With all of the attention offshore outsourcing has been getting lately, CollectionIndustry.com wanted to assemble a group of leaders who are actively participating in offshore and nearshore outsourcing activities. We hope that this discussion will provide the debt collection/Accounts Receivable Management community with expert advice on what is needed to develop a successful nearshore or offshore debt collection servicing capability.

The panel we assembled consists of industry leaders with in-depth experience in providing various debt collection and ARM services from a nearshore or offshore location. Included in the discussion were Anthony Marino of Nationwide Credit, Inc. (NCI), Bob Mauch with AllianceOne, Inc., Karen Powell of Keane Worldzen, Andy Szemenyei from Portfolio Management Canada, Inc., and Rob Yarmo with Global Vantedge.

Moderating the discussion was Mark Russell, an Associate with Kaulkin Ginsberg.

The panel discussion is also available for download in PDF format. Download PDF (9 pages, 158kb)


 

Mark Russell: I want to thank all of you for joining us today. Let’s start off by having each of you introduce yourself and your company, and briefly describe what each of your companies is doing right now from a near-shore/offshore perspective.

Anthony Marino: This is Anthony Marino with NCI. We’re presently in the U.S., Canada and India and are close to expanding our reach to the Philippines, South Africa and Latin America.

Mark Russell: Anthony, does NCI have a partnership or ownership structure in place with these near shore/offshore locations?

Anthony Marino: The same investors who own NCI own our relationship in India. Having said that, we are in the process of acquiring that relationship.

Mark Russell: Thank you. Rob?

Rob Yarmo: Yes, this is Rob Yarmo with Global Vantage. We are an offshore company with approximately 1000 people in a center, soon to be two, in Delhi, India. We do work for American and international clients and do not look to establish operational centers anywhere else in the world other than, at this point in time, India.

Mark Russell: Thank you. Bob?

Bob Mauch: I’m Bob Mauch and I’m with Alliance One. We currently have 19 call centers in total; 14 in the U.S., 1 in Jamaica and 4 in Canada. To give you a sense of our employee mix, we have about 2400 employees — 1400 are in the U.S, 600 in our Montego Bay, Jamaica office and 400 Canadian employees.

We are currently exploring other opportunities. Our strategy is somewhat unique among the players on this call, I think, in that we’ve adopted a western hemisphere strategy and have thus far elected to stay in the western hemisphere.

Mark Russell: Bob, does Alliance One own all of those centers in the near shore/offshore locations?

Bob Mauch: Yes, we do. We either started the center ourselves as we did in Jamaica or the sites came to us through acquisition as in Canada.

Mark Russell: Thank you. Karen?

Karen Powell: I’m Karen Powell. I’m with Keane Worldzen. We are in the BPO business and consulting services for insurance, healthcare, financial services and collections and recovery. We have approximately 50 U.S. based consultants and, we have 400 FTE performing outsourcing services in India and we have approximately 9000 employees that perform onshore, near shore and offshore IT services.

We work both in the U.S. and the UK markets and we have two BPO and three IT centers in India.

Mark Russell: Karen, where does your company currently support its debt collection activities?

Karen Powell: That activity is all being performed out of our two centers in India.

Mark Russell: Thank you. Andy?

Andy Szemenyei: Andy Szemenyei, Portfolio Management Canada, Inc. We’re located in Canada in London, Ontario just a little bit outside of Toronto. We are primarily a debt buyer. We also do contingency work — we provide near shore services for a U.S. collection agency. We currently have about 150 FTE in total and about a third of them dedicated to near shore operations right now for the U.S. partner.

Mark Russell: Thank you, Andy. And thank all of you for those introductions. Let’s begin with the questions. What advice would you give to an agency owner interested in developing a near shore or offshore strategy?

Anthony Marino: My advice would be to make sure you are well capitalized, be prepared for a very long investment cycle and don’t expect miracles in the short term. It’s a very, very difficult process. Also, be aware that as we sit here today, there are very few examples where the agency reaps a lot of benefit. Most of the benefit from all the activity that’s taking place is going to the client, not the agency.

Rob Yarmo: My advice, particularly to those considering going offshore, would be to understand that there are some significant cultural differences between the U.S. and operating offshore. Typically the learning curves are longer to get up to speed and be in a position to achieve U.S. metrics compared to a U.S. agency.

With a different culture we have to understand that things happen at different speeds offshore than they do onshore. My advice really would be just to do your homework. Also make sure that you are sending the right kind of business over there that matches and meets the skill sets of the centers that you are forwarding business to. And to reiterate what Anthony said, by golly, make sure that you’re well capitalized.

Bob Mauch: I guess my thoughts echo both Anthony’s and Rob’s in that I’ve always said that starting a call center in an offshore location is not for the faint of heart or the under-capitalized because it’s a very long-term commitment. It took us approximately two years to reach breakeven. You have to be prepared for a very gradual ramp up as your collectors come up the learning curve.

I think it’s also extremely important that you really have solid management from the U.S. or other developed country who have a wealth of experience from a collection standpoint and who are committed to a long-term assignment, preferably no shorter than two years.

Karen Powell: I think we look at it slightly, well perhaps dramatically, differently, though I completely agree with the well-capitalized comment. I think the success can come by really looking at the type of work being performed by the offshore firm that you’re looking to partner with. I think many of the errors in the collection space particularly were made by looking at pure call center or transaction-based firms versus a company that was more focused on understanding the end-to-end collection processes and developing training specific to the collections market. I think that many of the risks can be mitigated up front by insuring that companies are selecting partners that understand the investment required to translate a process either offshore or to a new facility for a company.

My advice really is knowing your partners’ capabilities very well and understanding how those capabilities translate to the work that you would like performed offshore.

Andy Szemenyei: I’m going to take a slightly different approach to it. We do provide that kind of service, a near shore service. I am going to echo Karen’s comment, that in doing it (moving offshore) I think anyone who decides to take that step should know the partner and know the people that they are dealing with and do their due diligence and homework. If you deal with the right partner and specifically if you deal with a partner who has some knowledge of the industry, not just the call center industry but also the type of service you’re trying to obtain from them, I think it will speed up the learning curve.

There definitely will be a learning curve. Our experience hasn’t been a two-year turnaround, but it depends on how you partner. So my advice would be to look at it as a true partnership and know who you’re dealing with and make sure you’re comfortable with the people you’re working with because you’re going to have to work very closely with them.

Mark Russell: Obviously there’s been a lot of debate in the press about what is currently being outsourced and more importantly, what is successfully being outsourced to near shore and offshore locations. Please share your thoughts on the kind of work that can be successfully serviced from nearshore and offshore locations.

Anthony Marino: I think, well, I know you can be successful with any of the traditional segments. We’ve found it’s just as likely to work successfully offshore as onshore.

Someone earlier stated that the learning curves are quite different and that’s absolutely the case. We, at this point, have become successful on a net-back basis with both first party and third party work. We have found a couple of niches in the skip-tracing area where we’ve been able to move some high cost, low yield activity into the offshore environment and have been able to reap some benefits. On the third party side, frankly I’m surprised at the level of success we’ve had as fast as we’ve had it. I was quite skeptical, to say the least, about our ability to get traditional collections working as quickly as we have.

Having said that, we haven’t scaled it to thousands of people yet. We’re currently in the hundreds, but the results are promising. So the doubts about whether an offshore culture could negotiate, could work tougher paper and could do what we do in the States have been overcome. And they haven’t been overcome with just more manpower. You can add 100 people to do the job of 10 but if the skill isn’t there you’ll just have 100 people not doing the job of 10. You still have to have skilled people, especially on the third party side.

So we’ve been happy with the results so far and continue to expand overseas both in terms of headcount and also age and type of paper. So far, given some time to learn, we haven’t found a limit. So we feel good about where we are.

Mark Russell: Anthony, with regard to first party and third party services, has your company experienced success in all industries, or only in one or a few of the industry segments?

Anthony Marino: We’ve seen success in all of the industry segments we’ve tried so far, including credit card, auto deficiency, consumer loans, student loans and things like that. There are a couple we haven’t tried, but so far, so good.

Mark Russell: How about healthcare and commercial accounts?

Anthony Marino: Not by us. Not yet…

Rob Yarmo: I share my friend Anthony Marino’s enthusiasm on the long-term prospects of going offshore. I don’t know that I totally agree with him on what we have seen from our perspective with respect to where the successes have come from.

Clearly the greatest degree of success in providing the most significant amount of net-back for our clients has been on the first party outsource program. It has been slower in coming on the third party side, however there are segments and there are niches that we have been able to meet and exceed U.S. metrics.

But in the mainstream third party post charge off business it’s coming along. The progress is good, the progress might even be considered very good and I agree with Anthony that it’s probably meeting our expectations on a timeline basis. But I don’t believe that the industry is there yet in terms of third party post-charge off recovery work.

Bob Mauch: Our experience I think is somewhat unique in that we started our offshore, our Jamaican call center, approximately five years ago and we’re currently doing first party and third party. On the third party side we’re doing primes, we’re doing seconds and quads.

One example is we have a seconds portfolio with a major credit grantor where we are 1 of 11 agencies competing on the portfolio with the other 10 all being U.S. based. Over the last six months, we have been in the top 4 from a ranking standpoint.

So my view, which echoes both Anthony’s and Rob’s, is that given time, the offshore collectors will develop and become as proficient as any U.S. collector.

Karen Powell: We also, are somewhat unique in that we focused and launched our practice in the third party collections space and we have also had tremendous success actually within that realm.

On our third party work, for one of our clients we are compared to 25 agencies, all domestic, Worldzen has consistently placed first, second or third over the last 8 months. We believe it is a very workable, very achievable to perform third party collections offshore.

Andy Szemenyei: From our perspective, we also compare our results to domestic providers and we’ve been able to compete very well on that end. But once again, like we all said earlier, there is a learning curve and there is a ramp up time for that.

Mark Russell: With this being a big election year, both politicians and corporate America are beating the war drums regarding the outsourcing of jobs to near shore and offshore locations. Has this negative perception impacted your clients’ willingness to outsource work offshore, or your company’s ability to generate new business from other prospective customers? Is this really a legitimate concern and do you see this being a short-term or long-term issue for near shore and offshore players?

Rob Yarmo: Well, let me start off by saying that the industry is in an early growth stage. But as I look down at the clothes that I’m wearing today I can’t see a single article of clothing that has been made in North America.

Many industries have gone through transitional stages whereby they have looked to find ways of providing equal levels of product or service at a lower cost to add shareholder value. This is what delivering a competitive edge is all about.

The segment industry that we’re talking about is in the early stages so one might expect that there’s a natural amount of discussion around the potential job loss issue.

We have found that there has been a small amount of – let’s call it – handholding that has been necessary with a certain number of clients. We’ve had to share with them articles that have been written in the media and information that has been shared in public forums where, while there may be on the one hand a perception that jobs may have been lost in certain sectors, offshoring has allowed that individual company to be more competitive within their individual marketplace primarily due to the ability to reduce operating costs.

The result of this is that hundreds of companies that are going offshore and have experienced positive offshore results in other segments of their business, whether its data processing, manufacturing, IS, IT, customer service, there seems to be very little issue with job loss there. Where the issue mainly arises are with the companies that have not experienced the considerable benefits of moving work offshore.

Do we consider this a long-term issue? No, we don’t. The issue has been heightened and elevated by virtue of the fact that we are in an election year. And as some of the largest companies that we are talking to right now have said to us, we’re happy to bring this back to the forefront of discussion soon after the election.

Anthony Marino: Our approach is to draw a mix of resources from across our global call center network to solve our client’s problems cost effectively. So part of the time a U.S.-based employee is managing the account and a part of the time a Canadian or an Indian may be working the account. This strategy takes some of the pressure off the creditor, compared to outsourcing to a non-U.S., 100% offshore company. And remember most of the clients interested in offshore are worldwide in scope themselves and are familiar with this issue. At the end of the day, we are U.S.-based company providing access to the best, most cost effective resources available.

Karen Powell: We have had some decisions slowed down because of this and I think like some people have mentioned, we get the response “let’s talk about this a little more after the election.” But the reality is that global delivery models are necessary to compete in the long-term and it is the early stage of this market.

Ultimately clients will need to look at how they can source through the optimal channel, whatever country that is. And our particular focus is to look at how we can create a solution that is both onshore and offshore by leveraging the best capabilities of each market. We believe this is the way of the future and all the anti-outsourcing talk is pretty much noise in the system at this point.

Bob Mauch: My view is that this will be a relatively short-term event that will pass not unlike the steel industry or textiles or electronics, etc. And most economists even agree that outsourcing is excellent for the economy. I believe there was a Wall Street Journal article by Robert Reich who was a former secretary of labor under Clinton who extolled the virtues of outsourcing.

So I think that there are some prospects that we dealt with who tend to pause a bit, but in general the degree of interest that we’ve seen in near shore and offshore centers is increasing.

Andy Szemenyei: Being a provider sitting here in Canada we can’t really comment on that. We think that it is short-term. Our strategy here is that it’s just a matter of time and it will go away just like all the other issues have always gone away such as the textile industry. And as Rob said right from the beginning, I don’t think anybody worries now about where their clothes are now made.

Mark Russell: Bob, near shore or offshore – which is better? Please discuss your answer from the point of view of servicing your clients and also shareholder value.

Bob Mauch: Well, I can also offer a perspective from the standpoint of an agency owner interested in getting into the international arena. But from a servicing-the-client standpoint, I think both options have their own inherent value. I think both options will ultimately yield comparable levels of performance again, given time and investment on the part of the agency.

I think that clearly offshore pricing will be more desirable than near shore to the client. However if the client is dealing with an offshore entity that’s relatively new and doesn’t have depth of experience in certain market segments, I think there will be some programs that will require a longer period of time to ramp up.

From the perspective of an agency with an interest, from a shareholder value standpoint I think the near-term return will be higher on a near shore investment than from an investment in an offshore site.

I guess that can segue into the agency perspective. I think it’s clearly infinitely easier to start up and manage and have control of a new call center that’s relatively close to the U.S. both physically and culturally. And our experience from a near shore standpoint is in Canada and we found Canada to be very comparable to the U.S. from a cultural and business standpoint. We have found that Canada, in most areas of the country, has a universe of experienced collectors to draw upon. So I think if there’s an agency that is looking for a relatively near-term return, a Canadian startup would be the most desirable alternative.

And I think if an agency owner is willing to make a very long-term commitment as we have discussed earlier, then their investment should be in an offshore site.

Mark Russell: In thinking of the question buy versus build, perhaps we can expand on this a little bit and add buy versus build versus partnership. What are your thoughts on these options?

Bob Mauch: Well, thus far we have elected not to utilize partnerships. We felt that the best way to enter the international arena and to have really solid control from a compliance standpoint and from a management standpoint is to own the facility, have the facility operated by Alliance One employees and managed by Alliance One employees. And therefore the transfer of collection processes and training and compliance, et cetera, is certainly facilitated.

So I can’t comment on our experience with partnering through either a joint venture or a subcontractor because we have elected to go an independent route.

Insofar as buy versus build, I don’t think there are many opportunities out there to purchase offshore call centers that really have a proven track record. So to some degree, purchasing an entity like that would be comparable to sort of running a startup.

If you enter into a near shore opportunity such as Canada, clearly the fastest route to establishing yourself I think is the acquisition route and that’s the route we elected to take.

Andy Szemenyei: Just sort of a follow-on to that, being a near shore provider obviously I believe that near shore clearly has a certain advantage since they have a very specific specialized product they can deliver. There will, however, be certain elements of the industry that will be better served offshore than for example in the Canadian environment. So to answer the first part of the question, near shore or offshore, I think there’s room in the entire industry for both and it’s not just an either/or.

As far as the second part of the question, we’ve taken a different route. We have partnered with U.S. agencies looking for that extra product that they can develop for their clients. We do third parties for them and we do it in the form of a partnership with U.S. collection agencies. So that’s been our experience on that end.

Rob Yarmo: I had the benefit of working with a near-shore company for 12 years prior to joining Global Vantage so I’ve experienced the perspective from both a near-shore as well as an offshore point of view. At the end of the day, it comes down to who has the ability to provide the highest net-back to the clients, with similar levels of client service. And the reality of the situation is that more often than not, depending on what product is going to an outsource partner, the majority of the time it’s going to swing to the advantage of an offshore outsourcer.

So if we were to put a myriad of different programs and products on the table and take a look at them, likely three quarters of them in my estimate would be benefited by going to an offshore provider and probably 25% of them to go to a near shore provider.

Anthony Marino: I’m not sure there is an “either/or” here. In the long run the creditors are going to be looking for someone that can get them access to the most appropriate skill at the right price given the context of the customer communication that’s needed at that moment. There are situations that clearly call for a discrete solution but I think the majority of the time it’s going to be, “Put each segment or account where it gets the best resources worldwide at the best price and the best total value proposition.” I think we’ll see more and more of that. Not to say that we won’t have discrete solutions for some things, but I think we’ll see more and more clients going after a more holistic approach to getting their accounts serviced.

Mark Russell: How are your companies handling the U.S. legal and regulatory compliance issues — for example, the HIPPA and FDCPA regulations?

Karen Powell: Neither of the acts, HIPPA or FDCPA, imposes different requirements on offshore operators. Just like an onshore collections team, we have to be cognizant of the requirements of HIPPA and insure for example, in FDCPA, that our people are trained and that there is consistent, regularly scheduled refresher training. Nothing really changes as a result of going offshore in terms of these regulations.

Licensing would be the other major issue around legal and regulatory compliance. It is very important that companies meet the licensing requirements that are imposed by the various states and cities for both their domestic and their offshore units. Even if they’re exclusively offshore firms are still required to secure a domestic license in order to perform the lettering.

There’s a good deal of opportunity for failure in the licensing area because of an offshore solution. And there is one state, North Carolina, which has excluded issuance or approval of an offshore license for a branch; firms need to have in place a process to exclude accounts in North Carolina from their portfolios.

Offshore firms also have to make various plans, for example, having the India manager scheduled onshore to take exams in states that require branch specific managers to pass the exam. It’s really about being cognizant of state or city-specific regulations.

Mark Russell: In your opinion, will it become a requirement for collection agencies to have some form of a near shore or offshore capability in order to effectively compete for client business in the U.S. within the next three to five years?

Do you believe this need will exist for specific industries or service offerings, or for the entire debt collection industry?

Andy Szemenyei: I think the key word there is requirement. I don’t think it’ll become a requirement but in any type of industry like this it will clearly be an advantage. And I don’t think the advantage is for a specific sector but I think it is right across the board. Any agency will have an advantage in that it will be able to provide hopefully a better-priced product for its clientele. Requirement I don’t think is right but advantage; definitely it will be an advantage.

Rob Yarmo: Clearly you will be at a competitive disadvantage if you do not have an offshore option. We have seen that with a number of different agencies. There have been more RFPs out in the past 120 days with an offshore-only component to it, more than we’ve seen in the past two years combined. And we’ve talked to a number of other clients and they’re in the process of formulating a similar strategy.

Mark Russell: Rob, will a nearshore or offshore solution be required for any specific service offerings and/or industry, or just in general?

Rob Yarmo: Typically we have found they’re in industries where there’s some degree of regulation or a low margin such as the telecommunications field in particular. We’re seeing some first party and now we’re starting to see some third party post charge-off RFPs that are exclusively produced for offshore partners.

Bob Mauch: Just a thought. I agree that we’re clearly seeing migration of some of our business to offshore sites as you would in any labor-intensive industry. However something tells me that there will always be a place for a really well managed U.S. agency with good technology. However, I think that the market will continue to become more competitive and that some marginal domestic centers will have real difficulty and perhaps not survive because of the competition.

Anthony Marino: I think the answer’s pretty obvious. In the long run you won’t be price-competitive if you don’t have the lower cost options that are out there. That doesn’t mean you have to do those offshore.

Karen Powell: Right. Global Delivery capabilities is where the market is evolving to.

Rob Yarmo: That’s correct.

Anthony Marino: There are still a lot of good low cost options in smaller U.S. cities, as The Wall Street Journal commented today. Small towns are pretty competitive right now. And with the increases we’re seeing in offshore pricing, there is a question of, how long will this great gap exist? As the prices go up in the offshore environments and we run out of new places to go the decision to go offshore won’t be so easy.

Karen Powell: That’s right.

Mark Russell: That’s the extent of our questions; we appreciate your participation in our Nearshore/Offshore Panel Discussion.

Edited by: Patrick Lunsford


Next Article: Expert Roundtable: Collector Training

Advertisement