Q: Please give us a brief overview of Core3.

A: Core3 really derives its name from three key pieces of the back office and what we think are our three core competencies: finance and accounting, HR/payroll, and IT outsourcing. If you look at some of the global BPO deals right now, those are the three components that CFOs and CEOs are looking to providers to address. Those functions tend to roll up to the CFO in many companies, and we have client contracts and references in all three of those areas.

Q: When Core3 deploys its best-shore approach, does it send certain tasks to its center in Delhi while reserving others for Phoenix, or is it on a project-by-project basis?

A: Generally speaking, input-related work happens in the U.S., process-related work happens in India, and output-related work happens here in the U.S. In the A/P process, for example, vendor invoice capture happens in the U.S. — you’re not going to send paper to India. Images are pushed to India and processing occurs there. Some vendor management, vendor support, and other peripheral functions can occur there as well, while check production and other output-related processes happen here.

We have clients that would prefer one location over another. Client preference is typically driven by proximity requirements and complexity requirements. The more complex the process, the less you would want to move it offshore. It still may be a domestic outsourcing candidate, but it may not be an offshoring candidate.

Q: Has employee retention posed a problem for Core3 in either location?

A: In the U.S., our attrition has been far below the industry norm. In India, we are also below the industry average. That is certainly something that our clients who have visibility into what we do in India are getting comfortable with: attrition in India is higher than it is here in the U.S. In certain cities, in Bangalore for example, industry observers estimate attrition in BPO companies to be north of 50% annually. We are running in the 30% to 40% range in Delhi, which, for us, is too high, but it’s certainly below the norm for that region of India.

Q: When did the rate of attrition in India start changing? When we first started conducting research years ago, the attrition in the United States was much worse than it was in India.

A: I think it started to change over the last twelve to eighteen months. U.S. companies are a lot more comfortable with India, and as a result, BPO is a very high growth industry. What you tend to see are a lot of young managers being accelerated up the ranks, and that creates a lot of movement throughout the BPO industry. When you have an industry growing as fast as BPO is in India, it creates a tremendous need for experienced managers. So you have a lot of movement both within and across companies where people are just being pushed up the supervisory chain to address expansion. That’s what I think is driving the attrition rates — the phenomenal level of growth.

Q: Have any of Core3’s clients expressed interest in a nearshore option?

A: Yes and no. I think companies say that, but I think there is a level of market acceptance with India now that makes people less concerned about the benefit of nearshore, say Canada, for example. The costs are not as compelling in Canada. You may be able to save 25% versus the U.S., but in India you could save 50%, which is what our clients have experienced, with the same or better quality of service.

Q: What are some unexpected challenges that Core3 has encountered as an offshore outsourcing firm?

A: Flexibility in communication is required. For example, I have become a huge user of instant-messaging. I’m on instant messenger at 5:00 a.m. many mornings and 10:00 p.m. many nights from my home office. It is a good way to keep in touch with my team in India.

Something that a lot of our prospective clients don’t realize is that telecommunications costs in India are roughly ten times what they are here. There is a tendency to underestimate telecommunications costs and focus only on labor. All told, you can still save 50% or more while improving the quality of service, but our cost structure is more than just labor.

Q: What are the top mistakes clients make when they outsource?

A: I think clients have to commit to spend the time on governance. In other words, a company has to be willing to spend the time to manage the relationship. As a provider, we have to make sure that we’re always doing those things that are consistent with the strategic direction of our clients. We’re an extension of our clients’ operations, and that requires a level of relationship management at a fairly senior level of the company. While a client may free up time to focus on their core business, and they may be saving a lot of money, they still have to block off time to know what’s going on with the outsourcing relationship.

Q: What is one piece of advice you might give a company conducting vendor due diligence?

A: I would encourage a company conducting vendor due diligence to evaluate how client-centric your prospective provider is going to be. That manifests itself in a few different ways, but probably the most important way is flexibility. How flexible is your provider going to be to address new concerns that come up, new process opportunities, and changes that occur in the business? There are a lot of providers that are not able to deal with things that are outside of the normal course of business. In a multiyear contract, that can make for a painful experience.

Q: How would companies be able to tell if a vendor is flexible?

A: Certainly checking references is one way. Looking at the diversity of processes owned and managed by the provider is another. How deep can the provider go in terms of cutting across other processes? Is this provider only going to be able to handle a data entry function or is this going to be a provider that can manage my vendors, support my customers, or deal with my field personnel? That’s something that I think is critically important — to have a provider that has the capability and flexibility to deal with a variety of process challenges and problems.

Q: How has the BPO industry changed in the last six months? The last two years?

A: In the last two years, the number of providers has really proliferated. What used to not be competitive, even at the Fortune 1000 level, is now highly competitive. We see less competition in the middle market, which we define as $200 million to $2 billion in annual revenue. While the Fortune 1000 companies continue to be of interest to us, we are finding that our flexibility and innovation address unmet needs in the middle market with a much faster sales cycle.

One real positive — and I think we have John Kerry to thank for this — is market awareness. I think that there was a lot of 2004 election campaign rhetoric that has served to strengthen outsourcing, not weaken it. The more people talk about outsourcing in India, the greater the awareness of its merits. The level of talent available at the price point is phenomenal in India. Awareness has increased, and that’s been a real positive.