Dialing in on a 'Hidden Gem'Local firm takes chance on Pakistan call centerBy Barry Shlachter Star-Telegram Staff Writer |
Tom Slone sees the South Asian nation of Pakistan as a virtually untapped opportunity, not a risky place to locate his fledgling Fort Worth company's only outsourcing call center, which he quietly did last summer.
"Pakistan is a hidden gem, a hidden jewel," enthused Slone, 62, chairman of Touchstone Communications, which he co-founded after working 33 years at Associates First Capital. He left Associates First Capital as president of its U.S. consumer finance operations.
Touchstone sidestepped neighboring India, the clear leader in call center work, to offer telemarketing and other services to U.S. mortgage companies from Pakistan's modern planned capital, Islamabad. Slone said that at first glance, the city reminded him of Irving's Los Colinas development.
A year later, Slone's $2.5 million venture went very high profile in Pakistan.
At the end of a June visit, he postponed his flight home when the Pakistani president, Gen. Pervez Musharraf, invited him over for a one-on-one meeting.
The June 26 conversation -- nationally televised -- between Slone in a business suit and Musharraf in an army uniform occurred shortly after the military ruler dumped his prime minister. The clear intent, Slone said, was to reassure Pakistanis that foreign investors are keen on the country despite the government shake-up. And the Colleyville resident said he didn't mind playing the role for the camera.
With 180 employees in Pakistan and 20 in the United States -- a sales and managerial staff in Texas and a small communications crew in Florida -- Touchstone says it can save American mortgage companies and other firms 30 percent to 40 percent on various business process outsourcing services.
Touchstone has gone public with its pitch at a time when outsourcing has become a political issue with Massachusetts Sen. John Kerry, the Democratic presidential hopeful, vowing to close loopholes that facilitate the exporting of American jobs to Third World countries.
Like others involved in outsourcing, Touchstone argues that its lower-priced services make its U.S. client companies more competitive, if not more profitable, allowing them to plow more resources into product development, increased capacity and improved customer support. In theory, jobs paying low hourly wages are exported while positions generating higher incomes are created at home although likely far fewer at first.
Meanwhile, some U.S. companies benefit now, it says.
Touchstone filled its Pakistani call center with $1.5 million worth of equipment from U.S. brands, including computers from Texas-based Dell. And it "outsourced" the screening tests of applicants' language skills to a California company called American Accent Training, Slone said. A language screening test and computerized training package cost $130 for each employee.
For one of its top clients, Oak Street Mortgage of Carmel, Ind., Touchstone's Pakistani telemarketers cold-call Americans from lists of prospective borrowers, then transfer those interested to the mortgage company's U.S. sales staff.
Young Pakistanis recruited by Touchstone, he said, generally speak better English than counterparts at Indian call centers, work for less and are more eager -- because of a higher unemployment rate among Pakistani university graduates. Touchstone employees receive about $250 a month compared with about $232 for typical call-center work in India.
Mike Meyer, a Touchstone co-founder, estimates that there are only about 20 call centers in Pakistan with more than 50 phone stations that specialize in overseas business processing, a minuscule number compared with those in India, where some companies employ more than 5,000 each.
With relatively few Pakistani competitors, the Texas company doesn't have to compete with rivals for workers, as it would have in Indian cities such as Bangalore, where employee poaching is fierce, driving up costs.
India and Pakistan offer tax holidays to information-technology firms earning hard currency.
But a Touchstone co-founder, Farukh Aslam, was quoted by the Pakistani newspaper Jang as complaining that tax-free promises are not always honored.
Customs inspectors made him pay $8,500 duty on computers and headsets, which he said was unwarranted under the terms of Touchstone's investment, the Fort Worth-based businessman said.
"These costs are not built into our business models, so I had to pay out of my pocket because my American partners will simply say let's get out of Pakistan and go somewhere else," he told Jang.
Although Slone made his first trip to Pakistan in March 2002 -- shortly after Wall Street Journal reporter Daniel Pearl was beheaded in Karachi and after a grenade tossed into an Islamabad church killed a U.S. Embassy employee and her daughter -- he doesn't consider physical security to be an issue, noting the relatively low level of everyday street crime.
"Islamabad is safer than Indianapolis, Indiana," he said.
But how big a gamble is it basing all of the call center work in a single Third World country?
"The cost savings from offshoring must be weighed against the additional risks that are created from offshoring in general," said Tassu Shervani, an Indian-born marketing professor at Southern Methodist Univeristy's Cox School of Business. Shervani, whose wife is from Pakistan, has traveled widely in India and Pakistan, and has family in both countries.
The risks, he said, are political, social and economic, ranging from war, natural disasters and domestic unrest to breakdowns in the communications infrastructure.
As a result, Shervani said, "Many companies that are offshoring are taking great care to not put all their eggs in one basket. They are developing locations in multiple countries -- India, China, Philippines, Malaysia, Mexico -- to not become overly dependent on a single country."
Pakistan and India were a single British colony until the 1947 partition. With independence, Pakistanis formed a homeland for the subcontinent's Muslim minority while India, with a Hindu majority, declared itself a secular state.
India is the world's largest democracy, albeit an often chaotic one. Freedoms there were abrogated once -- during the late Prime Minister Indira Gandhis's 19-month emergency rule in the mid-1970s.
Pakistan has had four military dictatorships, some replacing unpopular or corrupt civilian governments, and is now ruled by Musharraf, who seized power in a bloodless coup in 1999. Pakistan's relations to the United States have run hot and cold. Pakistanis felt betrayed over U.S. arms embargoes during wars with rival India. And although a mob burned down the U.S. Embassy in 1979, Pakistan's strategic location made it crucial to U.S. governments after the 1979 Soviet takeover of neighboring Afghanistan and again after 9-11.
Bureaucratic red tape and corruption have stymied foreign investment in both countries. India removed investment restrictions during sweeping reforms in the 1990s, but Pakistan had never tried to legally block foreign companies.
Economically, both countries are doing well. In 2003, Pakistan's gross domestic product grew at a reported 6.4 percent and India's at 8.4 percent.
Compared with other providers, "Pakistan faces additional challenges as it competes for market share in the offshoring business," Shervani said.
"Greater political instability and security risks ensure that Pakistan is unlikely to get more than a low single digit market share in the offshoring business, perhaps as low as a 1 to 2 percent market share of the 7 million to 8 million jobs that are expected to be offshored from the developed world by 2015," Shervani said.
Two outsourcing specialists agree.
"It sounds to me like it's a pure cost play, but Pakistan has a higher-risk profile than India," said Todd Furness, chief operating officer of Dallas-based Everest Group, which advises companies on where to find outsourcing providers. "India has an educational, financial, legal and work ethos. The legal structure in Pakistan just hasn't caught up with it."
Analyst Andy Efstathiou of the Yankee Group, a Boston-based research firm, said: "India has been doing it for a longer period of time, has a lot of governmental support and has built out a lot of infrastructure. Businesspeople in India made a decision decades ago to pursue off-shoring business."
That said, he went on, Pakistan might have a little less developed infrastructure but be better priced per employee.
Still, he remained surprised that Touchstone started with just one call center. "What you want to do is spread your risk."
But some entrepreneurial companies believe that the potential payoff is worth it.
David Stein, president of a Chicago collection agency called Malcolm S. Gerald and Associates, or MSG, planted its only call center beyond the Windy City in Karachi, Pakistan's financial center, for reasons similar to those of Touchstone: cost and availability of labor.
In Chicago, he pays his agents, who are high school graduates or hold GEDs, $10 to $14 an hour.
By comparison, his 150 or so Karachi agents -- all college graduates -- earn a fourth -- $2.50 an hour -- which he said is better than the $1.40 they'd get from Pakistani firms.
By year's end, Stein hopes to expand to a 300-seat call center with plans to diversify into long-distance, medical transcription work for U.S. hospitals and doctors, he said.
Unlike Touchstone, all of the MSG managers are Pakistanis who have received training in Chicago.
Even with the lower costs, MSG would never have ventured to Pakistan if the company's longtime accountant, Maj Sherwani, had not been of Pakistani origin. Sherwani's contacts proved crucial.
"You need some inroads to go into a Third World country and open a call center," Stein said. "You could not succeed without understanding how business works there."
Similarly, Slone formed Touchstone with Aslam, a businessman of Pakistani descent. Aslam transformed the former Color Tile corporate headquarters, known as the Meacham Building at 515 Houston St., into a "telecom hotel," routing and storage centers for telecommunication companies. Touchstone is a tenant.
Slone and Aslam put up the bulk of the $2.5 million investment. They had hoped on raising $3 million, but professional go-betweens failed to find venture capitalists to pony up, Slone said.
Gross revenues have grown from less than $25,000 in November to more than $90,000 last month, he said.
"We're within $40,000 a month of breaking even," Slone said, predicting that will happen in October. "Making something like this happen within two years is not bad."
