Back-office and customer care centers in emerging economies · 3 Back-office and customer care centers IBM Business Consulting Services • Learning and knowledge management – Enabling

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An IBM Institute for Business Value executive brief

Back-office and customer care centers in emerging economiesA human capital perspective for fi rms operating in Asia Pacifi c

The IBM Institute for Business Value develops fact-based strategic insights for senior

business executives around critical industry-specific and cross-industry issues. This executive

brief is based on an in-depth study created by the IBM Institute for Business Value. This

research is a part of an ongoing commitment by IBM Business Consulting Services to provide

analysis and viewpoints that help companies realize business value. You may contact the

authors or send an e-mail to [email protected] for more information.

Back-office and customer care centers IBM Business Consulting Services1

IntroductionThanks to reductions in telecommunications costs and advances in information technology, many companies have expressed a significant interest in relocating a number of business processes to lower wage countries. This interest has fueled the growth of both captive and outsourced processing and customer contact centers in emerging economies. However, this migration presents both opportunities and unique challenges.

Many firms are attracted to these locations by lower direct labor costs for a variety of back-office positions. For example, call center representatives in the Philippines can expect to earn approximately $385 AUD per month1 while their counterparts in Australia could earn an average of $3,200 AUD per month for the same activities.2 Similar wage differentials exist for other positions, such as insurance claim workers and accountants.3 However, IBM believes that establishing and operating back-office and customer care activities in emerging economies poses a unique set of human capital challenges that many companies are not considering as part of their analysis. Each of the key human resources (HR) processes, from identifying candidates to managing turnover, requires a blend of both standardized and localized policies, practices and interventions to help ensure a cost-effective, motivated workforce.

Growth in the Asia Pacifc customer care market

Four emerging economies in the Asia Pacifi c region are experiencing rapid growth in the customer care market:

India

India is perhaps the best known country in which to locate back offi ce and customer care services in

Asia. Fueled by a highly educated, English-speaking workforce, India has seen signifi cant growth in this

sector. India’s National Association of Software and Services Companies (NASSCOM) states that India’s

IT-enabled services market (which includes call center and business process outsourcing) grew by 70

percent from 2001-2002 to over US$1.46 billion dollars in revenue, and is expected to jump to almost

US$17 billion by 2008.4 Further, Indian employment is expected to grow from approximately 100,000 to

1.1 million in this sector of the economy over the next several years. Philippines

The last four years has seen contact center outsourcing in the Philippines grow at signifi cant levels,

outpacing the growth rate of any industry in the country in recent history. According to SPI Technologies

Inc., a Philippine company that provides business services such as call centers, “In the Philippines, the

number of people doing back-offi ce work for non-Philippine companies totaled just 25,000 in 2002. In

2003, this fi gure had risen to 39,500.”5 Growth is predicted to continue at an increasing rate, with the

Trade Secretary of the Philippines, Manuel Roxas II, projecting that the industry will employ 100,000

individuals by 2005.6

Contents

1 Introduction

3 Incorporating human capital into the site selection decision

6 Recruitment and selection

9 Learning and knowledge management

11 Employee retention

15 Global corporate leadership

16 Lessons for corporations

19 Conclusion

21 About the authors

21 About IBM Business Consulting Services

22 References

“The cost savings are hard to

pass up, but reality sets in with

ongoing management of a center

– kind of like buying a puppy.”

– Global HR Executive,

U.S. Multinational

“Failed centers are always due to

people issues … the technology

and logistical issues are well

understood by this point.”

– Partner, Global Business Process

Outsourcing Consultancy


Malaysia

Malaysia has begun to attract investment in both outsourced and captive customer care centers as

the result of their development of the Multimedia Super Corridor (MSC), a designated high-tech area

that will eventually stretch from Kuala Lumpur city to the recently opened Kuala Lumpur Airport in

Sepang.7 Currently, there are approximately 18,000 people employed by outsourced contact centers,

and the number is expected to grow at 40 percent annually through 2007 to 51,000 individuals. While

considered to have a smaller critical mass of English speaking individuals than India or the Philippines,

it offers a lower cost alternative for companies with operations in nearby countries, such as Australia

and Singapore. For example, Singapore’s leading telecommunications provider, Singtel, has relocated

up to 50 percent of its call centers to Malaysia.8

China

The call center market in China has recently emerged over the last several years. According to a

recent Datamonitor report, the Chinese call center industry employs approximately 46,000 individuals,

with an expected growth to over 100,000 by 2008.9 To date, China has played only a small role in

the outsourcing segment of the industry, as most outsourced contact center work has been focused

primarily on the English language market. However, given its abundant labor force and low start-

up costs, China is well positioned to serve the Chinese speaking market in Taiwan and Hong Kong.

Further, large existing pools of native Japanese speaking population in cities such as Dailian, coupled

with the short-distance transportation advantage, reduced telecommunications tariffs and good local

government support have attracted Japanese companies such as GE Japan and Matsushita to outsource

their call centers in China.10

To understand these challenges, IBM interviewed a range of operations and HR executives and line managers in Global 1000 companies, business process outsourcers in emerging economies and leading academics about the HR challenges of operating globally distributed back-office and customer contact centers. These individuals represented operations in a variety of countries, including Costa Rica, Hungary, India, Malaysia, Pakistan, the Philippines, Russia and Singapore.

In this study, we focused on the challenges and good practices associated with a number of key HR processes, including:

• Strategy – Understanding where centers should be located and how they should be organized

• Recruitment and selection – Determining where to find new candidates and how to screen potential employees


• Learning and knowledge management – Enabling the organization to educate employees and share good practices within and across centers

• Recognition and retention – Motivating and retaining individuals in competitive labor markets

• Leadership – Developing leaders that motivate employees and build a cohesive corporate culture.

Understanding the human capital implications of these operations has relevance to organizations that are setting up their own centers, as well as to those that are considering the use of outsourcing partners. For those organizations that decide to manage their own operations, human capital issues can directly influence the productivity and profitability of these centers. Without employing the proper recruiting, education, retention and leadership strategies, the ability to take advantage of any potential cost differential can quickly evaporate.

The issues addressed in this paper are also relevant for those firms that are looking to outsource back-office and customer care activities to a third party. Firms conducting due diligence on outsourcing providers will want to closely examine the prospective partner’s HR strategies and policies, as these will indicate whether the outsourcer is building a workforce that is capable, motivated and cost-effective. This is particularly important if employees from the center will interact with the firm’s internal or external customers on a regular basis.

Incorporating human capital into the site selection decisionOne of the messages that clearly came across during our discussions is the impor-tance of addressing HR issues as part of the strategy for locating a service center. Based on our interviews, four major site-selection considerations emerged.


Figure 1. Human capital considerations in site selection decisions.

First, firms need to determine total labor costs, which include not only direct wages and benefits, but also the potential costs of exiting a market (such as government-mandated regulatory costs associated with retraining and severance payments). Several individuals stressed that while this market is currently expanding rapidly, companies need to take into consideration potential exit costs in the event of a market downturn or if wages become noncompetitive.

Second, companies need to understand the composition of local labor markets, in terms of their size, education levels and the availability of language skills. While there may be large labor pools of available workers, those with specific language capabil-ities or managerial skills may be in relatively short supply.

Third, companies need to review their experience in managing existing operations and their corporate reputation in the area. As we highlight later in this article, an existing local presence, even in a non-related line of business, can have a strong impact on recruiting new employees, retaining existing talent and attracting in-house expatriates.

Site selection

Source: “Went for Cost, Stayed for Quality?: Moving the Back Office to India,” Rafiq Dossani and Martin Kenney, Asia-Pacific Research Center, Stanford University, November 2003; “The Global Back Office: Beyond the Hype,” Credit Card Management, 02 January 2004; IBM Institute for Business Value analysis.

Labor• Talent pool (quality, mindset,

availability)• Language skills availability• Labor flexibility• Attractiveness for expatriates

Cost• Labor costs• Corporate

infrastructure costs

• Costs of exit

Business environment• Regulatory framework• Macro-infrastructure• Incentives/Grants

Local experience• Existing local

presence• Demonstrated

ability to set up center


Finally, companies need to be cognizant of the overall business environment, which includes the current regulatory structure, tax incentives, the role of organized labor and transportation infrastructure. While in many developing areas there is currently little direct involvement of government and organized labor in this industry, several interviewees felt that, as the industry matures in various countries, additional scrutiny could be placed on issues such as working conditions, contractor benefits and exit decisions.

Another issue that should be considered is the extent to which the local workforce will be integrated into the larger corporate organization. At one extreme, service center employees might be fully integrated into the larger workforce and governed by the same local rules and regulations as other employees in the corporation. At the other end of the spectrum, center employees could be hired as contractors for a defined employment period and may even be managed by an outsourced management company. In the middle, there might be a situation where a company chooses to form a local subsidiary that has a different set of employment terms and conditions from the parent corporation and hires full-time employees directly into that subsidiary.

Many companies not looking at all of the issues

A recent survey of over 500 senior finance and HR leaders suggests that while 88 percent evaluated labor

costs and 79 percent analyzed the potential return on investment of moving to a lower-cost environment,

many fail to examine other critical human capital costs that can have significant impact on the overall

operation.11, 12 For example, only 34 percent assessed the cost of a plant or office shutdown, 33 percent

analyzed the impact on the local community or other stakeholders and 32 percent looked at the impact of

employee/union representation in the sending or receiving country.13

While the cost of ongoing operations may be one factor in the workforce integration decision, a number of other factors should be weighed as well – such as type of work and labor mix. Work that is more strategic in nature or closer to the end customer may require greater workforce integration. For example, one large multinational we spoke with uses full-time employees to process customer-facing transactions and contractors to process simpler, large-scale transactions. Local employment laws and practices may govern or limit the combined use of contractors and regular employees doing similar activities. In one of the emerging economies covered in our study, government regulations require that contractors be made full-time employees after six months on the job, which can have a significant impact on a company’s workforce integration decision. In addition, contracting opportunities may be less attractive to potential candidates who are looking for broader career opportunities within the larger corporation.


Case example: Leveraging customer care centers in India

Hutchison Telecommunications provides an example of a company that has made a commitment to

leveraging India as an important location for delivering customer service.”14 The Hutchison Whampoa

call center in Mumbai, which handles the fi rm’s 3G mobile service customers in Australia, is planning

to expand and triple its workforce to 3,000 by the end of the year. Starting next year, Hutchison is likely

to open centers in Pune, Hyderabad, Bangalore and Delhi. “Hutchison has decided to service everything

related to 3G from India,’’ said Sanjay Luthra, director of customer services. This means all customers

buying Hutchison’s 3G connections in Australia will have the full involvement of the Mumbai staff for

back-end services, ranging from billing problems and network information to handset glitches. Offi cials

at the call center view this growth as Hutchison’s strong vote of confi dence for India by moving a high-

risk, high-tech business project to the country.15

Recruitment and selectionIn our discussions, three critical points arose regarding the challenges of recruiting and selecting employees for centers in emerging economies.

Skill shortage Despite large candidate pools for entry-level workers, there is an ongoing “war for talent” in many of these labor markets. Reminiscent of the “dot com” boom in the United States during the late 1990s, many companies are finding it extremely difficult to find candidates with either back-office or call center experience. Furthermore, the availability of supervisory and/or managerial candidates is often quite limited. Given that the back-office and customer care industry is fairly new in many emerging economies, people have had limited opportunities to obtain the experience that is traditionally necessary to handle a second- or third-level managerial position. As one senior executive in a business process outsourcing firm commented, “The industry is just four to five years old, so there is a dearth of middle management. We are able to attract people at the entry and junior levels, but need to hire from parallel industries for other levels.” For many companies, these labor shortages are driving firms to hire employees away from other organizations, often using higher wages and signing bonuses as the primary lures to attract workers from the other firms. Companies are now trying to safeguard their workers from this “poaching” by proactively addressing retention issues.

Hiring in bulkThis shortage of workers is often compounded by the need to hire large numbers of workers in a very short period of time. Both outsourcers looking to add new business and companies looking to open captive centers highlighted the difficulty of being able to add anywhere from 100 to 1,000 qualified workers in only a couple of months.


To address this problem, firms are turning to a variety of recruitment channels and secondary labor markets to identify and screen candidates. Two of the primary channels are employment agencies and employee referrals. Both local employment agencies and global providers such as Manpower and Addecco are regularly used to build pools of potential candidates and conduct initial rounds of screening. However, many interviewees stressed the importance of employee referrals as the way to attract the best potential candidates. Employees are motivated to bring in friends and relatives for a variety of reasons. While recruiting bonuses may provide a short-term incentive, employees may want to demonstrate to peers and families the “validity” of their new profession. By recruiting others to work in the same location and industry, the employees are able to demonstrate that call center and back-office work is not only financially rewarding, but also socially acceptable. While hiring through employee referrals can present some negatives, such as an unwillingness to disagree with or challenge friends in the work environment, we did not come across any of these issues in our discussions.

Our interviews also highlighted another recruiting channel that, though not as widespread, also merits attention. In many countries, on-campus recruiting at the university level is just beginning to be used to attract potential employees. While less valuable in high-growth markets that require large numbers of candidates in a short time frame, university relations can help attract a regular volume of candidates, particularly in markets where foreign language skills are important. In one location, a call center was strategically placed near the campus of a local university to encourage students to work on a part-time basis. Other campus recruiting activities mentioned include guest lectures at universities, center tours and mentoring efforts. Overall, campus recruiting appears to be an emerging method for attracting candi-dates for call center and back-office work in many locations.

Finally, a number of organizations target expatriates as an important source of workers. One multinational firm has a “return home” program that targets individuals who were educated in the United States and worked for the company in the United States for a number of years. By seeking out employees, often with young families, who were looking to return to their native countries, the firms could better retain talented employees and migrate corporate talent to their operations in emerging economies. Another firm is targeting the spouses of expatriates and U.S. retirees who are interested in part-time work. Both of these programs are aimed at individuals who have a combination of work experience and strong English language skills and are interested in working in a new and dynamic work environment.


Figure 2. Recruitment channels and considerations for center employees.

Evaluation hurdleMany respondents indicated that the sheer number of potential candidates often dwarfed the firms’ capacity to screen and evaluate these individuals. Yet, despite the larger number of candidates, the ability to hire the right employees for poten-tially stressful, customer-facing positions remains critical. In fact, one organization commented that qualified people were such an important component of their business model that their candidate/hire ratio for entry-level positions in their contact centers was greater than 10:1.

To address the high volume of candidates, employment agencies often conduct the initial screenings, evaluating candidates on a variety of dimensions including voice tests, problem solving capabilities, teamwork skills, the ability to work within a Western-style organization and computer literacy, to name a few. However, the final interviews and decisions often remain with the hiring company.

Employment agencies

Employee referrals

Campus recruiting

Non-traditional channels

Advertising/Web sites

Internal transfers

• Account for more interviewees than any other channel

• Also conduct some screening

• Good source of interviewees• Usually good screening by employee

• Not yet as important in BPO context

• Being increasingly explored as labor market tightens

• Good source of interviewees

• Brings in seasoned management• Helps with corporate culture

• Widely used• Best at bringing in large volumes of interviewees

• Very important• Bring in the best quality interviewees

• Mostly used in undeveloped BPO markets• Diffi cult to use when recruiting to a contract that

requires quick ramp-up• May become more important as a source of

cheaper labor

• Includes “return home” programs (for employees who want to return to their native country) and targeting retirees, expatriate spouses

• Used in all markets• Better results in less competitive markets

• Can be made with an existing country presence• Also effective for hiring expatriates

Importance Comments

Source: “Social Capital at Work: Networks and Employment at a Phone Center,” American Journal of Sociology, Volume 105, Number 5, March 2000; IBM Institute for Business Value analysis.


Learning and knowledge managementAfter hiring the right candidates, educating employees is the next major step in building a productive workforce. While there are common training needs for both domestic and emerging economy centers in areas such as information systems, customer service techniques and the company’s products and services, employees at centers in emerging economies often have additional learning needs.

In some situations, employees need additional background on the particular industry or function in which they are working, because the equivalent business activity may not exist in their home environment. For example, an employee in an emerging economy working for a Japanese insurance company might have little, if any, under-standing of the Japanese insurance market. This could lead to potential errors and misunderstandings with internal or external customers, even if the individual’s language skills are appropriate.

Several firms with large U.S.-based customers are implementing additional training focused on U.S. regional differences and social customs. For example, one outsourcing firm in India provides several weeks of “accent neutralization” classes and training in how to deal with the cultural habits of their customers. Broader cultural training in American sports, geography and traditions is also provided to help employees communicate more effectively with their customers.16, 17 In some situa-tions, employees are even brought over to the United States during their orientation period to gain experience in working with particular processes and to become familiar with U.S. culture.

In our study, firms reported a multitude of challenges when orienting and educating employees. Often, the number of people being hired for these centers far outstrips the existing educational infrastructure of many firms, rapidly leading to shortages in the number of facilities, trainers and equipment. While electronically delivered distance learning can alleviate some of these challenges, bandwidth and equipment limitations can make it difficult for large numbers of people to get acclimated rapidly.

In addition, several interviewees discussed the fact that education cannot be a one-time event limited to an initial orientation period. As business processes and regulations change and as new clients are brought into the center, the need to keep knowledge current poses an ongoing challenge for many companies. Therefore, firms need to provide an ongoing learning experience to remain competitive.


Most of the organizations with which we spoke are directing their energies toward formal orientation and education programs. However, they did mention the increasing importance of informal knowledge management techniques as the industry evolves. They believe that high levels of attrition in many locations, coupled with the knowledge-intensive nature of many services, will require that processes, tools and incentives be put in place to preserve and distribute institutional knowledge.

Figure 3. Knowledge management challenges and activities.

Currently, a number of factors are hampering the informal sharing of knowledge among employees. Within individual centers, rapid growth makes it difficult to dedicate time and resources for formalizing knowledge management processes and activities and incorporating them into the day-to-day workflow. Furthermore, the time zone and cultural differences separating multiple centers around the globe often prevent sharing good practices across centers.

Despite these initial barriers, some organizations are putting the building blocks of a knowledge management infrastructure into place. One business process outsourcer holds regular meetings within the center to share common issues and solutions with contact center representatives and also sets up bulletin boards to capture and share knowledge about common customer problems. Another organization conducts

Center 2 Country A

Center 1 Country A

Center 4 Country C

Center 3 Country B

Geographic dispersion of centers impedes knowledge sharing across global organizations

High attrition leading to loss of institutional knowledge

Rapid growth making it diffi cult to put KM processes in place

Team meetings to share common issues and solutions

Team bulletin boards to capture knowledge on common customer issues

Regular meetings of center managers/process owners across geographies

Source: IBM Institute for Business Value analysis.

Challenges to effective KM

Informal KM activities


regular meetings with process owners from several contact centers to further the dissemination of good practices and suggest process improvements. Through these types of activities, interviewees believe that their centers can stay on top of leading developments, prevent “recreating the wheel,” and improve overall productivity.

Employee retentionPerhaps the greatest HR challenge facing globally distributed back-office and customer care centers is the retention of talented employees. Interviewees described attrition rates ranging from 15 to 50 percent in particularly active labor markets within countries such as India. While some attrition in this industry is expected and may be beneficial, firms are concerned about not recouping their up-front investments in people.

Clearly, employee retention is being influenced by a number of different factors. The demand for experienced individuals, particularly at the supervisory level, is prompting firms to use signing bonuses and salary increases to entice talented individuals to switch firms. Also, these back-office and customer care centers – particularly those that are focused on working directly with customers – are often high-pressure, stressful environments. Contact centers are often required to meet fairly stringent service level agreements regarding expected call volumes and average call length. These expectations cascade down to employees, and, as a result, many front-line workers face extremely demanding workloads. Given these conditions, many workers opt to leave the company soon after the firm has invested in their recruitment and training.

To cope with this high turnover rate, leading companies are beginning to develop comprehensive retention strategies. As part of this process, firms need to consider what they would deem an “acceptable” attrition level, determine the levers that will influence individuals to stay and then decide the appropriate mix of programs. These levers could include investment in training and development, job design and the work environment, as well as more direct levers like compensation and benefit levels. One lever that seems to be particularly important in the centers is the availability of career opportunities both within the centers and into other divisions within the firm.

Figure 4. Components of an employee retention strategy.

Worker compensation levels are rising steadily as the job market heats up in the more popular center locations. In some locations in India, for example, six-month reviews accompanied by raises of up to 15 percent are now the norm. However, in many firms, global compensation programs are not designed to address the magnitude or frequency of raises required to retain emerging economy employees. As a result, in the middle of a booming market, there is often a disconnect between the needs of the local center and the policies of the larger corporate parent. For example, we interviewed the manager of a multinational company’s center who feels constrained by the corporate policy that calls for reviews and raises on a strictly annual basis. The manager is increasing the number and frequency of one-time performance awards to try to mitigate the effects of the corporate policy.

Given the nature of work in the centers, the current state of the local infrastructure and the competition for qualified workers, many firms need to offer benefits that might not be traditionally offered in the West. Because of the prevalence of night-shifts, transport to and from work and subsidized food in cafeterias that are open around-the-clock are becoming fairly common benefits in larger centers. Companies also often sponsor social events for employees and their families to boost morale for workers who are well-paid but often feel that they are not fully exploiting their educational backgrounds.


Description Comments

Attrition level

Education and development

Career opportunities

Compensation

Benefi ts

Job design

Work environment

• What is the “appropriate” attrition level for the center?

• What training and development opportunities should be offered?

• What career opportunities should be offered?

• Where should compensation be set?

• What benefi ts should be offered?

• How can the work be made more varied, challenging, and meaningful?

• How can the work environment be improved?

• The industry may inherently have double digit attrition – how low to set the target?

• Depends on the type of work and expected tenure of employees

• Depends on what pathways are possible and on other activities in the country

• Below market (risky, even with an otherwise strong value proposition)

• At market (need to adjust frequently, but works with a strong value proposition)

• Above market (may help if the value proposition is otherwise weak)

• Should at least match industry norms

• Diffi cult to do given the frequent gap between worker qualifi cations and the work

• Better safety, culture, workplace quality, etc. can be differentiating factors

Source: IBM Institute for Business Value analysis.

In some countries, employee associations that are funded by the firm offer and manage benefits such as subsidized loans and exercise facilities. Benefits that are helping employers differentiate themselves in emerging markets include health insurance coverage, retirement plans and employee stock purchase plans.

The frequent gap between worker qualifications and work requirements often leads to ambitious workers actively seeking better career opportunities. This yearning provides an edge to employers who offer greater career opportunities. In our study, we found almost unanimous agreement that being able to offer these career paths was an effective, albeit challenging, way to improve retention.

Some of the firms we interviewed offer workers career opportunities not just within the center, but also in other business units and functions within the country. A few firms are able to offer international opportunities to high performers, often using them to seed new centers in other countries with seasoned employees. One major challenge to offering career opportunities outside the center is differences in pay bands, which can make it difficult to find an appropriate level for transfers or promo-tions across regions.

Figure 5. Potential career pathways for center employees.


.....

International opportunitiesLocal opportunities

Promoted to center management

In-country operations Foreign operations

.....

Sales Tech BPO Admin BPO

Transfers to country sales team

Becomes expatriate manager at new center

Joins country HR team

Source: “BPOs innovate to tackle attrition malaise,” rediff.com, 22 March 2004; IBM Institute for Business Value analysis.

New


Some centers are improving job design to set themselves apart from their compet-itors. For some companies, focusing on making the work varied, challenging and meaningful improves retention and boosts employee satisfaction. Some of the good practices we observed included allowing workers to cross-train or transfer between teams, encouraging worker creativity in solving customer issues and communicating the relevance and importance of the work in achieving corporate goals. Publicly acknowledging individual worker achievements and celebrating team and center achievements can also help improve morale. In addition, the work environment itself also makes a difference to retention. A safe workplace with good ergonomic design, a fun and dynamic work culture and appropriate performance measures are all part of the intangibles that affect retention.

A fun and dynamic work culture is particularly important for retaining night-shift workers because work often ends up being their primary social outlet. Indeed, the effects from working regular night-shifts are becoming a growing issue for centers providing 24-hour coverage to the West.

Studies in the United States suggest that employers of shift workers face higher costs from absenteeism, lost productivity, high turnover, accidents and health care.18 Some of these problems are now being observed at centers in emerging economies and are getting an increasing level of coverage in the press.

In more traditional societies, the emergence of a young, affluent group of night-shift workers with regular exposure to the West (in fact, training in how to act Western!) is creating new stresses on family life and between generations. Female call center workers in India, for example, may be the first large group of female white-collar workers in the country working a night-shift; a practice with which traditional Indian society is still wrestling. According to a leading Indian news magazine writing about problems faced by business process outsourcers working night-shifts, “Distasteful comments by prying neighbors add to the frustration, especially for women.”19 Some of the more progressive centers are beginning to counsel workers on how to manage a shift life-style and are adopting best practices for work scheduling and office ergonomics.

While most retention levers are within the control of the firm, one innate advantage enjoyed by multinational companies is the perception that they are better places to work. The cachet of working for a multinational is a common theme in most countries we studied. While not always borne out in reality, multinationals are perceived to have better work environments with better pay and benefits, greater job security and


better career paths. Multinationals are also thought to pay more attention to training and developing their employees, resulting in a better work experience and improved future employability.

Global corporate leadershipGiven the limited pool of experienced middle managers in the labor market, the inability to hire and develop mid-level management is an issue for many of our inter-viewees. Some companies rely on bringing in outside hires while recognizing that it is more difficult to assimilate individuals who are new to the corporation, especially during periods of high growth. Other companies use centers as a training ground for managers from other business units, allowing high-potential workers to gain experience earlier than they could within their own units. In both situations, finding individuals who have the requisite managerial skills and can help build a common corporate culture within the center is a difficult task for many firms. This lack of managerial talent is further exacerbated by the lack of management development programs that are tailored for and made available to these nontraditional locations.

Many companies supplement their existing local managerial base with expatriate employees. Although most multinationals have programs that help employees manage their expatriate assignments, companies should consider additional issues in some countries. For many workers moving to areas within emerging economies, quality of life is a primary concern, and safety, infrastructure and the availability of basic necessities are all factors that affect the attractiveness of a given location. Firms should evaluate both the employee’s current family situation and prior work experiences in emerging economies when looking for potential candidates.

Most expatriates are also looking for interesting and challenging work that will help their career growth, so expatriate opportunities have to be designed to provide the appropriate mix of opportunity and comfort. Several of our interviewees also indicated that it is difficult to find expatriates for stints longer than a year, suggesting it is important to have a plan in place for expatriates to proactively train local replacements.

The challenges to growing local leadership go in tandem with the difficulty of estab-lishing the global corporate culture in a high-growth environment. Often, there is no critical mass of established employees and managers, so extra effort is required to infuse the corporate culture. This can be particularly important in countries where Western ethical and business conduct expectations might not be aligned with the

“We’re working with our

expatriate managers to identify

and nurture replacements …

we want to move from being

expatriate-heavy to being local

(manager)-heavy.”

– Center Manager,

U.S. Multinational


country’s traditional business norms. Since leadership plays a central role in estab-lishing and maintaining the corporate culture, it is especially important to provide additional support in a fast-growing environment where many managers may be new to the company. Many of our interviewees also stressed the importance of incorporating positive aspects of local culture into center culture rather than trying to transplant the global culture wholesale.

A comprehensive employee communications program helps to support the promotion of corporate culture in several ways. Not only do communications encourage a local understanding of the global culture, they also build a sense of unity across the center and country.

Many of the professionals we interviewed stressed the importance of regular, direct communication between workers and management. For instance, they encourage presentations or roundtables with employees as part of visits from regional and global executives. Interviewees stressed that employee communi-cations should be customized for the country and the center to help ensure that the key messages are relevant in the local environment. Furthermore, the mode of communications should match the needs of the employees. For example, bandwidth issues and limited access to e-mail may require an increased reliance on more traditional channels of corporate communication, such as employee

newsletters and bulletin boards.

Lessons for corporationsBased on our research, we identified four important lessons that organizations should consider when deciding to open and operate a center within an emerging economy. These lessons cut across each of the major HR categories and provide the framework for addressing the challenges posed in each of the previous sections. The lessons are: 1) actively manage the challenges of hyper-growth of a new industry within the context of an emerging economy, 2) make decisions based on factors beyond wage differentials, 3) provide clearly defined development and career opportunities for local and expatriate staff and 4) leverage the global corporate reputation and local experience in the receiving country.

Actively manage the challenges of hyper-growth of a new industry within the context of an emerging economy Over the last several years, the number of back-office and customer care centers in emerging economies has grown significantly. With this growth, however, comes a host of challenges.

“Building the right culture has

much to do with the strength of

leadership. If you can develop

strong leadership, the culture

will follow.”

– Asia-Pacific HR Executive,

U.S. Multinational


As organizations continue to build captive centers, and business process outsourcing providers offer services to others, there will be significant demand for qualified and experienced labor. In the short term, this suggests that hiring, educating and retaining talented and motivated employees will continue to be a challenge. Firms will need to retool their traditional HR processes to deal with these challenges, particularly when they have little experience working in the country.

Furthermore, as they continue to grow, organizations will have to rapidly develop a new generation of leaders and foster a corporate culture in dynamic, high-turnover labor markets. We believe that companies succeeding in this environment will be those that proactively address growth-related issues and avoid playing catch-up in these turbulent environments.

Make decisions based on factors beyond wage differentials As we heard in many of our discussions, firms are often lured to emerging economies by the promise of low-cost, highly skilled labor. However, making decisions based solely on labor rates can lead to poor outcomes.

In many emerging markets, labor costs are increasing rapidly. While these costs are still significantly lower than those found in industrialized countries, escalating wages can make a decision to locate in a particular country today look dubious in two or three years. A poor decision can be further exacerbated by potential exit costs should a company choose to relocate later.

In addition, a host of human capital factors beyond direct labor costs can influence center profitability, including the availability of talented employees, training costs, transportation and other infrastructure costs, government regulations and previous experience in executing the work itself. Leading firms consider a range of variables when making the decision to source and locate back-office and customer care facilities. They also recognize that wage increases are not the only means at their disposal to retain valued employees. In fact, we found that wage parity is necessary but not always sufficient to hold on to workers who are routinely solicited for jobs at other companies. Firms need to consider such factors as the role of benefits, job design, employee communication, career opportunities and the like to keep employees both motivated and committed.


Provide clearly defined development and career opportunities for local and expatriate staff From an attraction and retention standpoint, our research suggests that no other differentiator is as strong as the potential for career development and progression. Given that many of the employees being hired into centers in emerging economies are university graduates, they are often looking for opportunities to develop marketable skills and the opportunity to advance their careers. Individuals who are initially attracted to these centers because of the industry’s explosive growth can end up disillusioned if they are relegated to stressful, front-line positions where there is limited employee development and scarce potential for promotion.

Companies that demonstrate their commitment to training and education and offer opportunities for internal career progression and mobility can gain an edge in attracting and keeping the best and the brightest. We found this to be true both for captive centers and centers that provide outsourcing services. Given the current war for talent at the supervisory/middle-management levels that permeates many emerging markets, the ability to promote from within can have important cost and experience curve benefits.

Firms also need to think through how they can best attract and leverage expatriate workers in these environments. As this industry continues to grow, the need for experienced managers will have to be balanced with the need to provide expatriates with challenging assignments that address their family needs and career aspirations.

Leverage the global corporate reputation and local experience in the receiving country Overall, local experience makes a difference. In determining potential locations for a back office or customer care center, organizations need to consider where they may already have operations they can leverage rather than starting in a new and unfamiliar environment.

Our discussions suggest that firms that have been operating in emerging economies for several years appear to have a number of distinct advantages over their newly arrived competitors. Having a local presence can help foster the organization’s brand, making it easier to attract strong candidates to the company. Experience in a particular geography can also make it easier to identify and work with local partners, such as universities, employment agencies and training vendors that can help manage a large influx of new employees. In addition, a local presence can make it easier to cultivate and transfer managerial talent by staffing the new


center with talent from other corporate divisions within the same geographic area. Local supervisors and middle managers can facilitate the transfer of corporate culture to the new center while making sure that local nuances are woven into policies and corporate communications.

One of the more interesting findings from this study is the importance of corporate brand in attracting and retaining employees. Many of our interviewees talked about the importance of corporate reputation, particularly as it relates to the presence of multinationals. Employees are often attracted to these corporations because they are perceived as providing higher levels of employee education, having greater business stability and offering greater job advancement opportunities. Also, individuals who might be unsure about joining a profession that previously had little or no standing in the local culture could point to the presence of a multinational as a means of building social acceptance.

At the same time, however, multinationals need to be cognizant of protecting their brand image in the local marketplace. They need to align local business practices with their corporate ethics and standards. Furthermore, these corporations must remember that they are part of a local business community and that their actions can have significant repercussions throughout an emerging economy.

ConclusionThe issues discussed in this paper apply to companies that are considering migrating centers to low-cost countries, as well as to those which have already taken that step but want to improve their operational execution. If your company is pondering the first step in establishing a center in an emerging economy, the following questions can help focus attention on critical human capital issues:

• Is your company going through a rigorous process to select possible center locations?

• Does your company have expertise in managing a mixed workforce of employees and contractors?

• Does your company have the ability to offer a strong employee value proposition?

• Does your company have the ability to recruit and train large numbers of people within a short time frame?

• Can your HR team effectively manage attrition levels in a hyper-growth environment?

• Does your company have a proven ability to develop local leadership teams?

• Does your company provide your current employees with the appropriate support to be expatriates in emerging economies?

• Can your corporate culture be effectively infused in a hyper-growth situation?


If your company already has centers in emerging economies, these questions can help you evaluate your existing human capital management practices:

• How effective is your company at managing the recruitment, retention and logisti-cal challenges of hyper-growth?

• What factors other than wage differentials has your company taken into account when selecting the location? Is the company taking a comprehensive view of the factors for future decisions?

• Are you providing high-quality development and career opportunities to your staff to improve retention and provide better client service?

• Are you applying local experience to your operations?

• Is your corporate brand an asset for your recruiting and retention activities?

If you are working with a partner, it is important to know whether the partner is prepared for the human capital challenges of an emerging economy and has the capabilities to address them. Questions to help assess prospective or current partners might include:

• Is your partner conducting an impartial assessment of possible center locations?

• Does your partner have a track record of managing a mixed workforce of employ-ees and contractors?

• Does your partner have the ability to recruit and train large numbers of people within a short time frame?

• Does your partner have the resources to support a large ongoing training effort?

• Does your partner have a comprehensive retention plan in place?

• Does your partner have a plan to develop and promote local leadership?

• Does your partner have ethical and business conduct guidelines in place and enforce them?

• Does your partner have an employee communication plan in place to support the corporate culture?


For help with any of these questions or to discuss how IBM Business Consulting Services consultants can help you plan for human capital challenges when considering relocating business processes to emerging countries, e-mail us at [email protected] or visit our Web site at:

ibm.com/bcs

About the authorsEric Lesser is an Associate Partner with the IBM Institute for Business Value. In this role, he leads research and intellectual capital development on a variety of human capital management topics. Eric can be contacted at [email protected].

Rajeev Parlikar is a Senior Consultant with Strategy & Change within IBM Business Consulting Services, where he leads client engagements that focus on business strategy development and execution. Rajeev can be contacted at [email protected].

Meredith Payne, a Senior Consultant in the Human Capital Management practice within IBM Business Consulting Services, also contributed to this report.

The authors would like to thank Obed Louissaint for his assistance throughout the project.

About IBM Business Consulting ServicesWith consultants and professional staff in more than 160 countries globally, IBM Business Consulting Services is the world’s largest consulting services organi-zation. IBM Business Consulting Services provides clients with business process and industry expertise, a deep understanding of technology solutions that address specific industry issues and the ability to design, build and run those solutions in a way that delivers bottom-line business value.

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6 Teves, Oliver, “After Philippines Dusk, The Call Center Day Begins,” Associated Press Newswires, December 5, 2003.

7 “Opportunities in Asia Pacific call centers markets to 2008”, Datamonitor, February, 2004, p. 97.

8 Ibid, p. 73.9 Ibid, p. 75.10 Frost and Sullivan, “Redefining The Competitive Edge of Companies in

China - Customer Contact Management Strategy,” December 2003. http://www.callcentres.net/CALLCENTRES/LIVE/me.get?site.home&CALL946

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13 Ibid. 14 Sainsbury, Michael, The Australian, June 8, 2004. 15 The Contact Weekly, Issue 158, September 23, 2003. http://www.

callcentres.net/CALLCENTRES/LIVE/me.get?site.sectionshow&CALL6171416 Friedman, Thomas L., “30 Little Turtles,” New York Times, February 29, 2004. 17 McKay, Jim, “All day, all night, the phone calls come in,” Pittsburgh Post-

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