Offshore Outsourcing – Can We Have Our Cake and Eat It?


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2. Offshore Services

Offshore outsourcing has revolutionized global commerce and has had – and continues to have – a vast impact upon economies and societies worldwide. In an attempt to throw some light upon the scale and consequences of this impact, we convened a roundtable debate featuring representatives from across the world and from a variety of sectors. The debate addressed the following questions: * What has been the economic and social impact of offshore outsourcing upon sourcing locations and locations from which activities have been offshored? * Is there a need for greater international legal regulation of offshore outsourcing? * What will be the consequences for offshore outsourcing of the current financial crisis – and might offshoring be a reversible trend? Attending were: Duncan Aitchison Partner & President TPI EMEA TPI is a leading sourcing, organizational transformation and business advisory firm offering services across a wide range of functions and domains. Stan Lepeak Managing Director Global Research EquaTerra EquaTerra is a market-leading business advisory firm offering a range of consulting services to organizations worldwide. Gilda Odera Managing Director Skyweb-Evans Co Ltd Based in Kenya, Skyweb-Evans provides both business-to-business and business-to-consumer call center services, global BPO solutions, local services and technology solutions.

Oscar Sañez Chief Executive Officer, Business Processing Association of the Philippines The Business Processing Association of the Philippines (BPAP) is the umbrella organization, and serves as a one-stop information and advocacy gateway, for the Filipino offshoring and outsourcing industry. Vivek Wadhwa Executive-in-Residence, Pratt School of Engineering, Duke University Vivek Wadhwa is a fellow with the Labor and Worklife Program at Harvard Law School and executive in residence/adjunct professor at the Pratt School of Engineering at Duke University. He is also a technology entrepreneur and a columnist for BusinessWeek.com. Wadhwa was named a “”Leader of Tomorrow”” by Forbes.com. JL: Oscar, let’s start with you: how would you say the offshore outsourcing movement has contributed to the Philippines’ economic growth and how much of the proceeds of that growth is remaining in the country? Oscar Sañez: This has been a big contributor to economic growth, particularly in the past three years.

This whole industry is really an export industry, and a people industry, so a big chunk of the industry is revenue from export services, and about half of the revenue stream goes into payment of wages – so wage income benefiting today around 350,000 workers in the Philippines, workers who otherwise would have been earning much less in other sectors or even perhaps working overseas (overseas Filipino workers make up a big chunk of the workforce). And then you have to think about the other sectors benefiting from this: maybe about 30-35 percent of P&L going to vendor services, whether it’s telco – local telco of course – power, property, and other hardware and software services that again would be incremental income for the economy.

We estimate that the current contribution of the industry to GDP is about 5 or 6 per cent – and as this is export, this is new revenue that had not existed before. And I think there are other effects in terms of multipliers for jobs we’re creating for allied industries supporting this industry, whether it’s retail, transportation, other consumables that are again benefiting from supporting the BPO companies that proliferate in all the commercial centers in different areas; they’re certainly an additional 1 to 3 multiplier effect for job creation. So there’s a lot of positive impact on the economy. Duncan Aitchison: Certainly from the consumer side of it there has been quite significant inflation – not just infrastructure inflation but wage inflation in a number of the offshoring territories. There remains a continuous flow of talent into those pools but as demand for these skills increases, which it has across a number of fields – from technology across into the broader business process field – in many of those instances there has been competition for talent, for individuals, and general wage levels are increasing and have done reasonably significantly over the last five or ten years.

I don’t think it’s as black and white as to say “”every outsourced job is necessarily being done at significantly low wages””; I’m sure we can find examples and areas of the market where that is true, but the rapidly increasing demand from the west has created a certain degree of competition for talent which has reflected itself in wages underpinning those industries. JL: Gilda, what’s been the impact of outsourcing on the Kenyan economy? Gilda Odera: We’re still a very young industry in Kenya; we’re still only about four years old and it’s only over the last year or so that things have really taken off to a larger extent, so we don’t have that many BPOs operating in Kenya right now – not as many as we see happening in the next three to four years. But we do realise that there will be that impact – in fact Frost & Sullivan did a survey indicating that there will be 1,600 centers by 2013 in Kenya. So we see it in terms of adding value to clients from the west.

There have been instances where it’s been seen as taking away jobs – I prefer not to see it like that, but as complementing what cannot be done at the other end, or can be done in a more cost-effective way in Kenya rather than organizations incurring very high costs and then being unable to sustain themselves. Stan Lepeak: I would echo that point, and I think that it’s a very fluid situation; as some work leaves the west and goes to India, then eventually wages go up there and that work may go farther afield like Kenya or China. But I think there’s still a huge untapped demand in the west for this type of service, particularly as you look at some of the more advanced analytical work that’s being done: what we call knowledge process outsourcing. In the past there were a lot of things that western firms didn’t do because they couldn’t afford the talent or couldn’t find it. I think as the outsourcing market matures you’ll see a lot of businesses in the west tapping into these capabilities whereas in the past they just wouldn’t have people doing that sort of work. So yes, some jobs are lost, but I think there are resources that the west can tap into which just wouldn’t have been available in the past.

I think another point to note is that if you look at the low-end work, some of it’s going to be automated away anyhow; if you look at some of the call-center work, or some of the transaction processing work, those jobs will eventually go away altogether and the cost of the labor doesn’t matter because that’ll get automated. In some cases it’s not as if those jobs would have been saved if they didn’t go offshore; eventually they’d have been automated away anyhow. Vivek Wadhwa: I’ve been looking at India from the perspective of how the country is continuing to rise in terms of its ability to continue to do high-level R&D outsourcing despite the educational problems, despite its infrastructure problems, despite everything that’s happening there – how is the country succeeding? And what we figured out was, Indian industry has learnt how to develop its workforce in a way that’s very unique, in a way that they’re able to move people up the ladder very rapidly: that’s how India is succeeding.

 


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