Offshore Outsourcing Divides Teleservices Industry

Opinions on offshore outsourcing are splitting the telemarketing industry at a time when politicians are responding to fears in the electorate about U.S. jobs being lost overseas.

The dividing line often falls between larger service agencies that can afford offshore call centers and smaller shops that are limited to domestic locations and thus are threatened by cheaper labor in foreign markets.

Offshore outsourcing gained national headlines last week when Secretary of State Colin Powell, while visiting India, promised that outsourcing would continue but asked India to open its markets more to foreign investment. India has a booming call center industry that services the U.S. market.

However, the presumptive Democratic nominee for president, Sen. John Kerry of Massachusetts, has called for federal legislation to curb offshore outsourcing, recently referring to companies that send jobs overseas as “Benedict Arnolds.”

Divisions in telemarketing on the issue have created a dilemma for its trade organizations, the American Teleservices Association and the Direct Marketing Association, which cannot take a stand without offending some portion of their membership.

ATA membership is split about 50-50 on the issue, said Tim Searcy, the association's executive director. As a result, the ATA has taken no position on the merits of outsourcing.

“The ATA's position is that outsourcing is a much bigger issue than the call center business,” he said.

The ATA is lobbying the government to ensure that companies outsourcing overseas receive equal enforcement under telemarketing regulations such as the national no-call list. Offshore call centers shouldn't have a regulatory advantage over U.S. providers, Searcy said.

In contrast, the DMA has lobbied at the state level against legislation that would harm direct marketers who want to outsource, DMA spokesman Louis Mastria said. Individual U.S. businesses know best whether offshore outsourcing makes sense for them.

“We would be very skeptical of any laws that would hinder the ability of any company to make a decision such as this, especially in a tough economy,” he said. “It takes away one of the tools American businesses have.”

Companies that have located offshore say they had little choice. Cutting prices is impossible using U.S. labor, even when call centers are in areas where jobs are scarce.

“Clients were pushing us,” said Hayley Weinper, senior vice president of sales and marketing for Influent, Columbus, OH. “We did it as a matter of survival.”

Weinper's company has six U.S. call centers representing most of its seats. However, it opened a center in the Philippines last year and plans to open another in Panama.

Small service agencies cannot hope to compete with labor overseas, where college grads staff call centers for $3 per hour, about $10 per hour less than their U.S. counterparts who often lack college degrees, said Edd O'Connor, president of Consumer Advantage Research & Marketing, Cincinnati.

O'Connor, whose company formerly was known as Tel-A-Sell, said he has a problem with sending U.S. jobs overseas to preserve profits.

“I get offers all the time to send stuff over there,” he said. “But I want jobs to stay in America. If we have to go out of business, that's the way it is.”

Estimates on how many U.S. jobs are threatened by offshore outsourcing vary. An oft-quoted November 2002 Forrester Research study predicted that 3.3 million U.S. service jobs and $134 billion in wages would move offshore by 2015.

Last week the Associated Press reported that U.S. companies have hired 170,000 workers in India for service jobs and that industry groups expected the figure to grow to 1.1 million by 2008. Much evidence is anecdotal, and the U.S. General Accounting Office is working on a study of outsourcing's effect on the U.S. economy, with results expected this spring.

Nevertheless, U.S. lawmakers are pushing ahead with legislation aimed at limiting offshore outsourcing. Teleservices particularly has been targeted with “location disclosure” bills that would require call centers reps, inbound and outbound, to identify their location to consumers.

The “Call Center Consumer's Right to Know Act,” proposed in the U.S. House of Representatives and Senate, would require such a disclosure at the start of every call. In addition, 20 state legislatures have location-disclosure bills pending, and some would require overseas call centers to reroute calls to a U.S. location upon consumer request. However, questions exist about whether states can regulate international trade, which in the past has been the province of the federal government.

It's unclear whether such bills would deter offshore outsourcing. Considering that U.S. manufacturing jobs began moving offshore years ago, teleservices is actually late to the game, Weinper said.

The desire of U.S. consumers and companies for cheaper prices is one of the main forces driving teleservices providers overseas, she said.

“We have to go where the revenue is,” she said. “We have to go where the clients are. We have to respond to the market.”

Ironically, another factor is U.S. lawmakers, whose implementation of no-call restrictions on telemarketers is driving business overseas, O'Connor said. Companies that use telemarketing want to cut costs in case they have to pay fines for violations.

For small outbound agencies, options are limited. Business-to-business and other specialized markets unaffected by the no-call list got flooded after the list launched in October as providers moved away from business-to-consumer outbound telemarketing.

O'Connor said he is trying to move his business to inbound. He also is partnering with other small agencies and pooling resources so they can collectively take larger projects that only a major call center could handle otherwise.

In the end, Americans, and especially corporate America, will have to decide whether they want small, U.S.-based businesses to exist in the era of outsourcing, O'Connor said.

“Do we want to keep the entrepreneurial spirit?” he said. “Do we want these businesses to survive?”

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