Elizabeth Kennedy, Call Center and CRM Industry Analyst, Datamonitor

Q Can you tell us how you perceive the current state of the North American call center market?

A This is definitely a market that is approaching maturity; vendors are going to have to be realistic regarding the growth of future sales revenues. Growth rates are nowhere near where they were ten years ago. The economic downturn and declining technology spend are also negatively affecting this market.

Datamonitor's recent report, "Opportunities in North American Call Centers to 2007," provides an assessment of issues such as these facing the call center market in North America.

Q What are some of the key findings of the report?

A In 2001 there were 55,800 call centers in North America. Datamonitor expects this to increase to 58,800 in 2007, representing a compound annual growth rate (CAGR) of 0.89%. Growth in the number of agent positions will be slow, as well, with a CAGR of just 1.01% for the same period.

While Datamonitor previously predicted the eventual evolution of the traditional "call center" to a multimedia "contact center," this migration is proving to be slower and more gradual than previously expected, due to the continuing economic difficulties.

Falling IT spend is negatively affecting call center technology spend. Companies are currently looking for ways to maximize existing investment, rather than investing in new call center equipment.

Q How will this slowing market growth affect the voice business market?

A Companies will be looking to maximize their investment in existing infrastructure. Vendors that are able to prove that they can add value to previous investments (through offerings like voice upgrades) will be the ones to succeed.

Adding functionality such as speech recognition technology will serve as both a differentiator and a revenue-generating tool for vendors, as more complex applications can be automated through speech recognition technology than through touchtone IVR. Speech recognition technology enables many calls to be handled automatically and thus helps call center agents to be more efficient and productive.

We are forecasting the market for the voice business value chain (which includes platforms; enabling software such as ASR, TTS and voice authentication; applications development and services) to reach $1.3 billion by 2004.

Q Which vertical markets should vendors focus on? Which markets are the largest and which are the fastest growing?

A Retail, telecommunications, outsourcing and retail banking were the biggest vertical markets for call centers in 2001, accounting for 54% of the market.

Three of the four largest verticals; retail, outsourcing and retail banking, will continue to grow through 2007, but growth will slow. Outsourcing has traditionally been a large part of the market for call centers, but recently, many outsourcers have experienced financial difficulties and the rate of new call center openings has slowed. The large installed base in manufacturing and technology will continue to exist. The telecommunications market will actually decline slightly, as that industry continues to face uncertainty.

The fastest-growing markets will be the government, outsourcing and healthcare markets. Vendors are showing increased interest in these vertical markets, and Datamonitor expects to see more and more implementations in these markets in the next few years. However, that growth will not necessarily continue at the same rate, as these particular markets operate with rather tight budgets, and new systems will therefore be designed to last.

Q How does the Canadian market compare to the U.S. market?

A The Canadian call center market is less mature than the U.S. market and will thus be increasing at a much faster rate. The number of agent positions in Canada will increase at a CAGR of 7.27% to reach 285,000 agent positions in 2007. This is substantially higher than the overall North American CAGR of 1.01%.

The growth of the Canadian call center market stems from the increasing amount of interest in the region, particularly from U.S. companies. To date, U.S. companies account for 80% of all new call center jobs created in Canada. A growing number of U.S. companies are "discovering" Canada as an investment option for call centers. These include outsourcers such as Convergys and SITEL, as well as big-name corporations like IBM, Xerox and Fidelity Investments.

With the Canadian dollar currently valued at 63 U.S. cents, potential cost savings are the main reason for the interest in Canada. Add to that a stable economy, a multilingual population with slightly higher unemployment rates than the U.S. and government incentives for call centers, and it is clear that there are compelling reasons to establish call centers in Canada.

Q What about offshore outsourcing? How does that compare to "near-shore" outsourcing in places like Canada?

A Recently there has been an explosion of interest in countries such as India and the Philippines for call center outsourcing. The abundance of low-cost labor available in these locations has been a considerable draw for U.S. and European call centers and outsourcers. In addition, both the Indian and Filipino governments have actively encouraged foreign investment in call centers in their countries, touting the low labor costs and high availability of an educated English-speaking workforce, as well as offering government incentives to businesses locating there.

However, I've seen a backlash to this trend, mainly because of security issues and cost. Despite the labor cost advantages of outsourcing call centers to countries such as India or the Philippines, recent events have made companies wary. India's military clashes with neighboring Pakistan persist, and threats from Islamic militants in the Philippines continue. Many companies are cutting back on travel since September 11, particularly travel overseas, and security concerns for Americans abroad are an increasingly important consideration. Canada offers companies an excellent "near-shore" alternative as a stable location right next door to the U.S., with minimal travel required.

Q Given the maturity of the market and the slowing growth, what can vendors do to maintain traction?

A It should now be clear to vendors that the North American call center market is a mature one. The overall market will continue to grow, but at a slow rate, and the percentage of brand-new agent positions as a proportion of the total is declining.

I think that for many vendors the real opportunity going forward will be in software upgrades to existing seats. That is where the majority of revenues are coming from this year, and the percentage is set to increase. Vendors that are able to offer software upgrades such as IVR, web-based self-service, and voice recognition technology will have an advantage.

Due to the relative maturation of the market and the slow growth of call centers in the U.S. through 2007, these improvements will be vital for future vendor success. Several large companies, including USAir, MetLife and Sears have recently closed down a number of their call centers in the U.S., a trend that is likely to continue as more U.S. call centers shut down completely or move to less expensive regions in Canada or other countries.

If you have further questions or would like detailed information about the report, please contact Sarah Person at sperson@datamonitor.com.

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