Putting it out there: How has outsourcing helped developing and emerging economies?
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Putting it out there: How has outsourcing helped developing and emerging economies?

April 10, 2021
Fred Layno

Photo by Surface on Unsplash

In Pulitzer prize winner Thomas Friedman’s book The World is Flat, he listed outsourcing as one of the “flatteners” of the world. He means that the outsourcing industry has the potential to level the global economic playing field, wherein all competitors from all over the world have an equal opportunity. 

From hiring call center agents overseas, outsourcing has long since evolved into a variety of services around the world. Outsourcing has been an option for companies since the 1980s, when organizations began to realize that certain functions that were important but not central to business operations (such as accounting, human resources, data processing, and software development), could be contracted to companies outside of their geographic location.

By sending these non-core work overseas, these companies are able to reduce the amount of money spent on these tasks and reinvest it into other areas of the business instead. Since then, outsourcing has often been viewed as a business tactic linked with international trade, as well as a cost-saving initiative to improve financial performance. 

READ: Outsource — Your Profitability Resource

Nowadays, outsourcing services is a common practice. According to VoxEU.org, about 25% of companies state that they outsourced production in the last 3 years. Of those firms that outsourced, 43% also offshored, while 57% outsourced domestically. 

Over the past two decades, companies in developed nations such as the US and UK have increasingly outsourced parts of their business processes to developing countries such as India, the Philippines, and Indonesia. This is why business process outsourcing (BPO) vendors have become popular in these countries and come in several forms. 

Large-scale BPOs such as call centers do not only offer manpower to businesses from developed countries, but also their resources such as office spaces and servers. There are also companies which hire the help of freelancers through freelancing platforms. 

There are also BPOs that also serve as managed services companies which proactively share, maintain, and anticipate the need for a range of processes and functions in order to improve their clients’ operations and cut expenses. These companies offer more elaborate solutions such as virtual assistance, lead generation, digital marketing, web content creation, and design, among others. 

The outsourcing phenomenon has also given rise to remote workers, also known as “digital nomads.” These workers typically have their own work setups at the comfort of their homes or work on the go in cafés or co-working spaces.

BPOs in the Philippines and in India

BPOs are a thriving industry especially in developing nations like India and the Philippines. English is a major language in these two Asian countries, which makes them ideal for first-world companies looking to outsource their business. Outsourcing is a welcome industry in these economies as it is seen as an answer to the growing unemployment rate. 

In the Philippines, for instance, the BPO industry has become the economic lifeline for almost the entire country. It is regarded by the Philippine Development Plan as essential to the country’s 10 high-priority development areas.

Over 500,000 Filipinos are employed by BPO companies and are now the top foreign exchange earners in the Philippines, along with foreign exchange remittances coming from overseas Filipino workers (OFWs), with about PhP1-B (approximately USS$20-M) total revenue.

Metro Manila, the country’s capital region, is now a major BPO hub for many industries like call centers. In fact, the entire Philippines is now hailed as the Call Center Capital of the World, with 16-18% of the global market share.

In India, about one million people are working for US-based companies like GE Capital and Microsoft. Bangalore is the center to several IT hubs, with over a hundred thousand tech workers, many of whom are employed by US companies.

India remains the preferred outsourcing site by several American technology companies. Tech giant IBM currently employs over 130,000 people in India and is continuously expanding some of its critical business operations to other South Asian countries.

Outsourcing also brings about minor problems. For instance, standards may be different. Although English is a primary language in these countries, the undeniable accent issues and colloquialism may still bring about a language barrier. 

The outsourcing company may also struggle if the outsourced firm is unreliable. The country where the outsourced firm may be located may experience connection problems due to the low Internet bandwidth in the country. Although it is a contentious issue, outsourcing has also received criticism due to the perceived exploitation of workers due to the lower wages and conditions.

Benefits of outsourcing for developing economies

While there is still a debate about whether outsourcing actually positively affect developing countries, some clear benefits would be the following: 

  1. Outsourcing encourages foreign investments into the country which can boost the rate of economic growth. These can lead to improvements in infrastructure and confidence in the economy.
  2. Outsourcing creates employment. Outsourcing is a game-changer in employment, especially for developing economies with good standards of English and skills.
  3. With better wages, outsourcing firms enable a developing economy to run a larger current account deficit, providing the people with a better standard of living.

According to managementstudyguide.com, the new normal due to the COVID-19 outbreak may be seen as a boon for many IT and BPO firms as much of the work can be done remotely and from home as well. There is now evidence that companies can easily adapt to work-from-home (WFH) setups.

Hence, Western firms can now be convinced to move more work offshore as connectivity and other infrastructure make such arrangements easier. Many experts now believe that despite the COVID-19 outbreak impacting global supply chains, digitalized work and remote-shoring would thrive.

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