Hofstra Horizons Research

Offshoring of Services: What Country Are You In?

Shawn Thelen, Ph.D.
Assistant Professor, Department of Marketing and International Business

>Offshoring of Services: What Country Are You In?

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.

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.

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