How Does Offshore Outsourcing of Customer Services Affect Customer Satisfaction: The Case of AOL in India?

Introduction

Offshore outsourcing is not a new phenomenon. However, with exponential proliferation of technological capabilities worldwide, offshore outsourcing has gained considerable momentum since the mid-1990’s. Major improvements in transportation and communication technology have enabled MNEs to have instantaneous accessibility to an interconnected global network. 24/7 business operations, global coverage, and thin tolerance for error is the new reality that MNEs face. Consumers are demanding, and alternatives or substitutes continue to give customers more choice and evidently more power. Therefore, firms have placed considerable focus on measures to enhance customer satisfaction and loyalty; critical factors to bolstering a bottom line. Balancing the intricacies of competitive pricing and service-quality has become progressively more difficult for MNEs. By offshoring and outsourcing business functions, firms can generate huge savings by paying overhead, input expenses, and wages that are a fraction of the cost when compared domestically (Bournakis, Vecchi & Venturini, 2018). Nonetheless, benefits of offshore outsourcing depend on careful and well-planned execution. Unfortunately, not all offshore outsourcing initiatives go as planned, and some end up costing more time and money than expected, negating anticipated benefits. As the following paper discusses, poor execution can result in more than just short term monetary costs. Primarily, longer term costs include damaged credibility and loss of customer satisfaction and loyalty by failing to meet expectations.

This paper addresses how offshore outsourcing of customer services affects customer satisfaction, with frequent reference to AOL and their customer service outsourcing experience in India. However, the paper is not limited to AOL and most analysis is applicable to any MNE choosing to outsource business functions offshore. First, a brief overview of AOL is provided. Customer satisfaction remains a focal point for any successful business. As a company transitions toward a global business model that leverages foreign resources, risk increases from a multitude of new exposures. When a change directly impacts a customer’s perception or standard way of doing business, satisfaction levels are tested. In order to understand why customer satisfaction is so important and what sways consumer sentiment, the next step is to define customer satisfaction. Customer satisfaction is linked to service quality, customer perceptions, and many other subjective elements that create a moving target for a business to address at any point in time. The analysis continues by discussing the sensitivity of customer satisfaction, gauges of customer satisfaction, and AOL’s general position compared to industry peers.

Moving on, the concept of offshore outsourcing of both front-office and back-office operations is discussed. Analysis includes pros and cons in engaging an offshore outsourcing vendor to perform duties and functions that otherwise would have been done domestically. Findings support that in many circumstances, the benefits of offshore outsourcing far exceed the costs. Access to global networks and supply chains, cheaper labour and inputs, and the emergence of options that were previously unattainable support offshore outsourcing endeavours (Monahan, 2017). Conversely, the opposite is true in many circumstances where MNEs have reversed course and “reshored” business functions not only domestically, but internally. Poor execution, inflated expectations, negative customer reactions, and domestic backlash are all common reasons that MNEs have reconsidered offshore outsourcing. In AOL’s case, experience, and first-mover advantages generated high support from AOL executives. However, by placing faith in offshore outsourcing techniques, challenges begin to emerge; even in English speaking countries such as India. Finally, the paper will aim to answer why companies such as AOL, engage in offshore outsourcing of customer services despite notable evidence that suggests this course of action will result in a potential decline in customer satisfaction.