Faced with a shortage of talent and real estate in Silicon Valley, Mike Lambreth, customer service manager at Shutterfly Inc., recently outsourced some customer support functions.

But representatives who answer questions via e-mail about digital photography from Shutterfly customers aren't just a state away. They sit in a 65,000-square-foot facility in Bangalore, India, halfway around the world from the firm's headquarters in Redwood City, California.

The thought of overseas customer support may have seemed far-fetched just a short time ago because of logistical problems such as high telecommunications costs and language and cultural barriers. But Shutterfly is among a growing list of firms that are not only turning to third parties to manage customer support but are also relying on workers from foreign shores.

"Finding qualified people [for core business operations] is difficult enough in this area without having to run a huge e-mail operation," said Lambreth. He added that Shutterfly receives as many as 600 customer e-mails per day. 24/7 Customer.com manages Shutterfly's service center in Bangalore.

Yet Shutterfly is far from unique. General Electric, American Express, British Airways, FedEx and Citibank all have overseas customer support operations.

Driving Factors

Two of the driving factors behind the growing interest in offshore call centers are declining telecommunications costs and maturing Internet technologies. Bandwidth costs, for instance, are dropping at a rate of about 60 percent per year, said Jay Patel, an analyst at The Yankee Group in Boston.

In addition, he said, many clients are even beginning to outsource their call center operations and their Web-based support overseas.

FedEx has operated overseas call centers for more than a decade, and now the company is thinking about outsourcing some of those operations, according to Sheila Harrell, vice president of strategic analysis and planning at the Memphis-based package transport firm. Improvements in telecommunications and customer relationship management software have made outsourcing an option in this arena, she said.

And, although FedEx's 40 overseas call centers mostly handle queries from the US, Harrell said the company is planning to network its call centers so support staffers have the customer information they need to handle worldwide calls.

"Our goal is to [operate] 24/7 around the world" and offer customers traveling abroad consistency in how their data is handled, she said.

But setting up offshore call centers isn't without its challenges. Even if outsourcers select countries with well-educated, English-speaking populations, many find that they need to provide training to familiarize the foreign staff with American culture.

Another obstacle is the high price of calling overseas. To help combat the problem, 24/7 Customer.com uses voice over IP phone systems, which send voice over data networks, instead of relying on costly traditional phone lines.

According to the Telecom Applications Research Alliance in Halifax, Nova Scotia, voice over IP can yield a potential savings of as much as 35 percent vs. traditional Centrex service or private branch exchange systems.

A number of Fortune 500 companies, mostly in the financial services and telecommunications industries, have already outsourced some of their call center operations but are reluctant to disclose that information, according to analysts and vendors.

"A lot of companies don't want to let you know that some other business has their [customer] data," said Brian Bingham, a senior analyst at IDC. The problem, Bingham explained, is that some clients believe that turning over business to a company that's "outside your domain" will cause firms to lose touch with their customers.

But Elizabeth Herrell, research director at Giga Information Group Inc., estimates that about one in five call centers are outsourced, either in the US or overseas, and she expects that figure to double by 2005.

Etelecare International, another call center outsourcer, boasts on its Web site that it operates a 300-seat facility in Manila in an "economic development zone near major universities." But a spokesman for declined to be interviewed for this story and said the company's client list is confidential.

Jeff Ferro, customer care manager at AltaVista, said that when he decided to outsource some e-mail support to 24/7 Customer last summer, he thought it would "involve a lot of micromanaging." But, he said, he was pleasantly surprised. It required only one trip by a staff member to the overseas facility to make sure everything was in place.

The decision to use 24/7 Customer.com paid off, said Ferro, who added that by switching to an overseas outsourcer, AltaVista wound up slashing customer support costs by 25 percent.