Philippine Call Centers Are Music To The Ears of American Callers

Just wanted to share an article about the industry that I am in and my company, eTelecare Global Solutions.

Reference: CNNMoney.com

Philippine Call Centers Are Music To The Ears of American Callers
July 18, 2007: 08:05 PM EST

Jul. 18, 2007 (Investor's Business Daily) --
The playwright George Bernard Shaw famously quipped that "England and America are two countries separated by a common language." Any American who's called tech support lately might feel the same way about India.
Many tech firms are outsourcing their call centers to India, thanks to its surfeit of high-tech workers at low wages who speak English. But that English, inherited from Britain and processed through Indian phonemes, can be hard for Americans to understand.
That's one reason why the fastest growing call-center market right now is the Philippines.
As a former U.S. colony, it picked up American English right from the source. The fact that hundreds of thousands of Filipinos have family in the U.S. keeps the two cultures connected.
Growing Industry
According to Robert W. Baird, the Philippine call-center industry is growing 40% a year. That compares to 23% for India and 1% for the U.S.
ETelecare Global Solutions ETEL was in early on that trend. In 1999 two former workers at McKinsey & Co. set up shop in Quezon City, near Manila. The team saw that the linguistic amity could let it offer higher-end services than the typical offshore call center.
"Our core philosophy is that we want to be a value-added provider, not a commodity provider," Chief Executive John Harris said. "So we look for opportunities where we handle more complex voice interactions -- those that require certifications for the agents or extensive training."
ETelecare backs this up with a complex system of metrics to show exactly how much they're worth to their clients.
For instance, the firm values its services for an unnamed telecom at $11million a year. It reckons that every 1% improvement in customer satisfaction generates $1.12 per hour, while every 1% rise in up-selling and cross-selling yields $3.60 an hour. The company clocks its sales conversion rate at 25% and its dissatisfaction rate at only 5%.
All this number-crunching applies to workers as well, says Harris.
"We have an elaborate scorecarding system that's driven to every employee in the company, from myself down," he said. "It's very strongly focused on performance -- where we rank within the vendor set that serves the customer."
Baird analyst David Koning says it's hard to tell how accurate these figures are. But the approach seems to be working.
"The reason we believe it's true is that their margins are better than their competitors'," he said. (Baird was an underwriter for eTelecare's March IPO.) "They do seem to be doing something right."
The firm's first-quarter operating margin stood at 11.8%. That's a little behind West Corp. and Convergys CVG, but ahead of most others, including larger Sykes Enterprises (NASDAQ:SYKE) SYKE and Teletech Holdings (NASDAQ:TTEC) TTEC.
Overall, eTelecare had an excellent first quarter. Revenue jumped 50% to $62.1 million, while profit gained 217% to 19 cents a share. Analysts expect full-year earnings growth of 82% this year to 80 cents a share, steadying to about 30% in each of the next two years. They see yearly revenue growth at an industry-leading 23%.
Koning says eTelecare can stay competitive by spreading to other places. The firm already went beyond the islands with its 2004 buyout of Phase 2, based in California.
At first blush, this may seem to be paddling up the waterfall. The past few years, eTelecare's rivals have been pouring from North America to distant tropical climes, and here eTelecare heads the other way.
However, the U.S. still has the biggest outsourced call-center industry. Koning says many firms like having all their reps in the mother country. Still others like having reps in a range of places and time zones.
"We primarily serve Fortune 1000 companies, which tend to have needs in multiple locations," said Harris. "We plan to maintain a presence in the U.S., though it will probably grow modestly compared to offshore locations."
Harris says the firm plans to move into other countries in the future. He especially likes Latin America, another hot call-center region with 21% annual growth.
The management also hopes to diversify the customer base. In 2006, the top five clients brought in 80% of the revenue. Cingular, now part of AT&T's T wireless unit, led the way with 42%, with Dell DELL providing 18%. Vonage VG, Time Warner's (NYSE:TWX) TWX AOL and Sprint (NYSE:FON) Nextel S each kicked in 6% to 7%.
Harris says this concentration is partly a sign that clients like eTelecare and keep bringing it into more parts of their business.
Dell is a good example. It has two programs with eTelecare, one for less complex services and another for more complex ones. In the first quarter, Dell's revenue contribution rose to 25%.
Still, analysts fear that reliance on such a small number of clients is risky. This was evident in 2005 when the loss of a major client account helped drive the company into the red.
But Harris says that such concentration is normal for a firm the size and age of eTelecare. He believes that the problem should naturally dwindle as the company grows.
Vonage Account
Nonetheless, eTelecare is shrinking its customer base a bit by scaling back its relationship with Vonage. The VoIP provider has been bleeding money and is entangled in a patent fight with Verizon Communications (NYSE:VZC) (NYSE:VZ) VZ, so less exposure makes sense.
Another risk eTelecare faces is exchange rates. "About a third of their costs are incurred in Philippine pesos, and if the peso gets stronger against the dollar, effectively their costs go up," said Dhruv Chopra, analyst with Morgan Stanley (NYSE:BDJ) (NYSE:MS) (NYSE:MWJ) (NASDAQ:ESTX) (NASDAQ:MNDX) , another underwriter.
Chief Financial Officer Mike Dodson says the company expects to launch a hedging program in the third quarter to reduce this risk.
That hasn't stopped eTelecare from expanding its Philippine business. On July 17, the firm announced plans to build a new service center there housing at least 3,000 employees. It's already building one there about the same size, due to open in the third quarter. When both centers are running, eTelecare will have about 13,000 Philippine employees in all.Newstex ID: IBD-0001-18237359
Originally published in the July 18, 2007 version of Investor's Business Daily.
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