A safe haven

10 October 2008

Stephen Loynd, programme manager for Contact Center Services research at IDC, explains to CEO why the US homeshoring sector is providing a response to the hardening economy.

Who knew that outsourcing might come to be seen as a safe haven for American workers in a globalised world? In 2005, IDC proposed an important irony – that "offshoring’s underestimated sibling, homeshoring," could indeed play such a role. Years later, an additional irony is being pondered: that the bursting US housing bubble may actually increase the value of homeshored customer care solutions.

Indeed, with regard to the delivery of high-quality customer care, the US home may start to look increasingly valuable compared to the American automobile that has long enabled customer care agents to commute to bricks-and-mortar centres. Housing’s headwinds come at a time when US wage earners already face significant challenges to both their productivity and their wallets.

Average income falling, big ticket costs soaring

In August 2007, not long after the credit crunch first hit the US, analysis of new tax statistics from the US Government showed that Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that Americans made ends meet with less money when compared with the peak of the last economic expansion. Analysis of the data shows that while incomes have been on the rise since 2002, the average income in 2005 was $55,238, nearly 1% less than the $55,714 in 2000, after adjusting for inflation.

In essence, despite overall growth in the economy, Americans are experiencing significant economic stress. This has been the case for some time. In August 2006, the Census Bureau report for the previous year revealed that median income rose 1.1% to $46,326, the first increase since it peaked in 1999. But the entire increase was attributable to the 23 million households headed by someone over age 65. In other words, the gain was likely from investment income and social security, not wages and salaries.

"Customer care service providers need to be aware of the impact today's economy is having on their talent pool."

At the same time, those census figures reveal that the nation’s personal savings sank below zero in 2005 for the first time since the Great Depression, meaning Americans spent more than they earned. For households under 35, the savings rate has plunged to minus 16%; this group is spending 16% more than they are earning.

In addition, in October 2006, a Washington, DC, political thinktank, the Center for American Progress and the Service Employees International Union, issued a report – Middle Class in Turmoil – that states the middle class is less prepared for an economic emergency, such as losing a job or visiting an emergency room (or, we might add, adjustable rate mortgages), than at any time since the late 1970s.

The centre mined data from the Federal Reserve, the US Bureau of Labor Statistics, census records and other sources and concluded that by 2005, Americans had arrived at a situation of "increasing peril" for those in the middle 60% of income distribution, about $18,000 to $88,000.

But even as income for middle-class families has remained stagnant or flat since 2001, prices for big-ticket items such as housing, transportation, healthcare, and a college education have skyrocketed, leaving families unable to save. Many have also seen their retirement benefits reduced. Indeed, the report finds that middle-class families are borrowing record amounts to pay their monthly bills.


Many Americans are paying a larger share of their healthcare costs, adding to their out-of-pocket costs. According to the US Census Bureau, there have been double-digit increases in health insurance costs for most of this decade, and the number of Americans without insurance rose by 1.3 million last year, up to 46.6 million people. According to the Kaiser Family Foundation, the cost of family health insurance is up nearly 90% since 2000.

The group reports that only 22.3% of middle-class families could cope with the $3,013 average cost of a small medical emergency, such as treatment for a broken ankle. In 2001, that figure was 35%.

Higher education

Middle-class families also are struggling with the ballooning costs of higher education. According to available data, the total cost of tuition, fees, and room and board at four-year public colleges has increased 44% in the past four years.

Commuting in major US cities

As the credit crunch unfolded in 2007, a study by the Surface Transportation Policy Partnership, a non-profit research firm, revealed that commuting costs are hitting Americans' wallets hard. The study looked at annual transit costs such as gas and tolls and public transit fare as well as money spent on car payments and maintenance. The study showed that in Houston, Texas, average commuters spent 20.9% of their annual household costs on getting to work. Cleveland, Detroit, Tampa, Kansas City, and Cincinnati were on the list of the country’s biggest cities where transportation consumes a fifth or more of household costs.

In San Francisco, which is much more urban-dense and has more prohibitive zoning laws than Houston, residents ranked 22nd in commuting costs but fifth in costs reflecting housing and transportation.

In August 2006, a US Census surveys reported that residents of the outer suburbs of Washington, DC, endured some of the nation’s longest commutes, fuelled by new housing that appeared across the region’s outer fringes over the previous years. The survey reported that clogged roads and high gasoline prices pushed a growing number of people onto mass transit.

Homeshoring’s rising value

In 2008, the quality of customer service matters. Service providers need professional agents to enhance their customer experience. But the productivity of customer care representatives is often negatively affected in an economy encumbered by a deflating housing bubble, high out-of-pocket expenses, stagnant real wages, and gruelling commutes.

Ultimately, customer care service providers need to be aware of the impact today’s economy is having on their talent pool. In other words, housing’s headwinds and the cost of living are directly relevant to the contact centre industry insofar as it contributes to the buffeting of worker productivity, professionalism, and enthusiasm. The homeshored model may therefore become increasingly valuable; a new kind of contact centre that is in many ways ideal for today’s customer care workforce.