While shared services centres (SSCs) and business processes outsourcing (BPO) providers both perform a wide range of functions, their strategy has typically focused on achieving market share by tapping into cheaper locations with lower-cost, yet suitably skilled, labour. But the industry is evolving.

Five years ago, the US comprised 66% of the global outsourcing contract value; it now accounts for less than 30%. Meanwhile, Europe’s share has held relatively steady, says Duncan Aitchison, partner and president for EMEA at global sourcing advisory firm TPI. This shift, however, has not necessarily benefited European outsourcing service providers.

Advertisement

“Since 2005, their share has been cut in half,” he says. “By comparison, leading US outsourcing service providers saw their share contract by less than one-fifth.”

Meanwhile, Indian vendors have nearly doubled their share of broader market awards and enjoyed the same level of overall penetration as the leading European players.

Although many factors are at work, Aitchison concludes that the shift has less to do with geography and more to do with how well firms succeed in adjusting to new pressures and opportunities.

Nowhere is that pressure felt more strongly than in the financial services sector, as demonstrated by Citigroup and its BPO arm, Citigroup Global Services (formerly eServe).

India move

Last year, the US banking giant announced intentions to move 8000 positions to India for equity research, investment banking and back-office transaction-related activities as part of its goal to cut yearly expenses by $4.6bn during the next three years. Citigroup operates BPO operations in Mumbai and Chennai. Globally, Citigroup is consolidating and reducing its involvement in non-core areas – a widening trend that has influence on the SSC and BPO industries.

Mark Seeley, managing director for the labour analytics group of CB Richard Ellis (CBRE) Global Corporate Services in Phoenix, Arizona, says: “Corporate America is rethinking facilities in general, and how and where it employs people. Many are looking to save on costs and create efficiencies.”

While the number of domestic call-centre openings in the US in 2007 decreased by 44% compared with 2006, according CBRE’s Year End 2007 Call Centre Market Report, demand for back-office space and, especially, space in Tier 3 markets (those with a population of less than 250,000) is expanding.

The US offers a vast selection of Tier 3 markets where turnover is limited and skill sets are high. In fact, CBRE indicates that the rate of call centres opening in small Tier 3 markets increased in 2007 by 33%, compared with 25% in 2006. Although outsourced centres still dominate the small markets, insourced centres are increasingly getting in on the act. In 2007, 26% of all insourced call centres opened in Tier 3 markets, compared with just 15% in 2006.

Last year, for example, customer service management firm Alorica announced plans for the opening of an in-bound customer service centre in El Paso, Texas.

Headquartered in Chino, California, Alorica has 13 locations and more than 7100 employees worldwide.

Dedicated workforce

Andy Lee, founder and CEO of Alorica, says: “The workforce in El Paso is known for its quality and dedication. It is this reputation, combined with the support that we have received from the El Paso Regional Economic Development Corporation that brought us to El Paso.”

Meanwhile, competition among low-cost countries continues to intensify. CBRE’s Mr Seeley says: “It is getting tough to hire in India, the Philippines and markets where the industry is getting saturated and average turnover rates are higher than in many US locations.”

This was a concern to Convergys Corporation, which last year chose to open its eighth integrated contact centre in Cebu City, the Philippines — not Manila. The sheer volume of SSCs operating in Manila has resulted in escalating salaries and high attrition rates.

Stephen Slade, director for Cebu City operations at Convergys, says: “Our attraction is not just to expand but to take care of our employees.” The facility provides general support and advanced technical help desk services as well as back-office application and document processing.

The 2007 AT Kearney Global Services Locations Index contends that the key to maintaining and enhancing long-term competitiveness lies in skills development, infrastructure investment and the regulatory environment — not in attempts to control wages.

The study says: “Indeed, failure to improve the skills of the workforce and the business environment will likely translate to a loss of competitiveness in the fast-moving remote services business.”

Assessing needs

Workforce issues that could easily be a detriment to outsourcing centres can be turned to advantage as well. In Australia, for example, historically low unemployment rates are making it difficult for employers to fill jobs requiring certain skills. But by implementing a range of SSC solutions, IBM is able to fulfil job function needs by eliminating duplicate business processes, consolidating them and rolling out more efficient finance and human resource systems.

Consequently, last year IBM was awarded multi-million dollar outsourcing contracts with the National Australia Bank (NAB), Commonwealth Bank, and the Queensland government.

In the case of NAB, for example, IBM is taking over the management of desktop and service desk IT infrastructure, and help desk and desktop support for 28,000 users at the majority of NAB’s sites within Australia.

Glen Boreham, managing director at IBM Australia, says: “The concept of the globally integrated enterprise is resonating strongly with our clients.”

Quality and priorities

Of course, factors beyond cost savings and cheap labour can also come into play. Last year, SAP launched an HR SSC in Singapore for the Asia-Pacific region.

Although Singapore is not a cheap location, the city state offers a highly educated workforce with language skills and cultural diversity critical for the job, as well as a sound business environment.

The new centre follows the success of the based company’s existing Asia-Pacific SSC, which opened in Singapore in 2003. The goal of the centre is to create a supportive environment for SAP employees worldwide.