds, for example, have considerable talent pools (40,000-70,000 experienced contact center agents)
  • Lower attrition and unemployment: Established locations (e.g., south of England) have higher contact center attrition and unemployment rates relative to other regions in the UK, thus influencing movement to areas north of England
  • Government incentives: Most less-established locations in the UK offer multiple incentives programs, such as employment and training grants, for contact centers. This makes their value proposition competitive, especially for greenfield operations. For example, Northern Ireland provides a one-time incentive of GBP 3,000-7,000 per job created in this sector

UK Locations leveraged by leading service providers

UK contact center locations

Everest Group believes that while onshore/nearshore delivery of UK contact center services will continue to remain the predominant model over the next three to five years, offshoring will grow faster. Buyers’ comfort with the offshore model, particularly with alternatives to India, such as South Africa, for voice-based services is likely to increase. Cost pressures are liable to propel buyers to adopt offshoring and other low-cost delivery alternatives, such as less expensive locations within the UK Finally, the market movement toward multi-channel contact center delivery capabilities, resulting in higher usage of web, chat, and e-mail customer support, will further support the growth of offshore delivery.

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