In my predictions for the customer experience services industry a year ago, I noted that political risks will replace security concerns as the biggest external threat to the industry. Looking ahead to 2018, regulatory changes and government policies will have a lasting impact on the selection of delivery locations, country investment plans, and market presence. Here I take a closer look.

Governments’ Influence on Labor Cost Has Immediate Impact

In an industry where labor is the biggest cost, government policies mandating increases in minimum wages have immediate impact on contact center operations. The latest example is the province of Ontario, Canada where the minimum wage increased from CAD 11.60 per hour in October 2017 to CAD 14/hr from 1^st January 2018 and will jump further to CAD 15/hr in 2019.  Such mandatory wage increases in countries such as India and Philippines are also breaking historical trends, as Concentrix’s CEO Chris Caldwell pointed out in last weeks’ earnings conference call.

While in the U.S. the federal minimum wage has not increased in more than eight years, states and cities are continuing to set higher rates. With low national unemployment and greater need for new hires with sales and digital skills, the combined effect on providers’ U.S. onshore delivery centers can be a push towards optimization. This optimization may involve scalable markets (e.g. SYKES’ move to more urban locations), growing the number of work-at-home (WAH) staff (e.g. HGS’ WAH expansion in Canada), and overall increased investments in automation to reduce exposure to a volatile labor market. The added benefit, of course, is that by eliminating low-skill tasks, agents can be freed to provide more value-add, sales, and retention work.

Politicians’ Focus on Offshoring Requires Attention

Offshoring is an easy target for politicians, and in the last few years the focus has extended from manufacturing to services relocation. In Washington, the topic remains somewhat under the radar amidst the significant taxation and regulatory overhaul targeted by the current administration. The United States Call Center Worker and Consumer Protection Act, continues to be a part, albeit a minimal part, of the legislative agenda with the latest introduction to Congress in February 2017.

However, the effects of these or similar provisions are difficult to predict, with the closest examples coming from Italy, where the 2017 updates of existing legislation had the following effects:

• Contact center workers being required to inform users where they are physically located
• Companies being required to inform the Ministry of Labor of any planned contact center relocation within ten days, or 30 days if the relocation is outside the EU
• Companies having to register with the Italian Communication Authority (AGCOM) any Italian contact center telephone numbers used for business activity.

Still, the Italian example is not fully transferable to other markets due to the low level of nearshoring/offshoring in the country and the previous adoption of similar steps by the private sector.

Data Protection Laws Already Reshaping CX Service Client Requirements

Unlike the possible changes associated with the laws related to offshoring, security and data protection regulations are already affecting the needs of clients. As NelsonHall explained in this blog, the EU's General Data Protection Regulation (GDPR) coming into force on 25^th May 2018 requires service providers to help clients design and execute compliance with the new benchmarks of data protection and data security. CX service vendors have been reacting in the last 18 months by allocating additional resource in data governance and change management, and guiding their clients, including their in-house contact centers during the process (e.g. Teleperformance’s GDPR/BCR program).

The EU regulation is likely to set up the global standard for data protection, but similar rules can also be used to limit access to markets, such as Russia’s 2015 data localization law. It requires the recording, storage, modification, retrieval, and other data management of Russian citizens’ personal data to be done from databases located in the territory of the Russian Federation. As a result, small-scale nearshore/offshore support and sales programs covering Russia became untenable.

Similarly, new and expanded cybersecurity rules such as China’s Public Internet Cybersecurity Threat Monitoring and Mitigation Measures further complicate data storage and data governance requirements by asking companies to continuously feed information on cyberattacks and “cyber threat intelligence” to a centralized government database.

Social Media Content Moderation Laws Create Additional Business

Content monitoring and moderation on social media is on the radar of the authorities in several countries in Europe and in the U.S. The German Network Enforcement Act which has fines up to €50m if the social media fails to remove controversial and hate content within 24 hours is in effect from 1^st January. It already forced networks such as Facebook to expand their content moderator teams and add capacity with external partners.

U.S. Immigration Policies & Philippines’ Security Troubles Create Opportunities in LATAM

The Philippines is undergoing a decline in BPO-related investments with new seats growth affected by perceived or actual security risks, fueled by Duterte’s hostility towards the U.S. and most recently the rebel activity in the Mindanao region. This slowdown benefits primarily U.S. nearshore delivery with providers boosting their capacity in Guatemala, El Salvador, Costa Rica, and Jamaica (e.g. Alorica’s LATAM investments).

In the U.S., the Trump administration’s policies towards legal and illegal immigration, such as revoking TPS announced this month and the decision over DACA pending for March, continues to grow the pool of English-speaking, culturally-aligned young people who were forced to relocate. This growing resource has the potential to supply the next expansion of nearshore U.S. capacity.