Business Analysis and Advice

Business Analysis and Advice

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Business Analysis and Advice

There has been much debate over the subject of banks moving their jobs
from call centers in the UK to new Call Centers in other mainly
eastern countries. The prospect of offshoring is not new to companies
but there is always a large debate on whether it can lead to good or
bad in the long run, with companies taking up positions on both sides
of the argument. Offshoring can sometimes be labelled as outsourcing,
but in fact the two are very different.

Outsourcing (or BPO - business process outsourcing) has been the
national solution, contracting the administration of a company to a
third party, frequently transferring staff and systems in the process.
The outsourcer can generate savings through more efficient processes,
management and economies of scale if the business is consolidated with
other similar processes from similar businesses.

Offshoring is the permanent or long-term relocation of operations to
low-cost countries such as India. Other countries that have been used
for offshoring recently are South Africa, China and the Philippines as
well as Eastern Europe. The main advantages are lower operational
costs through relatively low local wages, good availability of
well-qualified staff, and (sometimes) time zone advantages.

From this debate Natwest Bank have released a new advert showing that
they have 'people not robots' on the end of their phones to talk,
direct telephone lines to each branch, and that they haven't moved
their call center operations to India. India is now the most common
country that is referred to when talking about moving jobs offshore,
but there are other places that the jobs go to including the
Philippinesand China, and others. In one piece of research done by the
DTI (1) on the UK's contact center industry, it shows a comparison
between countries for their key competition markets and compares
countries such as Ireland, The Netherlands, but also usual places such
as India and South Africa. In the report they showed that call center
jobs in Ireland had the same basic costs with only salaries and few

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other costs varying marginally (1). In the Netherlands they found that
general costs including salaries were roughly the same, but rent was
hugely cheaper, with call center office space in Amsterdam coming in
at 30% of London office rental costs and 64% of Birmingham office
rental costs (2).

Why then would Natwest Bank ignore these cost savings and stay based
in the UK unlike other rival banks like HSBC? Well they are partly
relying on the old fashioned idea that you feel more comfortable
talking to a British person than a person from India. This is a fairly
good decision by the bank, as from research done by A & L(3) shows
that about 87% of people would not be happy having to speak to someone
abroad about their account, while a small 9% had no preference. In my
own questionnaire my results showed that 38% of people would prefer to
talk to a British Employee, and the other 62% had no preference (4).
This does not agree with the results Alliance & Leicester had
gathered. This may be because as they are a bank themselves their
results were not completely free from bias, as


to keep a positive attitude towards the company. However my results
may have also been flawed as there are only based solely on the region
of East Yorkshire whilst the Alliance & Leicester questionnaire would
have been national

[IMAGE][IMAGE]The main point though about moving call center jobs to
countries abroad (mainly India) is that huge savings in costs are made
with an average 40% saving in operating costs as wages in India are 10
to 15% of UK wages (5). From the evidence shown below (6), it is
apparent that the operating budget changes from the UK to India. This
shows that salaries account for over 72% of a typical UK call center's
operating costs, compared to 59% of an Indian center. The gap between
agent salaries is even more noticeable decreasing from 64% to 39%.
Other elements such as IT, telecoms and utilities are less noticeable
in change and some may even be more expensive offshore than in the UK.
Some of the main cost savings shown here and throughout the industry
are made in the difference of employee salaries.

[IMAGE]In a place like India the main cost advantages are wages which
are hugely different. From this source (7) it shows that Indian
employees are gaining little in comparison to UK employees and that it
seems as if the companies offshoring their services are exploiting the
people. This is not the case as the researchers who published this
source also stated that these employees are actually earning more than
most other jobs offered in that country at that specific age and
qualified status. However in my independent questionnaire my results


gathered showed that a staggering 58% of people believe that the
companies are doing this as they can get away with paying cheaper
wages, and the other 42% believed that companies offshored work as
they could increase their profits (8). This shows that people then
don't know that companies moving to eastern countries do pay good
wages relatively.

So with all this evidence pointing to mass savings through lower wages
and other expenditures why is it that Natwest has decided to stay in
the UK? Well one other reason for this is that other independent
research has shown that although India graduates can be just as or
even more productive than their UK counterparts, callers are more
likely to call back if they are calling an Indian call center. This is
what is called First-call resolution, and the levels of this
resolution range from 60% in India to 87% in the UK meaning that 27%
more calls made to UK center are resolved first time without he caller
having to call back (9). If the caller does have to call back this
pushes costs up as more employee time is in use, it reduces customer
satisfaction and can also lead to a demoralizing effect on the
employee taking the call.

What's more, although India boasts a highly developed IT sector, there
is a weak telecoms and electricity reliability, with regular power
cuts and interruptions to service. Voice and data bandwidth are also
restricted. In some places the tariffs that the company may have to
payout for international calls can equalize the labour cost
advantages.

There is also other research showing that 55% of customers in Scotland
would consider switching their account to another bank rather than
having their accounts managed in India. This switch is equivalent to
Lloyd's TSB losing 7.8million accounts to those of its competitors
which are staying based in the UK (10). This would be a huge loss for
the company, but in actual fact there would be little shift in
accounts as there was little shift when HSBC decided to move call
center jobs and other services to India. Also my questionnaire showed
that a mere 28% of people would even begin to consider moving their
accounts if their bank did more work offshore (11).

Furthermore UK employees answer 25% more calls per hour than Indian
call center employees, who also take an average of one minute per call
longer as well. These long call times don't just have a negative
effect on the Indian call centers because of additional costs but they
can also lead to lower customer satisfaction. On the other hand with
this in mind there is only a little difference between customer
satisfaction rates for the two countries call centers with India
having a 68% satisfaction rate whereas the UK has an 81% satisfaction
rate (12). Some UK companies feel that although the cost benefits may
be real, capital recovery could take a long time and that the
customer's experience may worsen.

With all this evidence is it a positive move for a company to offshore
work to India and other foreign countries? Firstly that would depend
entirely on the company in hand and what serviced they offer, but for
a bank then the answer would rely on the company itself and the
decisions made by the governing committee of that company. Natwest
believe it is a point they can market to customers, and they now have
some right to as there has been some recent reports of insourcing.
This is western firms taking back services previously offshored


to India. The two larger cases are Dell computers and the Lehman
Brothers investment bank. Companies should seize these examples and
record what ever may have gone wrong, including customer responses and
the media reaction using it as a template to base future decisions on
offshoring work.

So overall is it a good idea to offshore work to India? I would have
to say no as the evidence doesn't look good for companies thinking of
moving services out of the UK as it can influence customers to feel
negative about that company (13). There is an uncertainty of who you
are going to talk to on the end of a phone when calling call centers
with 69% of customers wanting to know if they are calling an offshore
location (14). With this large percentage wanting this option there
must be a negative feeling when calling an offshore location and it
can generally just make people fell cheery talking to a British
employee. However this has been taken on board by call centers now and
there are beginning to train their staff in British events such at the
weather, Coronation Street and even times of major football matches
(15). But this luxury training can also begin to equal out more costs
that the company may have saved, and this is why I believe that yes it
would be a loss to the company of Natwest if they did choose to move
out of England.
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