‘There’s no doubt that Jerusalem is the optimal place for American and European companies to outsource their work.’It’s a scenario that takes place every day in the United States. A consumer needs a service center and calls the toll free number. They’re greeted by a friendly informative call center worker speaking in fluent, unaccented English.
The caller would never imagine that the voice on the other end of the line is coming from halfway around the world. But it’s a fact that American companies are discovering a new source of highly skilled workers for their call centers – Israel.
When American entrepreneur and philanthropist Howard Jonas visited Jerusalem during the peak of the intifada he was overwhelmed by how many unemployed people there were, even among the most highly educated. He decided to go beyond charitable donations and in the summer of 2002, launched IDT Global (formerly CSM), a Jerusalem subsidiary of his Fortune 1000 company, IDT, the fourth largest telecom provider in the US.
He found 20 Jerusalemites formerly from the US who grew up amid American culture and manners, and put them to work. The call center serving the US, Canada and western Europe grew rapidly from 20 to 650 employees – skilled and educated workers – and word got out around the immigrant community that having a mother tongue in a language aside from Hebrew in Israel did not have to be a professional handicap.
And now StartUp Jerusalem (SUJ) – a non-profit organization seeking to revitalize Jerusalem and create jobs in all communities by attracting investments to the city – is determined to build upon IDT’s success and turn Jerusalem into a world class center for outsourcing.
A new report commissioned by SUJ and published by Catalyst IT Partners, a private UK consulting firm, confirms that though Jerusalem’s working-age population is highly skilled and educated, as well as labor-cost-effective in global terms, its human resources are vastly under-utilized for offshore outsourcing.
SUJ is betting that the report, released in early June, will further convince foreign businesses to outsource their projects to Jerusalem companies.
The brainchild of Jerusalem venture capitalist Nir Barkat, who ran for mayor of the city in 2002 on a similar mission, SUJ was launched in 2004, following a long period where unemployment was high, businesses folded, salaries were not competitive, and residents moved elsewhere. The organization focuses on three areas: tourism and culture; health and life sciences; and business outsourcing, by connecting foreign ventures with local sources.
For years, companies around the US, Canada and Europe, have been outsourcing offshore – transferring non-core business functions to outside companies in other countries, to lower costs, increase efficiency and refocus resources. Common outsourcing includes information technology (IT), accounting, human resources, payroll, legal, graphics and software development.
Though Jerusalem boasts an enormous English-speaking population, as well as populations from numerous European countries, , Jerusalem has been an unlikely destination for outsourcing.
However, Michael Barnett, director of marketing at IDT Global, says Jerusalem’s time has come.
“There’s no doubt that Jerusalem is the optimal place for American and European companies to outsource their work. There’s a huge brain resource here from North American and European immigrants that provides unequaled source of manpower,” he told ISRAEL21c. “We’ve drawn people from all manners of experience and professional lifestyles, not to mention the multilingual capabilities that are available.”
Today CSM/IDT Global Israel is the largest calling and outsourcing center in Jerusalem, serving many international destinations. But overall, there are fewer than ten calling centers in Jerusalem and most have less than 20 on staff and serve the French market.
But all that may now change. With support of the Israel Industry and Trade Ministry, the new report is already being circulated to Israeli trade attaches worldwide. Some 20 businesses in London have also signed on for a seminar this week to learn about outsourcing opportunities in Jerusalem.
“Jerusalem is really poor on one hand but is a city of many talents,” says SUJ CEO Eli Khazdan. “We are more than optimistic. There is the potential for thousands and thousands of jobs to be created for all Jerusalem residents across cultures.”
A selling point of SUJ to potential foreign investors, as documented by the report, is that labor costs in Jerusalem are 40-60 percent lower than in the US or UK, for example, but services are skilled, unlike India, where labor is cheap but low-tech.
Other advantages include an unusual labor force, with mother-tongue fluency in a vast number of languages, including English, Arabic, French, Spanish, Russian and German. SUJ is also manned on staff and board by Jews and Arabs from around Jerusalem.
“Arabic plays a strong role,” says Khazdan. “Egypt is not going to outsource in Israel, of course, but Europe has a growing number of Arabic speakers.”
This appeal to language is important as countries where work is outsourced like China and India do not have the range of languages, he says. “[Jerusalemites] are highly educated and speak languages in the mother tongue with no accent.”
According to IDT’s Barnett, there are multiple advantages to using a call center in Jerusalem.
“First of all, there’s an abundance of North American and European professionals in and around Jerusalem who have decided to make Israel their home. Seventy five percent of these immigrants are college graduates – it’s a well-educated workforce and a huge resource for us,” said Barnett. “Our staff have enough business experience to take a step back and realize that call center work is not fool’s work – it’s a challenging and positive experience.
“We offer a cultural connection to callers. At many call centers in other parts of the world the cultural connection is lost; the agent is unable to connect to the person on the phone. With us, more often than not, our agents make that connection, find things in common like being from the same state, and it aids the process of bringing the call to a successful conclusion,” he said.
SUJ received a boost when, in December, the government passed an initiative to partially subsidize employees of call centers that work primarily with foreign companies. The subsidy mandates that 70 percent of the employees must come from sectors that have been hardest hit by un- and under-employment – Arab, haredi, and immigrant.
Fifty four percent of the working age population in Jerusalem is underemployed, and it has serious consequences on the city. Citing primarily economic factors, Jerusalem residents from all segments of the population continue to move elsewhere in the country where the standard of living and salaries are higher, and where industry jobs are more plentiful. In recent years, Jerusalem salaries were also some ten percent below the national average.
For two decades, thousands more Jerusalem residents have been fleeing from the capital than moving to it. The trend of negative migration started at in 1983 at about 1500, and has continued to rise, especially since 1993. In recent years approximately 6,000-7,000 more residents flee than settle in Jerusalem every year.
The Jerusalem Municipality, which has signed on to offer up to a $250 monthly subsidy to the appropriate candidates, may be motivated by the possible return on its investment. If residents would stay put, municipal tax resources would be significantly higher.
The government business tenders for export-oriented call centers in Jerusalem were published last week.
While Jerusalem in particular, and Israel in general, is perceived as economically risky by some investors, because of the political and security situation, the statistics have not always borne this out.
“One of our main challenges is to change this perception,” says east Jerusalem lawyer and business school graduate Jafar Sabbah, who is manager of SUJ’s outsourcing section.
“Israel ranks better in terms of political stability than India, the Philippines, South Africa, Mexico, China, Brazil and Romania. We have big companies like Intel and IDT, and the political situation doesn’t affect them at all… I think [even] Catalyst was not expecting to find that Jerusalem was so suitable for ‘world class’ business outsourcing, in terms of the standards of technology, infrastructure, management and labor force.”
In their report, Catalyst reports that Israel ranks in the top 20-25 countries worldwide for offshoring, according to the Economist Intelligence Unit’s Offshore ranking 2005 and the AT Kearney Offshore Location Attractive Index 2004, and concludes:
“In both rankings, it is the relative small size of the Israeli workforce, as compared to overpopulated countries like India, and the perceived risks of political and security environment – not labor cost – that are the two main factors withholding it from reaching the top of both lists; where high-cost countries such as Canada and Singapore preside… At the same time, in terms of macro-economic stability, regulatory environment, labor regulation and infrastructure, Israel’s score is particularly high.”
“We don’t want to compete on price with India [for example],” says Sabbah. “India up to now has focused on back office processes, and doesn’t necessarily need an educated workforce. We can focus on high-end [educated and skilled] services for outsourcing for telemarketing, marketing, sales, and legal, financial and medical services. This is also an opportunity for all the citizens of Jerusalem.”