There’s little doubt that offshoring business process work can deliver cost savings for outsourcing customers and profits for business process outsourcing (BPO) providers. But can the BPO industry actually improve the lives of the poor and disadvantaged in developing economies?
That’s what a recent study, funded by the Rockefeller Foundation and conducted by business consultancy Monitor Group, sought to find out. And the answer is, in certain cases, yes.
The researchers examined what they called the field of “impact sourcing:” employing socioeconomically disadvantaged people in BPO centers around the globe. They found that such work not only gives the poor and vulnerable more access to opportunities but can also provide high-quality, reliable services at prices that are at least competitive with traditional BPO centers and, in some cases, nearly 40 percent lower than the average provider.
Mike Kubzansky, a partner in Monitor’s National Economic Development and Security practice, had been looking at a range of innovative market-based approaches to poverty—most specifically “impact investing,” in which enterprises not only deliver a commercial business case but also have a social impact—when it became clear that the global BPO industry could do just that.
The study focuses, to a large degree, on the nascent BPO industry in Africa, where the Rockefeller Foundation has a large presence and interest. But it also looked at the BPO industry in India and a host of other underserved communities in developed nations, said Kubzanksy, such as “U.K. operators doing this in economically depressed areas in London, or what Accenture does with Native American populations in South Dakota.”
To qualify as impact sourcing, the BPO work needs to provide a significant income increase to its employees over their alternatives. As a result, a significant amount of BPO activity in, say Bangalore, where providers hire college graduates with other opportunities available to them in those cities, did not factor into the impact sourcing picture.
Kubzansky found a wide variety of BPO providers having a potential impact on poverty and opportunity in the markets where they set up shop—from multinationals like IBM and Infosys to African and Asian start-ups, from rural locations in Kenya to urban centers in Haiti. According to Monitor’s working paper, Job Creation through Building the Field of Impact Sourcing, impact sourcing employees benefit not only from income increases between 40 and 200 percent, their BPO employment also increases family investment in health care and education.
The most mature market for impact sourcing is India, where such activity takes place in rural areas and second- and third-tier cities. “There’s a social impact but also a strong business case,” Kubsansky explains. “Wages are lower, skills are comparable, and churn rates are significantly lower. They have been able to hit that double bottom line.”
The two BPO work areas where impact sourcing is likely to occur today are lower-end data tasks (data processing and digitization) and lower-end voice work that requires local language skills.
The biggest issue for BPO providers working in the impact sourcing arena is training. “It’s a significant investment, and one of the things they worry about the most,” says Kubzanksy. “And the problem exists at two levels. First, there’s the employees themselves. Some will have innate smarts but may have never worked in a formal setting. The other issue is middle management. Can I get skilled people out in a rural area six hours outside of Calcutta? Can I get these people who started out with me as entry level analyst trained up for middle management?”
In some countries, such as South Africa, the government is helping to absorb the cost of training. Then the issue becomes generating demand. In most cases, these BPO providers start with smaller contracts for local work and must figure out how to scale. “We’re still very early in the game,” Kubzanky said, “and the issues are the same as for anyone new in the outsourcing space.”
They key to taking impact sourcing to the next level is to surmount those growth hurdles. The average outsourcing customer may not be willing to take a risk on a new location or provider, and their interest is on cost cutting and quality, not providing opportunity to workers in Luang Prabang, Laos or Lahore, Pakistan. Quite the contrary, most Western companies today avoid trumpeting the creation of jobs anywhere outside their home countries.
Kubzansky points to two potential solutions. One would be an increase in established BPO providers subcontracting to smaller impact sourcing players. “This needs to go on a lot more to help these guys access larger multinational clients,” said Kubzansky. “They will be more comfortable having a conversation with a Wipro who will give their Six Sigma guarantee on the work.” The other is a model embraced by Samasource, a San Francisco-based non-profit that acts as an intermediary to service providers in five countries, providing them a sophisticated marketing and sales front end. Samasource brands the BPO work and, once acquired, distributes it as “micro work” to its member companies. “They have someone who can be at the front end and speak to customers so the providers can focus on service delivery, training and employment,” Kubzansky said.
According to the study, impact sourcing accounts for $4.5 billion in business annually—just 3.8 percent of the global $119 billion BPO industry—and employs 144,000, but it has the potential to reach $20 billion and employ 780,000 by 2015.
For most existing BPO providers, including many of the upstart players in the impact sourcing field that the research examined, the social impact of offshore outsourcing is an afterthought, if it’s considered at all. But Kunzansky says that is fine. There has to be a business case beyond doing good for sustainable change in local communities or developing economies. And, for many players in the field, there is, from the value of a new lower cost location to access to new markets.