19 February 2008 | Published by Datamonitor

London – Economic and demographic challenges spell bad news for Canadian contact centers serving US clients – Convergys CEO David Dougherty has stated that his firm has been badly hit by the rise in the Canadian dollar, and as a result will be closing some of its facilities in Canada in the coming months.

Following is comment from Peter Ryan, head of contact center outsourcing analysis at Datamonitor. In his view:

• Convergys’ announcement of a scale-back on Canadian operations could be the first of many by outsourcers;
• The decline of the USD has badly eroded the profitability of US outsourcers based in Canada;
• Canadian contact center labor is becoming difficult to recruit and retain, further adding to outsourcers’ costs; and
• There is not enough supply of Spanish-speaking contact center labor in Canada to meet US demand.

The recent announcement of Convergys CEO David Dougherty that his firm would be closing facilities in Canada should surprise no one, and by all accounts, will become a strategy that will find its way into the playbooks of many US-based outsourcers that have heavy Canadian deployments servicing American customers.

Datamonitor believes that a number of economic and demographic challenges will lead other outsourcing companies based in Canada serving American customers to seek opportunities in other delivery markets. These include:

• Exchange rate appreciation: The rapid escalation of the Canadian dollar relative to the US greenback has been a nightmare for American contact center investors. Indeed, since 2004, the CDN has appreciated over 30%, which has effectively eroded profit margins and operating cost savings that many US outsourcers had come to rely upon from their Canadian operations; this had been a major selling point for luring American investment north of the border. This issue has been directly cited in the decision of Convergys to scale down operations in Canada;
• Reduced labor availability: Another pitfall facing the Canadian contact center outsourcing market relates to the ongoing tight labor pool for agents. Many vendors cite difficulty in recruiting qualified staff, in large part due to the migration of prospective agents from across the country to the burgeoning Alberta oil sands where firms are paying very high salaries, which contact center operators simply cannot match. The effect of this has been an increase in overall wages and benefits paid to existing agents in order to keep attrition low, but this is a cost that many outsourcing firms seem unwilling to bear in the Canadian context over the long term.
• Limited Spanish-speakers: A final factor that Datamonitor feels will lead to divestment from Canada by US outsourcers relates to the growth of the American Hispanic market, both in terms of sheer volume and household income. This demographic has become a major target for US companies seeking to provide services in both English and Spanish. However, Canada does not have a large enough concentration of Spanish-speakers to provide bilingual services to any scale. This will likely be another driver for US outsourcers to look at domestic options or those in the Caribbean and Latin America (CALA).

In the future, American outsourcers will consider their global options for both English and Spanish contact center service delivery, fuelled by the need to save costs in uncertain economic times, the need for accessible labor and multilingual capacity that reflects US demographic shifts.  Based on the challenges facing Canada in terms of exchange rate concerns, tightening agent pools and limited numbers of Hispanics, Datamonitor would not be surprised if others also scale back current deployments. Convergys was the first, but it is unlikely it will be the last.

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