Datamonitor: Proposed Changes to U.S. Tax Laws Could Hurt Call Center Outsourcing Industry

U.S. consumers who are frustrated with dealing with overseas call center agents with thick accents and poor English language skills are no doubt applauding President Obama's proposed changes to the tax code for U.S. firms doing business abroad.

The sweeping changes in international tax law, if approved by Congress, could result in many U.S. companies bringing their call centers back home, as they will no longer be able to afford to offshore their operations. President Obama wants to close tax loopholes that permit -- and actually incentivize -- U.S. firms to send jobs overseas.

 

But while many U.S. consumers might rejoice at the thought of never having to deal with another overseas customer service rep again, Datamonitor analyst Peter Ryan warns that this could have negative implications for both outsourcers and the companies which rely on them to hold down operating costs.

“Outsourcers will need to quickly assess how these changes will impact their operations, as they could lead to higher price points, reduce operational efficiencies and erode their long-term competitiveness,” Ryan, head of contact center outsourcing analysis at Datamonitor, said in a statement. “How these [international] tax laws could impact vendors’ ability to do business in a cost-effective manner is of significant concern.”

If President Obama’s new tax plan becomes law in 2011, as is expected due to the broad support it has in the House and Senate, call center outsourcers selling offshore delivery will have no choice but to increase prices. As a result, many companies will investigate other options, such as establishing their own in-house call centers, or switching to U.S.-based services. Either way, the cost of operations will rise and businesses will have no choice but to offset the increase by raising prices.

As Ryan points out, it could also force existing clients to examine other business models for customer-facing work – possibly including increased deployment of automated systems including speech-enabled, self-service solutions (IVRs).

The new tax laws could also have an impact on operational flexibility. Some companies use offshore outsourcers to handle peak call overflow in order to achieve seamless customer service delivery – but this option will no longer be as viable should the new laws go into effect. As a result, these companies will lose some of the flexibility they had in terms of delivering consistent customer service.

Ryan points out that, “should vendors find themselves financially pressured into moving more operations back onshore in the U.S., it could easily have a negative impact on daily operations, given the traditionally high attrition rates associated with domestic contact center work.”

(However it should also be noted that U.S. unemployment rates are among the highest they’ve been in the past 20+ years, and with millions of Americans now looking for work it seems logical that call centers should be able to find and retain good agents in this current climate.)

Ryan also points out that the change in the law could cause some companies to relocate to new jurisdictions. He points out that other countries don’t have these proposed tax provisions in place -- therefore companies in those countries have an advantage over U.S. firms in their ability to hold down costs by using offshore outsourcers. As a result, U.S. companies which rely heavily on offshore outsourcing in order to control costs make pick up their roots and plant themselves elsewhere.

“There can be little doubt that the Obama administration is doing its best to make good on campaign promises to encourage U.S. firms to limit offshoring as much as possible,” Ryan said. “In the case of the recent changes to the tax code, outsourcers should examine the implications for their operations prior to the 2011 implementation point, so as to determine what impact it will have on their ability to deliver high-end and cost-effective contact center services.”

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