Will foreign competition kill off our call centres?

MANUFACTURING once formed the bedrock of the North-East economy.

And while the sector still plays an important role, a steady change has been taking place since the 1990s.

Telecoms, finance and banking firms, lured by the promise of EU and regional development agency grants, have flocked to the North-East to open contact centres.

Many touted the friendly North-East accent as the reason they wanted their customer contact centres to be in the region.

But the reality was that low wages, high unemployment and generous aid lured them to the region.

Today, the sector employs more than 53,000 people in the North-East, or five per cent of the working population - the highest figure in the UK, according to figures from Contact Babel, in Sedgefield, County Durham, a company that collects data for firms that have call centres as clients.

But high-profile closures and job losses, with companies moving operations countries that have a lower cost base, such as India, have created uncertainty about the future of the sector.

The region is more reliant on contact centres than anywhere else in the UK. In the North-East, even the centres themselves are larger, with an average of 240 seats in each - nearly five times the national average of 48.

Steve Morrell, founding director of Contact Babel, said: "A lot of call centres in the UK exist where they are because that is where the business started.

"However, the ones that came to the North-East were generally looking to pay lower wages, and chose to come here for that, and for the European money that was floating around at the beginning."

The region has had its share of bleak headlines detailing the closure of call centres in recent years, including Lloyds TSB which, in a disastrous PR move, closed its Newcastle call centre and offshored the work with the loss of nearly 1,000 jobs - although the bank still has a thriving call centre in Sunderland.

Banking group Abbey, now under Spanish ownership, closed its Gateshead call centre with the loss of 235 jobs last year. Others blows have included jobs being shed at IBM in Stockton, Royal and Sun Alliance, in Sunderland; Norwich Union, in York, and RAC, in Darlington.

Although not all these job losses were down to offshoring, speculation always surrounds any closure.

However, the closures have always been followed by more positive news of job creation in the sector. It seems, for every company that leaves, there is another to replace it.

Telecoms operator Orange has outsourced jobs to India - albeit a relatively small number at 700. It gave no indication on Thursday that the recent round of job cuts were anything to do with offshoring.

Mr Morrell believes that companies are reluctant to make such admissions because of the bad publicity that surrounds such moves.

But he says cost savings will continue to drive jobs abroad, although his research has found that is a false economy.

An average telecoms firm could save £9m a year by moving 1,000 call centre positions offshore.

However, the damaging effect of offshoring, on company profits and brand, is more wide-ranging.

Seven per cent of customers questioned in a poll in 2004 had changed supplier because of call centres being moved to India.

Research by Mr Morrell found that two per cent of the customers of one company that offshored had changed supplier.

That means the average telecoms firm with ten million customers would lose £80m a year in revenue which, when the savings from offshoring are taken into account, leads to a net loss of £71m a year.

Mr Morrell said: "Many of the companies doing this are short-sighted and only look at the cost savings, not at the wider implications. Plus, the losses are something that are more difficult to quantify.

"But I don't see companies which have offshored services moving back to the UK in a hurry, despite the damage they are doing to their brand.

"There is a lot of ego behind this because people have put their careers on the block saying they want to offshore.

"If these people are still in the same jobs, they are not suddenly going to turn around and say no, we made a really big mistake."

Mr Morrell believes the North-East will be the main victim of offshoring because of its reliance on large call centres, and because companies originally chose the region to save costs.

But he said the sector as a whole was still growing, with 14 per cent growth forecast in the North-East by the end of 2008 - slightly below the national average of 19 per cent.

However Ranald Richardson, a Newcastle University academic who has carried out research on call centres, has predicted the industry will be in decline by the end of the decade, as a result of new technology and offshoring.

Mr Morrell disputes that, believing that increased use of the Internet inevitably leads to more use of contact centres.

"The sector is not diminishing," he says. "Although everyone whinges about call centres, they would much rather call their bank than wait in a queue at their bank in person.

"The increase in use of the Internet means more people are using call centres because the Internet can't answer all their questions. And they know better than to send an e-mail to one of these large companies because they might never get a reply."

Mr Morrell says customers feel strongly about offshoring.

Many companies are using Indian call centres for cold calling customers, with staff that don't know much about the product they are selling, or the country they are calling.

"This is damaging to the brand of the company, but also damaging to the brand of offshore contact centres as a whole.

"There is also a high staff turnover in the call centres in India because many of them are highly-educated students working all hours to earn some money. Plus the type of work they are being asked to do is totally alien to them."