Spring 2008

Offshoring of Services: What Country Are You In?

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Based upon these results, the team developed a series of recommendations for firms to employ, which allow consumers to feel more comfortable with their offshoring strategies. These include, but are not limited to, the firm indicating the number of employees it has domestically, administering accent reduction classes for overseas service providers that interact on the phone with domestic customers, guaranteeing security of information sent abroad, training overseas service providers in how to interact with Americans and nuances of American culture, and finally, presenting the overseas service provider as a “real” person to the domestic consumer.

As part of this research, Thelen, Yoo and Magnini evaluated whether demographic characteristics of the respondents from the national sample impacted their views of services offshoring. Significant differences were found for education across all five dimensions of the Offsetscale, with those having a “high school education or less” more likely to agree with the statements in the scale than those with higher education levels. Significant differences were also found based on income, with those in lower income levels proving to be more offshore service ethnocentric. Age also appears to be a factor when it comes to one’s level of offshore service ethnocentrism, with older consumers scoring higher on the Offsetscale than their younger counterparts. There were no differences found between gender and household union membership. This information is valuable to firms. If they clearly understand who their customers are, they may be able to determine which segments are most likely to accept a service from abroad.

The third research project undertaken by Dr. Thelen, Mr. Murphy and Dr. Honeycutt addressed three issues:

1) Do consumers exhibit a countryof- service-provider preference?

2) Which attributes of services are most important when the service is offshored?

3) Are there services that consumers are more likely to accept from abroad than others?

The concept of country of origin (that is, do consumers believe that a product from one particular country?) is more desirable than the same product from another country, has been researched extensively in the literature. For example, although Russia manufactures watches, consumers would prefer to purchase a watch from Switzerland just because the Swiss have a better reputation than the Russians at making watches. The country-of-origin effect may be so strong that the consumer would not even want to evaluate the Russian watch prior to purchasing a Swiss watch.

A nationally representative sample of 250 respondents were asked their opinion/perception of service providers across five countries (Canada, India, the Philippines, Mexico, and China) for attributes associated with quality service (access to technology, believable, communication, courteous, helpful, knowledgeable, reliable, secure information, and understands specific needs). The countries were chosen because they are recognized as top locations for offshoring, and the attributes were chosen because of their importance in providing high-quality service.

Respondents’ perceptions for various aspects of service quality were averaged for each of the countries evaluated. The results indicted that consumers have a “pecking order” when it comes to perception of overall service quality. Specifically, Canada is most preferred, with China, India and the Philippines grouped together in consumers’ minds, followed lastly by Mexico.

Communication, security of information, and reliability were the top three concerns when the sample was asked which service attributes were most important. Interestingly, the preference order regarding country of choice changes according to the attribute the consumer has in mind. In the case of communication, Canada is most preferred, with the Philippines, Mexico and China grouped together in consumers’ minds, followed lastly by India. The order was a surprise to the research team. India, a nation where English is one of the national languages, came in last, and the Philippines, a former U.S. colony where many people speak English, was considered close to Mexico and China regarding communication ability.

The order changes once again for consumer perception of security of information, but overall, consumers are not comfortable with the security of personal information being sent to any of the countries in the survey. Canada is again on top, followed by India, then China and the Philippines (considered as having the same level of security), and lastly, Mexico. Consumer perception of reliability of a service provider in another country follows a different pattern all together. Canada is most preferred, with India, China and the Philippines being grouped together, and lastly, Mexico. While the order of the last four countries changed based upon the attribute being addressed, Canada was clearly most preferred or least objectionable. While it may be more expensive to go to Canada to have a service provided than the other countries in the study, it may be more cost effective in the long run because consumers would less object to being served by a Canadian than an Indian, Chinese, Filipino, or Mexican service provider.

When asked how they felt about having a particular service sent abroad (taxes, order taking requiring a credit card number, reading X-rays, technical help, and processing a loan), none of these services where considered acceptable to be offshored to any of the countries in the survey. This indicates that although firms continue to send various services to be performed overseas, American consumers appear to be opposed to the process, regardless of the service.

This feeling on the part of American consumers may be due to stories of overseas service providers stealing credit card numbers or releasing private information about consumers. While these things happen domestically all the time, they are most newsworthy when the offense is committed by someone offshore. Negative feelings by American consumers may also be attributed to the impact of the “the Dobbs effect” (CNN business reporter Lou Dobbs, who reports on the outsourcing of America) and the cry to “hire American,” second cousin to “buy American,” often heard in the media today. The American worker/consumer may be concerned about “Benedict Arnold” companies sending jobs abroad, as politicians often remind them.

Consumers want less expensive goods and services and for their investment/ retirement portfolios to appreciate as a result of firms being more competitive through reduced overhead, but they also want to be assured that their jobs and private information are protected. The issue of services offshoring will be one that continues to capture news headlines, be the topic of political speeches, and concern the American consumer/worker.