Wednesday, January 16, 2008

Why Canada might illustrate some coming European Contact Centre trends

Just before Christmas I was interested to see that the province of Nova Scotia was setting up a call centre association. This is primarily a business driven initiative (as you can see on their website), rather than the more usual government agency approach that I've seen in Europe.

My interest was partly because I knew some of the people setting up the association from when I worked with Scotiabank (a major employer in Nova Scotia), but it was also because the challenges they face seem very relevant to Europe.

In the past the Canadian Contact Centre market has been driven by two factors, firstly nearshoring operations as US companies looked to take advantage of a nearby, skilled workforce that was at least 25% cheaper than its US equivalent due to the weakness of the C$ and secondly by a strong domestic market. This is all changing as the US$ declines and the C$ appreciates driven by Canada's natural resources. This currency change is a long term trend and while it takes place, Canada will loose it's ability to compete on cost. Good news overall for the Canadian economy, but probably bad news for places like Nova Scotia on the far edge of the Atlantic and with limited natural resources.

Europe has in some ways a very similar challenge. The Euro has gained in strength during the current turbulence, and while this is not driven by a commodity based economy, the effect is the same as those pricing in Euros will not be able to compete on cost. For call centres in France and Germany this is perhaps not a major issue. For the German market, most possible contact centre locations (at least with native German speakers) are already in the Euro zone or are priced in the equally strong Swiss Franc. For France and the French speaking market the cost challenge comes more from Morocco and North Africa than within the Euro zone. I've covered some of this previously (in the post "Offshoring and mainland Europe"), but currency issues are likely to be minor factors for the French speaking market, as North African currencies may appreciate too with the rise in commodity prices.

The real challenge from the strength of the Euro will be felt in the more marginal areas of the Eurozone that are furthest away from the French/German economic centre. The Irish Republic is one are where the strength of the Euro has already caused inflationary problems and earlier this week RTE were reporting on a potential loss of competitiveness. While the Irish economy remains strong and has a very favourable tax regime, it is unlikely to remain able to compete purely on the basis of cost. The part most affected will be those Irish contact centres focused on serving the UK market. That part may struggle as UK pound weakens against the Euro and perhaps even reverses the traditional trend. Other areas whose contact centres that may struggle with a stronger Euro are Portugal (I would not be surprised to see more offshoring to Brazil or even Africa, especially Angola & Mozambique) and perhaps Spain.

In short, while a strong currency is generally a good thing, it does have significant implications for contact centres that previously competed on cost.

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