Spring 2008

Offshoring of Services: What Country Are You In?

Shawn Thelen, Ph.D.

Assistant Professor, Department of Marketing and International Business

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Virtually everyone has had the experience of making or receiving a phone call only to realize that the person on the other end of the line is not local – as a matter of fact, he or she may not even be in the United States. If you complete the call, you have participated in an offshore service transaction. The consumer may or may not have had a choice of service provider location and may or may not have even known that the service provider was abroad. This practice may take the form of in-house offshoring, where employees are on the payroll of the company but are located in a foreign country, or offshore outsourcing, where subcontractors located abroad are contracted to provide services to domestic consumers. Whether it is in-house or outsourced, offshoring results in consumers being exported and workers being imported without either ever leaving their home countries.

This leads many people to ask the following questions – Just where is information about me being sent and stored? What are the people there doing with it? How do I know it is safe? Will I get the same level of service from someone abroad as with an American? Did an American lose his or her job as a result of this position being offshored? And finally, does this company really care about serving me as a customer? People have come to almost expect that certain services such as technical help or order processing are typically handled by someone in another country; however, they are increasingly surprised to discover that services such as marketing research, accounting services, tax preparation, wedding planning, tutoring students, and medical transcription are being offshored. Some of the most unusual examples include the following:

1) Hospitals using radiologists overseas.

2) Firms sending employees to hospitals abroad to save on medical procedures.

3) Couples contracting surrogate mothers in other countries.

4) The Catholic church offshoring intercessory prayers and special Masses. This indicates that the types of services sent offshore are increasingly more complex, personal, and extensive.

The common drivers of offshoring for many firms, individuals, and institutions are reduced costs, labor availability, increased quality, and around-the-clock service options. What companies need to understand prior to making the decision to provide services by workers located in other countries is exactly how domestic customers will react when they find out the service is being offshored. Consumer sentiments toward offshoring is an area scantly researched and has been the subject of several research projects underway by Shawn Thelen, Ph.D., of the Department of Marketing and International Business at Hofstra University’s Zarb School of Business, and his colleagues Boonghee Yoo, Ph.D. (also of the Frank G. Zarb School of Business); Vincent P. Magnini, Ph.D. (Virginia Technical University); Earl Honeycutt, Ph.D. (Elon University – Love School of Business); Tatyana Thelen (consultant); and Thomas P. Murphy (alumnus of the Frank G. Zarb School of Business).

Dr. Thelen and his colleagues have initiated multiple research projects addressing consumer sentiments toward services offshoring. The first of three research projects, conducted with Dr. Magnini and Ms. Thelen, was an exploratory project involving a series of interviews designed to obtain a general understanding of consumers’ feelings about services offshoring. The team found that consumer acceptance of services offshoring varies greatly, with some consumers being very accepting of the idea while others are strictly opposed to it. These interviews found some respondents opposed to either the purchase of manufactured goods (a concept known as consumer ethnocentrism) or services from abroad, others accepting of imported manufactured goods but not services, and a third group accepting of the purchase of imported manufactured goods and services.

When queried as to why some of the respondents were opposed to offshoring, the following reasons where repeatedly mentioned: 1) concerns over security of information sent abroad, 2) a belief that American workers did a better job, 3) resentment and animosity toward firms that send jobs abroad and toward the government for not protecting jobs – both are perceived as being disloyal to the American worker, 4) concerns with communicating with foreign service providers, and 5) bias against the foreign worker for taking a job from an American. Regarding the fifth point, none of the respondents interviewed felt resentment toward immigrants in this country competing for jobs.

Respondents were also asked a series of questions about which types of services they felt comfortable being sent abroad. It appears that the less intimate the service (e.g., technical help), the less respondents were concerned with it being provided abroad; the more intimate the service (e.g., taxes, surgery, credit card transaction), the greater the opposition to the service being offshored. For example, one respondent, who regularly interacts with domestic and international service providers, indicated that she would feel more comfortable answering marketing research questions administered by an American prisoner (prisons in the United States sometimes have inmates work in call centers) than answer questions administered by someone located in another country. In addition, consumers indicated an overall trust or mistrust of certain countries. One respondent, when asked if he would feel comfortable with a service being conducted in India or the Philippines, indicated “absolutely not,” but when the country was changed to Canada, he responded, “Canada – They aren’t really foreigners.” This led to future research regarding country of service provider.

Information obtained through this research led Thelen, Magnini, and Thelen to conclude that consumers want inexpensive, high-quality, 24/7/365 service with the guarantee their jobs won’t be threatened, identities stolen, or personal information shared unnecessarily. Firms are walking a tightrope of trying to be cost-competitive while still maintaining that customer service is their greatest concern. If firms are careless in managing services offshoring, they risk losing more than they gain from the cost savings.

Information drawn from this preliminary research led to two other projects. The second was conducted by Dr. Thelen, Dr. Yoo, and Dr. Magnini with the goal of developing a series of questions (scale) for measuring consumers’ levels of offshore service ethnocentrism. Employing commonly accepted psychometric methods for scale development, Thelen, Magnini and Yoo administered a questionnaire containing 122 questions to both a regional sample (242 respondents) and a nationally representative sample (394 respondents). The use of sophisticated statistical techniques resulted in a five dimension, 26-question scale that has been named the Offshore Service Ethnocentrism Scale or Offsetscale.

The five dimensions identified by the research, in order of importance to respondents, are:

1) Protectionism (sample survey questions, “It is the government’s job to protect Americans from losing their jobs to overseas workers” and “Companies that send service jobs overseas are only worried about their own profits and not the welfare of this country”)

2) Communication (sample survey question, “People with foreign accents have to repeat themselves so I can understand them”)

3) Security (sample survey question, “I am concerned over the security of my personal information held in overseas locations”)

4) Home Bias (sample survey question, “Because most overseas service agents don’t understand American culture, they are not very helpful”)

5) Chauvinism (sample survey question, “When interacting with service providers located in another country, it is okay to tell them that they are responsible for the loss of American jobs”).

The team is hopeful that firms will employ the scale for determining how customers will react to plans to offshore operations.

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