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, the Shared Services & Outsourcing Network convened a roundtable debate featuring representatives from across the world and from a variety of sectors, chaired by SSON's online editor Jamie Liddell.
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 Sa?ez
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.
SSON: 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 Sa?ez: 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.
SSON: 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. Now, in this conversation we're heard the outsourcing side of it; there's a big backlash building in the USA because it is causing disruption to the professions - to the engineering profession, to scientists and so on. There is a cost to it on the western side that we shouldn't overlook over here.
Stan Lepeak: I think that's the case; but if you look at aging workforces, the lack of the ability of certain industries in the west like the public sector to attract young talent, there's still a significant shortage of talent in either certain skills or certain industries - and in some cases, yes, if you pay enough you can get the talent, but if you look at certain other industries and certain types of businesses in the west, they're not going to be able to attract the talent they need from equipacion futbol españa local pools simply because there's not enough talent available, or because their economic model doesn't allow them to pay western wages. It's disruptive but I think the reality is much more complex, whether or not if there wasn't an offshore option those jobs would be filled regardless.
Vivek Wadhwa: This thing about shortages is just corporate propaganda, nothing more than that. There are no shortages of talent: in a free economy you can't have shortages because what happens is when supply drops prices rise and supply compensates for it. The bottom line is that it's cheaper for companies to send these jobs offshore and that's why it's happening. Rather than trying to come up with excuses they should just be forthright about it: there's an economic incentive here for companies to send jobs to other places where it's cheaper.
Stan Lepeak: You look at the US public sector, they don't send jobs offshore for the most part, and they cannot meet their hiring needs in a broad variety of areas. Maybe the public sector's a bit of an exception but there's a huge number of -
Vivek Wadhwa: What do you base that statement on? Where are the hiring difficulties in the public sector? Give me one example. Give me one data point.
Stan Lepeak: We did three studies around aging workforce and related HR issues in the US public sector each of which showed that there's difficulty in functional areas like HR, F&A, IT in meeting hiring needs, and in meeting the expectations of being able to backfill the retirement levels that are coming up in the next few years.
Vivek Wadhwa: I haven't seen one credible study like that so far. Most of it has been funded by groups who have a vested interest in saying what they want to be saying. You can't have shortages.
Duncan Aitchison: You say you can't have shortages but you absolutely can, and realistically if you look at what actually established the Indian offshore industry it was absolutely to do with labor and skill shortages driven by the dual storm of Y2K and the dotcom bubble simultaneously meaning there was an absolute shortage of capability at the point in time. Yes, the market can react over a period of time; it cannot generate skill at a necessarily sufficient rate, particular when you look at elements of the west - maybe less so America but certainly Western Europe, where you do have a naturally aging, declining population that is just not fuelling the pool that was there before. Furthermore all corporations will look at operating on the most efficient basis that they can: if that means moving operations around the globe in various forms, if that means sourcing capability from different parts of the globe - so they shall. Yes, that will have impacts in terms of labor markets at both the receiving and providing ends, and there will be changes in the dynamic; but I think it's unrealistic to start with a premise that says there are no skill shortages, because that just presumes we have an infinite amount of time for the market to redress itself - and, underneath that, a pool that is naturally growing - when in significant parts of the West you just don't have that. The drivers have indeed had some cost element to them, but we've also had labor availability drivers - which have actually been more marked in the last three years up to mid-year last year, in terms of the economic cycle - and we've also had drivers about organizations' desire to expand their global footprints to operate in markets where they want to trade, be that in Russia, be that in India, be that in China. So it's more complex than just a cost equation; and again all the organizations that I've dealt with are very aware of the practical implications in terms of what that means to their current employees moving forward and the broader communities they serve, and are concerned about the reputational side. This is not a monodimensional discussion or debate.
Gilda Odera: I fully agree. There are a lot of things in play there, and the western world cannot have its cake and eat it: I have to put it that way. The shortage of skills in some places is a matter of fact, and you're able to get skills in other areas and make your operations more efficient, your bottom line better. We can see what's happening out there in the world today: the cost of living and the cost of operation are just really high, and are just going to get higher and higher: that is a fact. I don't think organizations can sit back and say "let's not send work offshore because we're sending away work" - I think you've got to look at the bigger picture. At the end of the day it's a win-win situation for all: you asked the question "what equipacion futbol españa happens when the lower end work is automated and disappears, and developing countries suddenly will find themselves with no work". As the years go by, you look at the higher and higher end, and at the end of the day you're going to find that what's going to happen is that different markets are developing more and more. Even if automation takes place years down the road, yes there'll be fewer jobs in BPOs, but I believe that what you'll find within those markets is the skills will have really developed to a higher level and companies within those countries - for example in Kenya - will be doing business in a very different way, using very high international standards like anywhere else. The world is becoming one
Oscar Sa?ez: I agree that we have to look at this from a bigger, wider perspective. The beautiful thing about this whole global sourcing, global offshoring movement is that every market, every geography is in a different place in terms of resonance for offshoring at different points in time. And different markets are receiving services at a different level of readiness. That is why the whole notion about shortage is about a point-in-time shortage. One market may be short of a certain skill at a point in time - but another market with a much more agreeable cost structure may be ready for it. And the thing is, with every domain and every industry, this occurs in waves. So whether it's in terms of automation or not, each of these domains is also maturing at a different pace - and therefore there's a niche for markets that are ready at a certain point in time with the supply, and with the necessary capability. The reason why the offshoring services being done in India are a bit different from what's being done in China, South Africa or the Philippines is because of these different levels of readiness and skills available, depending on the need and the demand that is being addressed. This is going to happen even with automation - because automation won't happen overnight; it'll be occurring at a different pace, at a different level, in different geographies and in different functions.
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