Tread Carefully if Traveling Offshore

  An American executive traveled to India recently, hoping to cement relations with local employees at his firm's new call center there. Soon after arriving, he found himself scanning a dozen eager faces arrayed around a conference table.
  As he urged his workers to cast aside preconceptions, the executive fell back on a familiar phrase. "There won't be any sacred cows," he said earnestly. Faces fell, eyes widened and jaws went slack. His listeners were aghast at the unintended stereotyping.
  Cultures do not always clash with as much force as in this reportedly true story, but North American card issuers should remain vigilant when taking collection efforts offshore, according to industry experts seasoned in the ways of globalization.
  The challenge appears bound to intensify as offshoring increases in the next few years, says Dennis Grady, executive vice president of Global Vantedge Inc., a Larkspur, Calif.-based agency that offers collection and other credit services. The company employs five workers in the United States and 1,000 abroad, mostly in India.
  Grady says offshoring, the practice of using technology to farm out chores to workers in distant countries to reduce wage costs, started 20 years ago with information technology. The concept moved into telemarketing and telesales seven years ago and made its first appearance in collections four years ago. Offshoring could enter the collection mainstream in the next 12 to 18 months, Grady says.
  Some of the accounts receivable management firms working credit card debt from offshore locations include Convergys, ICICI OneSource, NCO Group, Outsourcing Solutions, Van Ru and West Corp., according to a recent report from Kaulkin Ginsberg Co., a Bethesda, Md.-based consultancy.
  Hard numbers on the scope of offshoring remain difficult to come by in the credit card industry, according to a spokesperson for ACA International, a Minneapolis-based trade association for the credit and collection industry.
  Yet no one doubts the swiftness of the shift to outsourcing. "Our clients are pushing in that direction," says John Smith, president of FMS Inc., a Tulsa, Okla.-based receivables-management company. "They're asking for lower costs and improved efficiencies."
  Even with today's apparent rapid growth in offshore card collections, however, the segment remains a small part of the total collection business for card issuers. Less than 1% of the industry's collections are performed by offshore call centers, according to a May study by David Farlow of Farlow & Co., a St. Paul, Minn.-based collection consultancy.
  Experts recommend that issuers take a hard look at the business case for offshoring before venturing into it. Employee expenses drop from $90 per hour in the United States to $15 per hour offshore. The real costs of offshoring run higher, they say, and issuers should remember that the fixed portions of that $90, such as information-technology needs, do not evaporate.
  Offshoring has grown prodigiously by duplicating the results and undercutting the costs of domestic efforts in early-stage collections, where call-center workers with limited English skills can work from a script, says Paul J. Fiumano, president of Streamline Consulting Inc. of Tampa, Fla.
  Success abroad has proved elusive, though, in the more complex work of late-stage collections-bills 90 to 180 days in arrears-and with recovery of written off debt, according to Fiumano.
  Card issuers enter the broader world of offshore collections either by starting their own call centers abroad or by hiring collection agencies with offshore connections. Even with the help of a third-party agency, experts caution, issuers should prepare to send some of their best people abroad for extended stays, at first to teach and later to monitor.
  Issuers tend to hedge their bets by outsourcing only a portion of their delinquent receivables, whether offshore or on, observers say. That allows issuers to maintain in-house collection capacity that can prove convenient if the market or technology changes.
  Issuers also can set in-house benchmarks to measure the performance of third-party agencies, Global Vantedge's Grady says.
  Plunging into outsourcing in a big way almost inevitably leads to losses at first but later can pay off handsomely, Steve Basilotto, managing director, HSBC Cards Services, said during a presentation in October at SourceMedia's 14th Annual Credit Card Collections Conference in Orlando, Fla. Prospect Heights, Ill.-based HSBC's offshore results resembled a J-curve, with steep initial losses followed by soaring success.
  However, that does not mean every issuer should rush to Asia, Basilotto warns. HSBC operates its own facilities abroad, employing 18,000 offshore workers. But issuers who need the help of a hundred or so call-center employees in Asia should work with an agency instead of becoming do-it-yourselfers, he says.
  Begin any offshoring venture by defining the goals, advises Basilotto, who has worked at offshoring for three years. Cutting costs is an obvious objective, and he says he has shaved $3 million in expenses from HSBC's collection operations. Still, he needed to send 100 of his American employees to Asia to accomplish that cut.
  Basilotto expects those expatriates to show profound commitment. He recommends that issuers or agencies send Americans who already have proven their collection expertise and who can embrace assignments of two to three years in another country.
  Success also requires an analytical approach, with testing and controls, and a focus on training local citizens to replace the American employees who get the job under way, Basilotto says.
  Issuers who take the more cautious approach of hiring an American collection agency with contacts abroad also should exercise caution, says Grady.
  When choosing an agency, Grady says, look first for competency in the collection business and next for experience at applying the trade offshore. Expect to work long and hard with the agency, a situation that demands a good fit with the agency's corporate culture, he says.
  Data integrity has been a non-issue in offshoring because companies operating abroad comply with the same encryption standards as American companies, industry experts say.
  "The processes and procedures in computer operations in India are much tighter than in the U.S.," says Farlow. "People don't bring backpacks onto the floor, any paper they might have is numbered so the supervisors are sure each page is returned, the disc drives are disabled, camera phones are banned."
  Indian call centers also can be better than their American counterparts at handling compliance issues, says Farlow. Indian business culture often is more disciplined than that of the West because Indian society is more process-oriented and rules-based, he says.
  Legal issues sometimes cause distress in offshoring, says Smith of FMS, the collection agency. His company recently signed its first contract to send some of its collection functions to India. That agreement came after a couple of years of searching for the right partner and only after Smith had balked at signing a contract based on Indian law.
  Some Americans object to receiving collection calls from staff members with limited English skills, but many in the industry dismiss such complaints. "Remember, you're calling a debtor," says Hank Markowe, FMS executive vice president. "He still owes the money whoever calls him."
  Americans complain that offshoring moves jobs overseas, but the number of jobs leaving remains small in the collection industry, experts say. And, they add, globalization brings research and design jobs to the United States.
  Many in the industry note the inability of some call-center employees in India to perform well in phone conversations that deviate from a prepared script. An aversion to confrontation in Indian culture also limits effectiveness in later-stage collections that could require negotiation, experts say.
  Those issues are prompting some collection agencies to consider offshoring to the Philippines, where workers are more attuned to American culture than are most residents of India, says Fiumano, the consultant.
  However, the Philippines offers a smaller pool of workers qualified for call-center jobs, and fewer English speakers are entering the labor force there than are in India, observers say. Also, wages are slightly higher in the Philippines than the $1 to $1.50 per hour paid in India, they say.
  Nearshoring, the placement of call centers in locations closer to the United States, such as the Caribbean, also offers advantages over India, Fiumano says. Companies would spend less on air fare to transport executives back and forth, he says.
  Searching for new offshore locations is to be expected, Fiumano says, because wages tend to rise as employees gain experience. Also, once an area is known for call centers, competitors crowd in and try to lure away employees, putting further upward pressure on labor costs, he says.
  Although uncertainties abound, experts say offshoring soon may become common practice in the card-collections industry. The hope is that the changes do not lead to another slaying of the "sacred cow."
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