US Firms Shifting Hiring Abroad, But Is a Change Near?

Shifting Employment

In news that is no surprise to the outsourcing and call center industries, the Wall Street Journal recently released a report detailing the extent to which US based multinationals are shifting jobs from the US to abroad. According to new data from the U.S. Commerce Department, US multinational companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.

At the same time, the BPO industry in countries like India are facing the same issues that have long plagued the US workforce. Recent reports from the Associated Chambers of Commerce and Industry of India show a significant increase in attrition rates at Indian BPOs. From December 2010 until April 2011, Indian BPOs faced an increase in attrition rates from 40% to 55%. Similarly, there are reported shortages in skilled workers.

Further, wage differentials are tightening between onshore and some offshore centers, cutting into the financial savings that brought rise to initial waves of outsourcing.  According to the Financial Times, wages in India’s BPO sector rose 10% in 2010.

So, if multinationals face higher wages, increasing attrition, increased competition, and shortages of skilled workers when going abroad, will companies have less incentive to take US jobs overseas? Conversely, as the FT suggests, will overseas BPO firms increasingly look to the US for talent?

Probably not.  Capital will seek the most efficient labor markets over the long run.  In the US, high labor rates, uncertain tax regimes and potential health care liabilities prove to be formidable economic headwinds to retaining call center jobs onshore[1].  Jobs are likely to flow to those countries where supply of acceptable talent meets demand at the lowest marginal cost.

What we’re seeing is the maturation of labor markets. And the implications are critical for us to understand…both in terms of short-term costs and long-term strategy.

So, what does this mean?

First — companies will continue to search for opportunities to acquire the best possible supply of talent at the least possible cost.  This was not a singular shift from onshore to offshore, but instead the beginning a continual process…an arbitrage of global labor markets that will continue so long as there remain differences in labor rates for equivalent levels of quality.  Look no farther than the Philippines for a case study of this economic theory in action. Rising wages and tightening labor markets in India led to companies moving jobs from India to the Philippines, where quality levels are extremely high and wage costs significantly lower.  According to the Contact Center Association of the Philippines, the country now employs over 350,000 citizens in call-center jobs (as opposed to India’s 330,000).

In time and with continued investment, wage rates in the Philippines will assuredly normalize.  And then it will be on to the next market.  Maybe it’s Vietnam…maybe Malaysia…northern Africa…or nearshore in the Caribbean or Latin America.  The process (and search) will continue until there is global equilibrium.

Second — as labor markets evolve in the emerging markets, so do their talent challenges.  It should come as no surprise that workforce issues familiar to us in United States – quality of hire, time to fill, employee engagement, turnover – will become issues offshore as their labor markets develop and tighten.  These labor issues bring real economic costs that we cannot – and must not – ignore, lest we suffer the slings and arrows of our own neglect.

Now, what do you do?  Two things:

  1. If you haven’t focused on talent issues in your US call centers, do it.  Now.  A recovering US economy and lowering domestic unemployment (dropping from 9.8% in April 2010 to 8.8% in March 2011) mean that you need to think strongly about keeping your best performers in seat.  What is your cost of employee turnover?  Do you have an effective strategy to retain your best performers?
  2. Talent management isn’t just for onshore call centers anymore.  The Indian labor market is making the case very clear.  It’s time to take your human capital practices and adapt them for overseas labor markets.  Do you know how?  Key questions to consider are:
    1. How do I attract and select the best candidates for the job?
    2. How do I motivate employees to perform at the highest levels?
    3. How do I retain my best performers?

Interested in learning how CallMe! can help you answer these questions and achieve great operational success? Call us at +1.877.402.2563 or email info@callme.io.


[1] Of course, every organization must weigh the costs against the benefits of keeping call center jobs onshore such as English-language fluency, regional knowledge, and customer service ethic.