For many years Australian companies have been reaping the benefits of outsourcing services. Today, more than 30,000 Australian companies have offshore partners in countries such as the Philippines, and around 70 per cent of leading Australian businesses outsource IT support teams for their technology needs. One of the benefits of outsourcing in low-cost countries like the Philippines is low production and labour costs. But from the Australian customer's perspective, outsourcing isn’t always beneficial, especially when language and colloquialisms can get in the way of good customer service. Sometimes, offshore workers read from scripts rather than engaging in real conversations with customers, for example. Other cons of outsourcing to offshore partners include issues with quality, company culture, customers’ data privacy and security. But does this mean that outsourcing offshore deserves its bad reputation?

It’s no secret that large telecommunications companies depend on offshore partners to outsource their technology and 24/7 customer service needs, and that they face significant challenges and adverse outcomes for customers as a result. One telco, in particular, Telstra, has faced heavy public scrutiny for axing hundreds of Australian jobs and replacing them with jobs overseas. Telstra’s chief executive, Andy Penn, explained in 2019 that the company had to ramp up its recruitment of software engineers from overseas instead due to the lack of talent available in Australia. But just last year, Telstra was forced to change course following the arrival of COVID-19, as many offshore call centre providers reduced capacity or closed altogether. More recently, Telstra announced a new plan to route all inbound voice calls through Australian call centres sometime in 2022.

Telstra isn’t the only company with offshore partners, and there are still many benefits to outsourcing. But is it possible for companies to offshore without negatively impacting customers? A new study: Managing Customer Uncertainty in Making Service Offshoring Decisions, has found that the key to offshoring and maintaining a good brand reputation is to find a reputable outsourcing partner. The paper is co-authored by UNSW Business School’s Senior Lecturer Gary Gregory, Associate Professor Liem Viet Ngo and Research Assistant Tony Lu, a Data Analyst at the University of Adelaide. Richard Bagozzi, Professor of Behavioural Science in Management at the University of Michigan, also assisted in the study. Together, the academics test a new model to help businesses find offshore partners and then communicate the benefits of outsourcing to customers.

The paper is novel because how and under what conditions customers react to news of popular national brands outsourcing customer services to an offshore provider has been an understudied area. The UNSW Business School authors explain: “We all know that offshoring is bad for a company’s reputation, and most of the companies want to hide their offshoring decisions, although customers will eventually know when they get in contact with their overseas agents or via news stories.

“We tried to explain that not all service offshoring is associated with negative attitudes, but it depends on the level of service offshoring fit. Therefore, it is contingent on customers’ perception of the service offshoring fit. When the fit is high, there will be fewer or no significant negative attitudes; while more significant negative attitudes will be developed when the fit is low,” explain the authors.

Read more: Yes, offshore services can meet customer expectations

Understanding the service offshoring fit 

The study helps inform practice about managing the issue of finding the best offshore partner. The service offshoring fit model measures how customers perceive the mutual benefit or natural fit of the offshore partner with the brand that is outsourcing. Is it a natural fit, or does it look like the company is only offshoring to save costs? To find out, the authors analysed 393 customer responses about whether they believed the brand’s offshore partner fit the brand. Next, the authors set out to determine how customer certainty about the ‘fit’ of the two partners affected customers’ intentions to switch to another brand.

The findings suggest that service offshoring fit is activated by ‘extrinsic cues’ such as the offshore service provider’s location, reputation, and technology capability. The authors conclude that, for brands to maintain a good reputation, the first step companies should take when selecting offshore partners is to evaluate how their customers will view the partnership. They explain: “Attitudes are an overall favourability towards a brand or a company. It could be positive or negative. It is essential for retaining customers, since those with negative attitudes will eventually leave the company or brand and find alternatives.

“Most of the studies found that offshoring, in general, will contribute to a negative attitude towards the company or the brand. That means customers will develop negative attitudes if the company offshore part of their services. Our studies also confirmed this finding.”

How to select an offshore partner 

Finding an offshore partner who is a good fit means customers are less likely to switch to another brand. Specifically, firms should choose partners in a country with similar cultural values and backgrounds, an above-average industry reputation, and technologies that are up to the task. This means the offshore partner’s reputation, technology, and cultural factors are ‘essential cues’ for customers to evaluate the service offshoring fit. If they find the fit is poor (which means they believe the offshore service partner cannot deliver services as good as they expect), customers will inevitably react negatively.

“So, when choosing the offshoring partners, companies need to consider whether the offshoring partner has a good reputation, has good technology to support the service, and is located in a culturally similar region that customers feel more comfortable communicating with. The higher the service offshoring fit, the fewer possibilities that the customers would feel ‘angry’ towards the service offshoring and the company,” reiterate the authors.

“One interesting finding here is that cultural similarity was not the predominant emphasis as in most country of origin research; that consumers looked equally at reputation and technological capabilities as just as important in forming impressions.” The authors also found that the emphasis on culture, technology, and reputation would vary depending on the type of service being offshored, forcing companies to consider what is important to their customers when offshoring.

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But it’s important to note that high-fit partnerships do usually cost more than low-fit partnerships. Such costs can reduce the benefits (or savings) of providing services offshore. So company managers need to think and act strategically by weighing the benefits against potential losses and customers’ reactions to ensure optimal net gains in the long term, the authors suggest. “High-fit partnerships enhance customers’ certainty and the perceived value of a brand. Conversely, low-fit partnerships reduce customers’ certainty and the perceived value of a brand,” they conclude. 

Communicate the benefits to customers 

In addition, it’s important for brands to honestly communicate with customers about the service offshoring decision and explain the benefits associated with it, especially those that directly relate to customers. Sometimes, the fit may not be ideal – either the partner is too expensive, or the “ideal” partner simply does not exist. In this instance, when selecting a sub-optimal option is the only choice, companies need to carefully communicate their offshoring decisions to their customers.

“Communication messages, including how the offshoring would benefit its customers, would mitigate not only the negative feelings towards service offshoring but also strengthen its customers’ confidence in doing business with the offshoring partner,” say the authors.

But not all communications will have the desired “magic effect”, warn the authors. The success will depend on certain conditions. For example, when the service offshoring fit is not ‘extremely unfit’, communication can improve those magic effects. But if the fit is good, spending money on extra information or marketing communications that will not affect customers’ attitudes might be unnecessary, the authors explain. However, when service offshoring is extremely unfit, communication will not mitigate those negative feelings but will instead strengthen them. This is because customers will simply not believe what the company says in such an extremely unfit context; the communication will not be seen as genuine.

So, although communications can effectively reduce customers’ uncertainties about service offshoring, firms should be cautious about the information they communicate when the service offshoring fit is low. “Communicating information about customer-related benefits that are directly related to customers’ concerns might activate customers’ scepticism about their true motives and lead to negative attributions, which would ultimately serve to worsen customers’ attitudes and reactions,” conclude the authors.