Outsourcing customer service functions can cost 30% more than retaining them in-house according to research group Gartner.

It can also result in client loss, because staff turnover is high – sometimes as high as 80% – and many companies neglect to manage their outsourced operations.

The analyst house found that 80% of organisations which outsource their customer management operations in order to cut costs will not succeed, while 60% of those who outsource part of the customer-facing process will find that client defections and hidden costs will outweigh any potential savings. Hidden costs include in-house support to the outsourced function.

Gartner predicts the worldwide market for customer service outsourcing will grow from $8.4 billion in 2004 to $12.2 billion in 2007. Offshore outsourcing will account for 5% of the 2007 market, up from less than 2% this year.

Customer service outsourcing providers are also set to undergo radical change: Gartner found that 70% of the top 15 Indian-owned startup companies will merge, be acquired or be marginalized by the end of the year. This instability in the market led Gartner to say "no BPO [business process outsourcing] deal that includes CSS [customer service and support] will be completely and successfully executed offshore" until 2008.