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Final Exam-Delta Air Lines: The Latin America Contact Center Decision - Case Study

Final Exam: Delta Air Lines: The Latin America Contact Center Decision-Case Study Doing Business in Mexico ITESM

Radhika Rangachar March 25, 2011 Professor. Haces

Final Exam-Delta Air Lines: The Latin America Contact Center Decision - Case Study Question #1: Why does Delta want to consolidate its Latin American reservations offices? Answer #1: As the telephone customer service line has been the latest trend over the past 5-10 years, many countries have expanded operations in developing nations to primarily save costs. Delta was certainly no exception. Delta looked into various ways they could set up their customer service center in Latin America in a manner that would save costs and serve the purpose. Delta believed that consolidating its Latin American reservation offices reduced overall costs yet, still provided consistency to its customers (Nelson, 2004). Nelson reported in the case study that Delta received over one million calls a year by 2000 and were rising approximately at a rate of 25% (Nelson, 2004). Therefore, if operations were consolidated under one branch office, then this would help Delta to expand business and perhaps, contract future business opportunities easier to satisfy market demands (Nelson, 2004). Question #2: What does Delta need in a location for its Latin America Contact Center? Answer #2: The process of shifting operations overseas, in any business, is extremely difficult and there are a number of factors that should be taken into consideration in order to achieve positive results. Similarly, for Delta to set up a Contact Center in Latin America, there are various factors that should be considered. Below are factors that should be established in the host country in order for Delta to set up operations, Telecommunications Infrastructure: Delta anticipates 13,500 incoming calls and over 2,000 outgoing calls every week (Nelson, 2004). Therefore, in order to carry out the abundant number of calls the host country should have an already reliable, credible, telecommunications infrastructure established. Nelson mentions in the case study that a proper telecom infrastructure was preferred as opposed to satellite due to quality of the service received with no disturbances (Nelson, 2004). Labor Costs: In line with Deltas mission to reduce costs, this also was applicable to the labor costs involved. Delta wanted to ensure that there would be no exorbitant costs involved including those related to labor. Labor costs were important to consider as it consisted of 60-80% of the operating costs (Nelson, 2004). Also, it was important to consider not only the demanded salary of the labor force but also the additional payments made towards workers retirement fund, health insurance, bonuses, etc. all of which would be add-ons to the base salary amount. Quality Labor Force: Not only was it important to calculate the labor costs, it was equally important to consider the availability of a qualified labor force that would be able to successfully execute the job on hand. The call center would be a place for customers to interact with Delta representatives to sort out their inquiries, standard reservations, special requests, travelling rates, etc. Therefore, it was important that the labor force available was qualified to have proper communication skills, speak both English and Spanish, technical expertise for master room control agents, etc. (Nelson, 2004). Language was important as agents would be able to communicate with the local vernacular, etiquette, etc. This is crucial in making customers feel comfortable and at ease with Delta employees. In order for Delta to accept new employees into their company, each potential agent would need to undergo a 6-week training program and successfully complete the course (Nelson, 2004). 2

Final Exam-Delta Air Lines: The Latin America Contact Center Decision - Case Study Flexibility of the Countrys Labor Laws: Each country in the world has specific rules regarding their labor laws that would certainly have an effect on foreign companies that choose to set up operations there. Rules and regulations may be related to overtime, gender ratio employed, hours of operation, etc. Delta would be considering a 24-hr center of operations, therefore it was important for the host countrys labor laws to fall under the same interests as Delta. Security: As I live in India, I notice that there are a lot of crimes that happen late at night to the employees at call centers. This is clearly a lack of security precautions and measures taken by the company. Therefore, similarly it would be very important for Delta to ensure the proper security measures are taken to accommodate the safety of all employees 24 hours a day. Availability of Government Support: Government power in each country varies. In some, the government has a very strong hold over company operations (grants, incentives, assistance, etc.). Therefore, similarly, this is also the case for countries in Latin America. To choose a country that provided the necessary government support would be critical for Delta to successfully carry out their operations with ease. Tariffs: Delta would need to conduct the transfer of equipment to the host country. Therefore, in line with the mission to save costs wherever necessary, it would be important for the host country to have reasonable tariffs imposed. Otherwise, these costs could also become large extras. Political and Economic Stability: Some countries may not have a stable political and economic establishment available. This could pose as a risk to companies that have set up operations as anything (riots, strikes, fluctuations in inflation rates, etc.) can effect operations drastically in this case.

The above mentioned factors are requirements for Delta to set up operations in the host country. If these factors are established by a host country then Delta would likely consider or prefer setting up their operations as it suits their needs. However, if not, then it would be more of an issue in the future if Delta were to set up operations there. Question #3: If you were Mary Smith, which country would you recommend? Why? Answer #3: If I were Mary Smith, then I would recommend Delta to set up operations in Chile. Though Chile has concerns regarding language, remoteness, and the relatively small size of its labor pool, the positive aspects seem to speak for itself. For instance, Chile was ranked as the number one Latin America Telecom country. This ranking put itself in a significant lead ahead of Mexico and even Argentina (Nelson, 2004). In addition, as mentioned earlier as well, Delta would require an abundant number of outgoing and incoming phone calls (international and national). Therefore, the costs per call is also important to consider. The data presented by Nelson, illustrates that for a 3minute international call during peak hours in Chile would cost, $5.69 USD, whereas Mexico is $15.04 and Argentina is $17.31. The cost by Chile in this regard seems very low. Speaking of costs, the salary demands by a representative in the various countries also puts Chile in the preferred category. For instance, the Head of Sales position demands a salary of USD $97, 854 whereas, Mexico and Argentina would be providing a salary almost a hundred thousand dollars more.

Final Exam-Delta Air Lines: The Latin America Contact Center Decision - Case Study Other aspects of Chile that presents it as an ideal location is that there is economic stability in their nation that would help Delta in its operations as well as future expansions. Though language was an issue for Chile as the Spanish was not as familiar as that of what Mexico labor provided, the available labor force in Chile was qualified with great universities and a welleducated work force (Nelson, 2004). Labor laws set up in Chile were also preferred for Delta operations. Chiles labor laws were quite flexible and at the same time took care of its work force with overtime, health coverage, etc. Chile also had the availability of government support which is very important for companies to set up operations overseas. The government provides support to its people in any nation, and therefore, should also be of assistance to those companies that choose to set up operations there. Chile in that regard was already willing to lend their support to Delta (Nelson, 2004). Therefore, if I was Mary, I certainly would have suggested Chile as the ideal host country for Delta operations. Question #4: What lessons can we learn from this case? Answer #4: Business in todays world is changing in a way that brings people, nations, and cultures closer. Communication and technology has made it easier to conduct meetings overseas, transfer money, and expand business operations. Therefore, the Delta case was important to understand that not only did this pertain to Delta expanding its operations to a Latin American nation, but it also was quite relevant to other companies extending its interests and needs to establish a presence in other nations as well. All the factors that were to be taken into consideration in this case were all similar factors that would play a crucial role in decisions made by other companies as well. I know this first hand as I see foreign companies setting up operations in Bangalore, India (the hub of Indian call center activity). Both in my social and professional life, I have been able to interact with many individuals who had important feedback about whether the switch here effected their operations positively or negatively. Both sides were definitely important to consider and I realize that for them, they felt that negative effects of the citys infrastructure set up, government activity and political stability played crucial roles over the positive aspects such as lower labor costs and reduced costs in rent, electricity, etc. This case study taught me a lot about how companies need to recognize all the factors that may not have an effect on costs today but well definitely play a role for overall costs in the future. Costs can again be in both the monetary or non-monetary terms. Therefore, all should be appropriately considered prior to making any decisions. Question #5: Why did Chile have better results with liberalization policies than Mexico? Answer #5: Chile did have better liberalization policies established than Mexico. I believe this was heavily due to the dictatorship of Augusto Pinochet during 1973 to 1989 (Nelson, 2004). Pinochet believed in neo-liberal economic reforms that were established in the form of privatization of state-owned enterprises, and reduction in tariff barriers- all of which, had effects on the stabilization of inflation and economic liberalization (Nelson, 2004). Therefore, as opposed to Mexico, Chile had experienced over time, steady growth and posed as a positive example to other nations. Even though Pinochets enforced policies were decades ago, it was still being practiced years later by 4

Final Exam-Delta Air Lines: The Latin America Contact Center Decision - Case Study consecutive governments. Therefore, this was one of the main reasons that Chile had better liberalization results as opposed to Mexico.

References: Nelson, Dr. Roy C. Delta Air Lines: The Latin America Contact Center Decision. Thunderbird, the Garvin School of International Management. 2004. Accessed on March 23, 2011 from http://content.xanedu.com/cases/thunderbird/a03040011.pdf?ID=0.56888727024339