The Resource Group (TRG) is one of the largest offshore-controlled BPO companies in the world. Its business consists of taking controlling stakes in business services companies in North America and Western Europe, and repositioning them for growth using a globalized service delivery model. TRG was founded in 2002 and currently has $185 million in revenues, with over 4,000 employees in 24 facilities worldwide. The company is publicly listed on the Karachi Stock Exchange.
TRG’s current focus has been on the teleservices industry, where, through its portfolio companies, it provides voice, Web and email based contact center services to small businesses as well as Fortune 50 companies. TRG also provides offshore back office services such as finance functions, software development, data processing, IT helpdesk, marketing and administrative support.
TRG has acquired well-known, award-winning service providers across the US, Canada and UK, including:
- Alert Communications
- Central Voice
- iSKY North America
- iSKY Europe
- Reese Teleservices
TRG established its offshore facility in Lahore, Pakistan in 2002, a second facility in Karachi, Pakistan in 2004, and is currently implementing facilities in Manila, the Philippines and Casablanca, Morocco. At the time of this writing, TRG had 1,000 people working at its offshore locations.
This article describes the rationale behind TRG’s business model, the challenges associated with operating in a nascent offshore location and the strategies employed to overcome these challenges.
A Quick History
TRG’s history goes back to a Bay Area-based medical devices manufacturer, Align Technology. As one of the early adopters of low-cost offshore back office operations, Align had established offshore operations in Lahore, Pakistan in 1998. In addition to seeking to lower cost and gain higher quality, the primary decision underlying the choice of location for Align — then still a start-up company — was expediency and ease of execution. For Align’s founder and CEO Zia Chishti (now the CEO of TRG), his hometown of Lahore (population: 8 million) not only had a large pool of low cost, qualified English speakers, but was a natural choice given his familiarity with the city. This facility provided three-dimensional graphic modeling services to support Align’s manufacturing operations, as well as call center services to support its marketing efforts, and had scaled to 700 people by the end of 2000. During its period of operations in Pakistan, Align experienced uninterrupted offshore service delivery with service levels exceeding onshore operations at a third of the US cost.
Subsequent to the events of September 11, 2001, Align’s board of directors elected to relocate operations from Pakistan to Costa Rica given the increased perception of geo-political risk in the region. In 2002, Chishti and several other key members of Align’s offshore team formed The Resource Group (TRG) and acquired Align’s offshore call center operations in Pakistan.
The TRG Business Model
The TRG team’s successful experience with the Align Technology offshore facility had convinced it of the business case based upon global labor arbitrage. Some trends, both positive and negative, had started to emerge.
First, demand for offshore labor was continuing to grow as companies realized the potential for offshore labor savings. During the economic slowdown in 2001 and the resulting focus on cost rationalization, companies had increasingly turned to offshoring to reduce costs and remain competitive. The outsourcing market was predicted to grow to revenues of $35 billion with a 6% projected annual growth rate.
Second, the offshore honeymoon period was over and reality was sinking in. Rapid growth in offshore demand in mature offshore destinations resulted in operational challenges. Customers had concerns about increasing turnover at the employee level, lack of middle management experience, lack of security procedures, poor accents and quality in the case of voice business, and increasing labor costs.
In formulating the business model of the new company, the TRG founding team wanted to create a strategy and structure that was centered around the fundamental labor arbitrage value proposition, but that was also was highly scalable and easy to execute on. It decided to create an acquisition-driven model, where it acquired business services companies in North America and Europe, using these companies as platforms to drive through a process of offshore and onshore service delivery. TRG’s offshore customer programs were to be managed by experienced onshore teams, with the employees located in one or more of the facilities located both “onshore” in North America and Europe and “offshore” in the low cost location, thus providing a blended or “hybrid” solution.
The following factors were key drivers of TRG’s strategy:
Maintain onshore customer relationships
Most early adopters were already considering offshore options through an outsourcing relationship, joint venture or captive center. However, the majority of the customers requiring offshore services wanted to do it differently. In particular, they wanted to maintain their existing vendor relationships to manage the migration process. From TRG’s perspective, these vendor relationships were critical in convincing existing customers to leverage offshore savings and selling new organic offshore business in the marketplace.
Leverage onshore domain expertise
Due to rapid growth in the industry, accelerated promotions and high turnover, in most offshore destinations the average industry experience of middle management staff was fewer than three years. Lack of experienced supervisors, trainers and managers was a critical reason behind less than optimal offshore service delivery results and resulted in customer issues with offshoring such as long ramp times, lack of motivation among employees, and high turnover. TRG’s model of onshore leadership and offshore employees provided for quicker ramp up of employees and relied on internal resources to train employees and ensure success.
Achieve scale rapidly
Scale was necessary primarily to reduce average offshore costs. In amortizing fixed overheads such as bandwidth, real estate, etc. over a larger group of offshore employees, it was necessary to provide competitive offshore prices to customers. Additionally, scale was critical to successfully compete for large, new organic offshore business opportunities, Through acquisitions, TRG has become one of the largest offshore-owned BPO companies in the world in less than two years. This has put in place a platform for selling organic business and scaling offshore operations:
Access to capital
To successfully execute on the business model, TRG required access to acquisition capital to purchase business services companies in North America and Europe. Institutional investors in North America and Western Europe were still reluctant in 2002 to invest significant amounts in a labor arbitrage-driven strategy. However, capital markets in several of the low-cost locations themselves (such as Pakistan and India) were highly buoyant and afforded opportunities for raising sufficient capital.
The TRG team had the option to build its offshore presence around the Align operation in Lahore or consider a brand new presence in another location, As it considered its possibilities, it appeared that despite the challenges of operating in an emerging location, Pakistan was the ‘. best option for rolling out the TRG business model for several reasons.
Any business centered on large-scale global labor arbitrage had to, above all, have the right fundamentals with regards to labor availability and operating environment. Pakistan had a large untapped labor pool of English-proficient graduates willing to work at wages 60% below their US counterparts. Furthermore, consolidated operating costs were roughly 30% lower in Pakistan as compared to India or the Philippines. Finally, government was beginning to provide incentives and willing to invest heavily in infrastructure required to jumpstart growth in the BPO sector.
Requirement for near native language capability
Under the hybrid model, offshore operations were designed as an extension of the onshore “brands.” To maintain the integrity of the brand and provide a true blended solution, the offshore operations were required to recruit employees with near native language capability, a key measure for offshore quality, particularly in- the voice business. TRG succeeded in recruiting employees with significant exposure to North America and the UK, which was possible given the extremely low saturation levels within the labor pool. Additionally, the labor pool in Pakistan has English proficiency comparable to the Philippines, with a much less pronounced accent than most other destinations such as India.
First mover advantage
While leveraging an established market for its offshore service delivery carried several benefits for TRG, the team felt that the advantages of being a first mover outweighed the execution challenges of operating in an emerging location. In-the case of Pakistan, TRG benefited from the following:
Abundant supply of qualified labor
TRG estimated that there were approximately 17 million English speakers in the country. There were about 445,000 college graduates and about 10,000 computer science graduates per year. In addition, there existed a large migr population with education and work experience in North America or Europe. Given the nascent stage of the BPO industry and limited local competition, recruitment for employees with neutral accents and the maintenance of low attrition rates was relatively easy.
Low offshore labor cost
The offshore labor supply far exceeded the demand; thus no inflationary pressures on costs were projected in the short run. The average annual salary for BPO professionals was approximately $6,000.
Real estate prices for comparable space in Karachi and Lahore were 50% lower than Bangalore and 80% lower than Mumbai. Grid electricity, though reasonably priced, was unreliable and required backup options. High-speed telecommunications connectivity was available with prices falling to internationally competitive rates. There was no redundancy of the international backbone coming into the country.
GDP had been growing at 5.5% annually since 2001, with robust stock market growth outlook. The political situation was stable and had stabilized since Pervaiz Musharraf had become President in 1999. Sectarian violence continued to be a problem but had resulted in no business disruptions in two decades. Safety levels in Karachi and Lahore compared favorably to other major metropolitan areas around the world. Finally, the government had provided a 15-year tax holiday for IT-enabled services, allowed 100% foreign ownership and eliminated import duties on IT equipment.
Challenges in a Nascent Location
Being a pioneer in a nascent location such as Pakistan had its own sets of challenges and issues. The issues associated could largely be categorized in five areas.
Mitigation of the perceived country-risk issues
The hybrid solution along with existing onshore relationships helped mitigate any customer concerns surrounding the country’s image as an unstable offshore destination. Additionally, this coincided with Pakistan becoming a close ally to the US in the war against terror. TRG’s acquisition of multiple operations globally allowed for failover and redundant facilities, thus further reducing the perceived country risk.
There was a general lack of understanding about the varied types of services a BPO company can provide. The general misperception among the labor pool was that the work was limited to outbound telesales and that the employee’s remuneration was limited to a sales commission. Additionally, employees didn’t expect to work US business hours.
General management experience as well as BPO and customer service experience was lacking in the country.
Country not on the offshore radar screen
Overall BPO penetration was low, with Pakistan rarely being mentioned as an offshore alternative. There were no industry analysts or reporters who considered Pakistan in their offshoring studies or had much knowledge about the country. In addition, lack of competition was perceived as a negative from the customers’ perspective.
Lack of “support” organizations
There were no headhunting organizations, recruitment or staffing agencies or training institutes. Instead on being able to focus exclusively on service delivery, TRG spent significant resources on recruitment and training.
Overcoming the Challenges
TRG addressed the labor issues from the beginning to attract and retain the higher quality employees.
First, it was important to set the right expectations from the beginning about work hours and educate employees about the type of work. To this end, TRG visited local schools and colleges and provided a perspective on the industry in newspapers and television and radio interviews.
Second, TRG used its “onshore” management to recruit, train, and supervise employees in the absence of any “support” organizations. TRG also employed speech therapists in the US who had worked with Hollywood actors to refine the accents. TRG essentially leveraged onshore management to execute the programs in the short run and over time groomed the next generation of offshore management.
Third, TRG paid above-market salaries to compensate for nighttime work and ensure high retention levels. As a true multinational company in Pakistan, TRG soon became an employer of choice.
The largest cost component in an offshore BPO facility after labor is telecom cost. When Align first entered Pakistan, the average cost of high-speed 2Mbps dedicated Internet access to the domestic fiber backbone was over $8,000 per month. These costs were controlled by Pakistan Telecommunications Corp. Ltd., a state-run monopoly. Its policies and tariffs were dependent on government policy. Align and TRG management lobbied aggressively to reduce the costs for bandwidth and make them internationally competitive. Today the prices are internationally competitive. A 2Mbps IPLC costs $2,000 compared to $2,400 in India and, $1,500 in the US.
The biggest challenge that TRG faces to this date is the image associated with Pakistan as a relatively inexperienced offshore destination and the perceived political instability and security risk. Government and industry associations have engaged in several initiatives to increase awareness in the international markets and highlight the capabilities and opportunities in the country. TRG has organized prospective client trips to Pakistan to showcase the BPO activities in the country. In the advent of untoward publicity or national events, TRG proactively works with customers to address any concerns surrounding political instability or security issues. TRG actively uses video technology to bridge communication gaps. With the advent of other BPO businesses in the country, customers are becoming more acquainted with the opportunities.
The Lessons We’ve Learned
The last few years have seen a major boom in BPO and voice-based call center work in Pakistan. This includes both domestic and international facilities. So far, there are approximately 200 BPO facilities employing more than 10,000 people. Pakistan, is now poised to capitalize on some of the qualities that propelled other countries to the top of the outsourcing class.
The offshore BPO industry in Pakistan is still in its early stages. The lessons learned in Pakistan are applicable when entering any new location.
- Establish local support to shorten time to market.
- Develop a business model that fits customer needs and the operating environment.
- Actively work with local government to establish incentives to create a competitive environment to support business objectives.
- Build a coherent marketing and communication strategy to work with international media and research associates.
The Resource Group