By King R. White, CEO, Site Selection Group, LLC
The domestic call center industry has gone through many cycles over the last couple of decades but continues to find its place within the U.S. economy as a critical part of a balanced workforce in communities across the country. Site selection strategies continue to evolve as companies seek to find the optimal location for their call centers. Similarly, call centers have expanded into omni-channel environments doing far more than what they did when the industry first gained a foothold in the 1990s. As a result, companies need to understand the latest trends and challenges faced by call centers and related back office operations within the United States.
The Evolution of the Call Center Industry
Call centers really began to emerge in the early ’90s as advances in telecommunication technologies enabled companies to route calls to various locations. This allowed companies to centralize where calls were routed in an effort to improve service levels and corporate efficiencies. The equipment was expensive but declined in price as cloud-based technologies took off. The industry rapidly matured and created countless jobs across the United States in both large and small communities.
The first challenger to the domestic call center market was the emergence of India as an offshore, low-cost option, which was pioneered by companies like American Express and General Electric. Then came the Philippines after the dotcom bubble burst, and companies quickly moved jobs offshore to a geography with better English dialect than India. Shortly thereafter, nearshore locations gained a lot of momentum as places like Costa Rica, the Dominican Republic and Guatemala became staples for expansion. To be sure, more challenges will face the domestic call center industry in the future. They will come from other geographies like Africa as well as from artificial intelligence technological advances.
At the same time as the above changes were happening, call centers began evolving in their contact types and functions. They evolved from doing simple inbound and outbound calls to more advanced functions such as shared service activities (finance, human resources, procurement, etc.), technical support, clinical healthcare activities and a variety of other knowledge-based functions that could be performed in a back office type environment. Today, you find a broad range of these activities being performed inside the modern-day call center through calls, email, chat and social media channels.
The United States Has the Greatest Market Share of Job Creation
The United States is still considered the premier location for quality customer service and access to highly-skilled workers. The nearshore and offshore geographies have especially taken a big share of the lower-end call center jobs; however, many companies continue to choose quality over cost. Based on Site Selection Group’s research, the United States led overall growth in 2017 with 215 projects announced with 66,231 jobs due to strong economic conditions and corporate reshoring initiatives. India and the Philippines led in job creation in the offshore regions. India reported 19 projects creating 30,950 jobs and the Philippines had 28 projects involving 24,805 jobs. Nearshore destinations in Latin America and the Caribbean also incurred significant growth by creating 16,429 jobs at 36 announced projects. The following pie charts summarize the growth of call centers across the world:
Note: Site Selection Group data was gathered from press releases and government agencies. Data is representative of market trends and in-depth country due diligence for all activity.
Southeast and Southwest Regions of U.S. Created the Most Jobs
The expansion of onshore call center operations in the United States continued during 2017. As in years past, many companies reshored operations from the Philippines, India and other offshore markets as they sought to improve quality levels despite higher costs. Site Selection Group estimates that 215 call centers opened or expanded within the United States. These centers created 66,231 total jobs, which has caused many labor markets to become tighter and put wage pressure on employers. The Southeast and Southwest regions of the U.S. accounted for the majority of the growth generally due to more attractive labor conditions, lower operating costs and availability of economic incentives. The following pie charts provide a summary of expansion data within the United States.
Changing Labor Conditions Impact Call Center Location Strategies
The domestic call center industry is facing some unique challenges as labor conditions are changing in various locations across the U.S. To help companies navigate these trends, there have been six factors that need to be considered when determining where call centers should be located.
1. Avoid cities and states with recent or planned minimum wage hikes. Who would have ever thought that Arizona, one of the most call center friendly states in the U.S., would implement labor laws that will increase the minimum wage to $12 per hour? With Phoenix as one of the most saturated call center labor markets with over 100,000 call center workers, the wage hike could cause a major shake-up in the labor market as lower paying call centers may have to exit the market. We anticipate similar challenges in other states that are increasing their minimum wages. Those states include California, Maine, Oregon, Colorado, New York, Hawaii, Maryland, Vermont and Michigan. This doesn’t even include many cities, which are also increasing their minimum wages.
2. Avoid metro areas with extremely low unemployment. The national unemployment rate dipped to 4.1 percent at the end of 2017, which is basically the lowest it has been in over a decade. This low rate is considered full employment. At these lower unemployment rates, you are typically going to see higher employee attrition and wage inflation as employers fight for workers. As a result, you may want to consider eliminating metro areas where the unemployment is less than four percent.
3. Target larger labor markets. One safe way to buffer yourself against the tightening labor conditions is to locate in larger metro areas. The days of opening call centers in smaller rural towns is a thing of the past. Many of those call centers found themselves working through the labor market in less than five years. The current trend is to focus on labor markets with 100,000 and greater population. We have even seen many clients increase that to 250,000 for call centers that are larger or seeking a high skillset of employee. These larger labor markets provide a deeper pool of talent to maintain a healthy applicant-to-hire ratio to keep seats full if you incur high attrition, need to ramp up quickly, or need these higher skillsets.
4. Avoid states with existing or planned marijuana legalization. The wave of new marijuana legislation can mean trouble for employers who are required to do mandatory drug testing. Most call centers fall into that category as they are required to by the national hiring practices of most larger companies. We are hearing rumblings of many call centers struggling to keep good employees in key states like Colorado where a lot of call centers are clustered. So be sure to understand current and pending legislation, especially for states seeking fully legalized marijuana.
5. Raise the maximum threshold on the call center saturation rate. If current reshoring initiatives are further propelled by political and economic policies, we could see a significant amount of growth ahead for the U.S. call center industry. These jobs are going to land in many of the targeted markets outlined herein, which means these labor markets will get saturated very quickly. The industry standard cut-off point has typically been three percent; however, companies are going to need to raise that threshold to four percent to avoid eliminating labor markets in the site selection process that might still be capable of accommodating more call center jobs.
6. Anticipate the need to spend more capital to build out a site.
One thing is for sure, there is a shortage of quality call center real estate left on the market right now. The reality is that many of the quality options have all been picked over and the remaining call center buildings in good labor markets may not provide enough capacity to handle future growth. We are advising our clients now to be ready to convert traditional office, retail and industrial space to get into the best labor markets. This is going to require companies to spend a lot more capital to build out the facilities. Bottom-line, be prepared to spend more capital and have it allocated in your budget before embarking on a site selection exercise.
The call center industry in the U.S. has been resilient through the multiple economic cycles, emergence of lower cost geographies and technological advances. It has become a staple industry for many communities and will continue to be so into the near future. Call centers have found their place in the domestic workforce and should always be considered as an attribute to a balanced workforce.
King White is CEO and founder of Site Selection Group. He manages the daily operations of Site Selection Group including strategic planning, account management, business development, marketing and corporate operations. King has over 20 years of experience in site selection, economic incentives and corporate real estate across the globe. He has completed over 1,000 projects including call centers, data centers, distribution centers, headquarters, manufacturing plants, retail and information technology operations. Under his direction, Site Selection Group has become one of the largest independent full-service location advisory, economic incentive and corporate real estate services firms.
King’s intense focus on driving innovation has enabled him to develop industry-leading products including GeoCision®, LaborCast® and IncenTrak®. He is continually cited by numerous global publications as a thought leader, written over 100 blogs on global location trends and received numerous awards from a variety of organizations.
Prior to the formation of Site Selection Group, King was a principal and founder of the Corporate Site Selection and Economic Incentives Division of Trammell Crow Company. This division was responsible for providing global site selection and economic incentive services to Trammell Crow’s corporate customers. During his ten year tenure at Trammell Crow Company, King developed his long term vision of what has become Site Selection Group.
Professional Involvement & Awards
- Exis Global, Chairman, Board Member & Executive Committee
- Member, Vistage CEO Network
- Member, CORENET
- Member, Industrial Asset Management Committee (IAMC)
- Dallas Business Journal – Top 40 Under 40
- Dallas Business Journal, Heavy Hitter Award – Multiple Years
- CoStar Power Broker – Multiple Years
- Member, Southern Methodist University Alumni Association
- Major Donor, Southern Methodist University Tennis Facility
Bachelor of Arts, Political Science with concentration in Business Administration, Southern Methodist University, 1995