The Impact of Currency Valuation on Global Call Center Site Selection Strategies
by King White, on Feb 24, 2020 3:57:23 PM
Currency valuation can have a huge impact on call center site selection strategies as companies evaluate onshore, nearshore and offshore location options. Whether it is a strong U.S. dollar or foreign political instability causing currency fluctuations, the impact on labor, real estate and overall call center operating costs can swing dramatically in a very short amount of time. To help you understand the impact, Site Selection Group conducted a 25-year currency valuation analysis of 13 countries including Brazil, Jamaica, South Africa, Colombia, Dominican Republic, Costa Rica, Mexico, India, Philippines, Guatemala, European Union, El Salvador and Canada to help you understand how currency valuation can influence your location decisions.
25-year currency exchange rate comparison
The call center industry saw its greatest growth over the last 25 years. In the ’90s, the call center industry began to emerge as a true industry as companies began to consolidate call center functions into centralized facilities with the latest phone switch technology of the time. Almost all site selection activity was domestic at the time until Canada, India, the Philippines and some Latin America markets began to emerge on nearshore and offshore options.
The below interactive graph illustrates historic exchange rates from 1995 to 2020 based on how much one U.S. dollar is worth in local currency which means the higher the local currency value then costs are less for a U.S. company. (Select specific countries or view all countries)
India was really the 1st offshore location with steady decrease in currency valuation
India paved the way for the outsourcing industry as we know it today. Some of the earliest entrants to the market were Texas Instruments, American Express, Swissair, British Airways and GE, which started captive units in India. India has a relatively stable economy and geo-political climate which has helped its currency to be relatively stable compared to smaller, more volatile countries. The Indian rupee value has decreased over time from 31 Rupees per U.S. dollar in 1995 to 70 today. High wage inflation in India has offset it to keep India’s overall cost generally the same over time.
Drastic currency fluctuations in Canada created chaos in the call center industry
You would have thought the call center industry had struck gold in Canada in the mid ’90s as all of the outsourcers flooded into Canada to take advantage of the weak currency. The currency peaked at around $1.50 Canadian dollars to the U.S. dollar in 2002 which basically allowed business process outsourcers to hire agents at a 25% discount over the U.S. for some of the best English speaking talent in the world. However, the party ended over the next five years as U.S. currency weakened and the Canadian economy took off causing the exchange rate to be equal to the U.S. which meant labor rates were around 20% higher in Canada over the U.S. As a result, there was an exodus of call centers leaving Canada as well as many outsourcers forced to the brink of bankruptcy. Only recently has the Canadian call center industry started to re-emerge as currency values have decreased.
The Philippines explodes as the U.S. enters dot-com recession
The Philippines emerged as probably the hottest offshore destination of all time in the late ’90s and exploded in 2000 and beyond as the U.S. entered the dot-com recession. The Philippine peso weakened during that time and stabilized along with the rise of President Corazon Aquino. The call center industry has grown to an estimated 1.5 million call center workers and has been able to maintain its low-cost profile despite wage inflation and higher employee attrition.
Colombia and Jamaica are the latest high growth markets helped by weakened currency
In the last five years, Colombia and Jamaica have been two of the hottest nearshore locations as their currency value decreased significantly against the U.S. dollar. The Colombian peso has gone from $2,019 in 2014 to $3,400 in 2020. This has created a massive wave of call center companies trying to enter the market to take advantage of the low costs.
Jamaica has followed a similar path with the Jamaican dollar decreasing in value by almost half over the last 10 years. The U.S. equivalent wage rate in Jamaica for a call center agent was over US$5 per hour in the late ’90s which has dropped to around US$2.50 per hour today. As a result, huge amounts of call center jobs have been added as companies scramble to find space to house the workers.
Mexico re-emerges as call center destination as currency drops in value
Mexico has definitely had its ups and downs as a call center location over the last 20 years. As corruption and crime escalated, many companies had almost given up on the region for call centers. After President Trump’s election, Mexico’s currency value decreased by 40% in a matter of two years, which created a new wave of call centers landing in the country especially in border towns like Tijuana where bilingual agents are readily available.
There are many call center site selection factors to consider before picking a location that is onshore, nearshore or offshore. The factors include labor availability, labor costs, geo-political stability, crime and corruption, real estate availability and overall operating costs. Currency valuation and stability is only one of the factors; however, it is very important as currency valuation can change quickly.