This post — part three of our Expert Interview Series — features Brett Bayduss, Partner, Site Selection Group.

Market saturation is one critical factor brands must consider when making contact center site selection decisions. The employee attrition, wage inflation, and hiring challenges due to increased competition that often accompanies saturated markets can have a devastating impact on the company’s performance and profitability.

Someone who knows a lot about the effects of market saturation is Brett Bayduss, partner at Site Selection Group, a global location advisory group based in Dallas, Texas. Each year, his group produces a contact center market saturation report relied on by the industry.

“It’s difficult in most industries to know when a market reaches the saturation level,” Bayduss said, “The contact center sector is unique because there is a commonly-accepted level that defines when markets get overly competitive.”

That level: Three percent, according to Bayduss, a figure that’s derived by taking all the contact center operations in a city or region, adding up the employment numbers, and dividing that by the total labor force.

“Three percent is an unwritten rule, but it’s the benchmark,” he said. “Once you reach the three percent level, you start seeing greater competition, which leads to increased employee attrition, wage escalation, and more opportunities for agents to work elsewhere.”

Drawbacks of Saturated Markets

According to Bayduss, saturated markets put pressure on newcomers to compete for talent, and companies must find ways to distinguish themselves, either through higher wages, better benefits, career progression, company culture, or flexible hours.

“Saturation makes for a candidate-favored market because agents know they can move to another operation that’s hiring and probably get an increase in pay,” he said. “Being able to find and retain talent can be a challenge, especially if several groups are looking to recruit, which typically means taking people from existing organizations. That’s the biggest downside.”

Bayduss did suggest that saturation can be favorable for some projects, such as when a company enters a market and pays above standard market wages.

“Saturation is not as daunting for these companies because they have separated themselves from their competitors,” he said. “Saturated markets can provide a good source of recruitment for them as they tend to pull from other operations.”

Advice on Entering a Saturated Market

Bayduss recommends that companies considering saturated areas factor in not only the number of existing contact centers but also the number of direct competitors.

“If ten operations make up the market and eight are direct competitors, that presents a problem,” he said. “If the number is two, the saturation rate may not be that much of a factor.”

His advice: “Use the metric as a way of getting familiar with the market to see what you’re up against, and then do more research and due diligence to understand what makes that up. Don’t use it to define the market but as a baseline comparison to see if it’s something that should be of concern or not much of a factor.”

U.S. Versus Nearshore Saturation Rates

Bayduss clarified that the three percent figure is relegated to the United States. In nearshore regions — Central America, the Caribbean, LATAM — the saturation rate is not as well-defined.

The rising popularity of nearshore outsourcing is leading the saturation rate in some countries — the Dominican Republic and Costa Rica were two he mentioned — to increase significantly when a bilingual labor force is required.

“The three percent figure is accurate if you calculate based on the total labor force, but if you’re factoring based solely on the English or bilingual population, the number in some countries can be as a high as 20 to 30 percent,” he said.

Belize, the only English-speaking country in Central America, fares better because the English and bilingual population is much higher compared to the total workforce. Bayduss indicated that Belize City, the location of most of the contact centers in the country, has reached around five to seven percent saturation. Other areas are less so.

“Belize is not as saturated as what you’ll find in other nearshore locations,” he emphasized. “It has a very healthy rate. Enough companies have set up operations there, but it hasn’t exceeded the metrics you see in places like Costa Rica.”

Benefits of Locating in an Unsaturated Market

Bayduss said that companies wishing to locate to a less competitive, unsaturated market provide a two-fold benefit: one for prospective employees and one for the companies themselves.

“Less saturation means fewer opportunities for contact center work exist, so when a company comes in and offers that, it can be attractive,” he said. “It also allows companies to create a market in terms of wages. Instead of coming into a place where that’s already defined, you can set the rate.”

He emphasized the danger of considering a market with an extremely low saturation rate, however. Is the skill set there? Are there enough workers? Do people even know how to work in a contact center? All are questions companies need to ask.

Other Factors in Site Selection

Market saturation isn’t the only factor when it comes to site selection. The sociopolitical climate is another. He cited the recent negative press in the Dominican Republic as an example.

“Our clients may read the papers and want assurances that they are operating in the right place and that these current event topics won’t impact their long-term ability to be successful,” he said. “People have to operate their business and anything that can be a deterrent has to be taken into consideration when making a site selection decision.”

Bayduss concluded his remarks by saying there will never be one metric, variable, or data point that can answer whether a specific geography is the right location.

“Take a methodical approach and analyze the data,” he advised. “Spend time at the location, drive around, and speak to people there. Not everything will point to the positive, either. Understand the negatives and whether you feel comfortable and that you have a contingency plan to overcome that. It’s not one variable; you have to take a holistic approach to site selection.”

Speaking of site selection, Transparent BPO offers a free contact center site selection guide to help ensure your next visit is 100 percent productive. Download it here.

If you are looking into outsourcing nearshore, consider us. We offer an open model customized to your needs using innovative approaches designed to make every person’s experience better than the one before. Contact us to learn more or schedule a free consultation.