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Czech Republic on call

Two years ago, international management consultancy firm A.T. Kearney ranked the Czech Republic among the world’s Top 10 countries as most attractive to foreign companies looking for territory to locate support services like customer-support call centers.

However, the company’s report for 2007 shows a significant drop in the Czech Republic’s desirability. A.T. Kearney’s 2007 Global Services Location Index downgraded the Czech Republic from its previous ranking of the sixth-most attractive global outsourcing location to a less-than-impressive 16, placing it behind Estonia, Slovakia and Bulgaria.

Despite the drop, industry analysts say that the country is not yet out of the running. While rising salaries, staff shortages and the sometimes less-than-friendly business environment all contributed to the Czech Republic’s downward slide, the country still offers companies an educated work force with a variety of language skills; a relatively low cost of living, compared to other major continental cities; and an easily accessible location with geographic proximity to clients in Western Europe.

“It is a report that is significant, and there are lessons to be learned,” said Karel Pleva, vice president of A.T. Kearney’s Prague office. “The competitiveness of the Czech Republic fell because our salaries went up—but also because other economies have progressed faster than us. We should be concerned because the country needs to maintain its competitiveness and even improve it.”

The A.T. Kearney index analyzed the top 50 service locations worldwide in three major categories of cost, people skills and availability, as well as business environment. The company, which did not publish an index for 2006, said it plans to revisit the marketplace rankings next year. With more companies choosing to outsource business processes to third-party companies—for services as simple as direct-market sales calls from call centers, to detailed payroll and internal technical support services housed in modern, multimedia “contact centers”—the customer service industry has become a booming business.

Dimension Data, a South Africa-based information technology consultant, estimated that there are 6.5 million contact center seats worldwide. In its Datacraft/Dimension Data Group Contact Center Benchmarking Report 2007—which surveyed 403 centers from 42 countries worldwide—it determined that organizations spend about $5,000 (Kč 96,719) per month per agent seat to provide customer service through their contact centers. That translates to an investment of $33 billion, the company said.

Location costs
The 2007 survey illustrates that India, China and Malaysia remain the three most attractive sites for offshore service activities, followed by Thailand and Brazil, whose advances were checked by lesser language capabilities and wage inflation, respectively. Two new Eastern European countries, Estonia and Latvia, made it to the 2007 list, which also includes Poland and Hungary.

In comparison, Ireland—a formerly low-cost location that has become one of the most expensive countries in Europe—dropped to last place in the 2007 survey. High wages continue to be an issue for companies that want to outsource services to the island nation. “Estonia today is what Ireland used to be 10 to 15 years ago, a relatively low-cost European location with top class, largely untapped, talent and a pro-business policy environment,” the A.T. Kearney survey said.

Contact and call-center agents in Ireland, who often specialize in information-technology issues, now command starting wages well in excess of $15 per hour. Agents in India and China, by comparison, make less than $2 per hour. Although Czech call center salaries fall somewhere in between, salaries are increasing as employers are recruiting employees with diverse language skills. “Salary increases will happen; there is nothing we can do about that,” Pleva said. “What we can do is make sure that when they increase, there is a good reason, and that the quality and productivity of work increases as well.

One way is that the private companies themselves improve their internal processes and internal productivity. The other issue is that the government makes it easy for those companies to function, [by] making it easy for companies to incorporate … and remove bureaucracy and red tape for companies that need to deal with tax or financial authorities. ... Tax reform is a good step, but what is not yet good is the bureaucracy.” This is an issue that cannot be overlooked, Pleva said. “Western companies, when they do offshoring or outsourcing, want to locate in a low-cost location,” he said. “But they also need a functioning infrastructure, like telephones, and a functioning business environment that makes it easy to them to hire or fire people.”

Creating a specialized market
Czechs should stop trying to appeal across the board and look at providing services that other nations cannot, said Johan Gott of the Washington branch of A.T. Kearney. Language proficiency is one example, he said. “The Philippines, in particular, is popular among American companies due to the higher quality of English accents,” Gott said. “For French, Morocco, Tunisia and Romania are popular. For German language [skills], Central Europe is still the best option.”

According to Datamonitor, the Czech Republic has more than 500 contact centers, with most doing business in Czech, English and German. That means that in addition to providing service to regional Czech customers, they are also well-positioned to reach out to Germany, Austria and Switzerland, where German is one of the four national languages. … (Read more in cbw)