Tuesday May 12, 2009

Rethinking outsourcing

Comment by Leila Chirayath

A positive social label could do much to change consumer perceptions of outsourcing to poor regions

IT’S a tough time for the outsourcing industry – 69% of Americans think outsourcing hurts the US economy, and President Barack Obama has publicly criticised companies that offshore American jobs.

Recent estimates hold that the market for offshore services is shrinking. As many companies re-think expansion plans and close doors, social responsibility – ranging from green initiatives to progressive labour policies – may be relegated to the back burner.

Roughly 1.4 billion people live in extreme debilitating poverty, earning less than US$1.25 a day in 2005. What’s remarkable about people in such circumstances is the great faith they place in education.

In countries like Kenya, families spend 277% of per-capita income (which averages about US$935 a year) on tertiary education. They borrow in order to send one or two children off to vocational school or college.

These young people then graduate and constitute a massive skilled labour force – over 175 million strong in rural Asia and Africa alone – that suffers from perilously high unemployment.

In many parts of sub-Saharan Africa, particularly large cities surrounded by slums, unemployment rates among graduates of high school and technical and vocational colleges exceed 60%.

Jobless youth between the ages of 18 and 25 are prime recruits for rebel armies, opposition groups and crime rings.

Remote work is a term used to describe the smaller side of the outsourcing industry – the piecemeal tasks like data entry, video transcription, and personal assistance – which small businesses and individuals can seldom afford to complete with local labour.

This type of work doesn’t require much more than basic training, low-cost hardware, and bandwidth to complete.

Because the work is relatively low-risk (unlike, say, call centre services), it can be done by mom-and-pop operations in regions that lack costly infrastructure, or are sparsely populated, like much of rural Asia and Africa.

Thomas Friedman made a similar point in The World is Flat in 2005, but his analysis focused on job creation in middle- to low-income countries, rather than among the poor (while India may be considered a poor country, there’s a big difference between Bangalore and rural Bihar).

Outsourcing has created over 2.3 million office jobs in Asia, but very little of that wealth has impacted the world’s poorest people, who are off the map to most large businesses.

In 2007, Forbes announced seven billionaires who made their fortunes in outsourcing. All were American, Chinese or Indian men.

Giant companies like Accenture and IBM still dominate the outsourcing market. The latter topped The Outsourcing Global 100, a list produced by the International Association of Outsourcing Professionals, for the last two years.

Could small-scale outsourcing to locally-owned businesses make a bigger dent on poverty in places like Africa?

Several websites, including Elance, oDesk.com and Rentacoder, help customers connect to freelancers and small companies for projects in the under-US$1,500 range.

But they often use software or require payment methods that are out of reach for many smaller African providers. The fact is it may cost a bit more to work with a business in a remote region, and buyers don’t seem willing to swallow the cost.

I believe they would if their purchasing decisions generated positive PR or were known to impact consumer preferences.

The fair trade movement applied similar thinking to agriculture and manufacturing. Now, Fairtrade-certified goods constitute a US$2.3bil dollar industry growing at over 40% a year.

A team of researchers at Stanford found that consumers were willing to pay up to 15% more for a package of coffee with an ethical business label such as fair trade.

There are a few obstacles to making this work. First, bandwidth in Africa is costly because existing fiber optic capacity is by state monopolies that keep prices high.

But there’s hope. This year, two new submarine cables will arrive in East Africa. One of them, funded by private investors, should lower the cost of going online by 90%.

Second, buyers don’t yet benefit from working with small-scale businesses in marginalised regions because Fairtrade has no equivalent in the services sector.

A positive social label could do much to change consumer perceptions of outsourcing to poor regions.

Over the last six months, a team of students at Stanford Law School developed the first version of a social label for small services firms in poor regions.

This label includes businesses and non-profit organisations in high-poverty areas that invest a large percentage of their revenue locally on things like staff training and salaries.

Millions of skilled workers in the world’s poorest places stand to benefit if the industry responds favourably.

Leila Chirayath Janah is the Founder and CEO of Samasource, a social business that helps marginalised people in Africa and Asia empower themselves through remote work. Last year, she was a Visiting Scholar at Stanford University’s Program on Global Justice.

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Tuesday May 12, 2009

Rethinking outsourcing

Comment by Leila Chirayath