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A series of blog posts highlighting an important topic or trend in the development through enterprise community. In the most recent Big Idea series, NextBillion partnered with Ashoka to showcase affordable housing innovations.

Tuesday, January 22, 2013

Special Series (Part 2): BPO for the BoP – The need for (and promise of) Impact Sourcing

By Sateen Sheth

The offices of Digital Data Divide, an Impact Sourcing Service Provider, based in Kenya.

Editor’s note: This post is the second in a six-part series examining the emerging Impact Sourcing space through work performed by the William Davidson Institute and funded by the Rockefeller Foundation

 

In part one, we defined Impact Sourcing and some of the factors accelerating its growth. 

Now, let’s look a little deeper into the two key trends driving interest in the space and whether these can be married through Impact Sourcing in a manner that drives benefit for both the BPO industry, as well as poor and vulnerable communities in emerging economies.

 

Trend #1: The BPO sector continues to grow and provide benefit for developing countries, but has unmet needs relating to employment and costs

Business process outsourcing (BPO), which refers to the outsourcing of business processes (i.e. informational and transaction services) to third-party service providers, has evolved over the past two decades to become a massive worldwide industry that directly impacts both international trade and the global economy. In particular, developing countries have taken advantage of this growing industry to fuel GDP growth and employ millions of citizens. In India, for example, BPO employs over 3 million people with each direct job estimated to create as many as three to four additional employment positions. After India, other leading BPO centers include the Philippines, China, and South Africa.

The potential for future growth of BPO remains high as the industry continues to expand at double-digit rates, with revenues expected to reach $574 billion by 2015. Factors driving this continued growth include:

  • The digitization of business processes and virtualization of the workplace (it is estimated that there may be as many as 161 million additional jobs that could be performed remotely);

  • Continued technological innovation and adoption of technology by businesses; 

  • Growing capabilities by workers around the world; and

  • The emergence of a common, global business language and culture.

 

Growth is poised to continue, as few of these factors are likely to reverse.

As the industry has developed, increased competition and rising costs in urban centers have forced BPO service providers to seek alternate, lower-cost destinations (i.e. smaller cities and/or rural towns) and pools of new and more affordable employment talent.  This need first emerged in India, where rising costs compelled many BPO companies to focus on higher-end services such as call centers, market research, or engineering services. New BPO companies, such as RuralShores, eventually sprang up in rural India where they enjoyed both lower costs and attrition rates. These rural BPO companies employed high school graduates and university students from agrarian, low-income families to perform lower-end services, such as scanning, data entry, or video tagging for websites. These new BPO firms also represented the first players within the Impact Sourcing space.

These market pressures figure only to increase as competition continues to rise and services become more commoditized and price-sensitive. As a result, BPO players will need to seek additional sources of employment talent and look to new locations in order to reduce their current cost structures.

 

Trend #2: Unemployment is a global problem particularly affecting poor and vulnerable communities

The world continues to face a significant job shortage, affecting both developed and developing economies. According to a report on global employment trends from the International Labor Organization (ILO), one in three workers worldwide (1.1 billion people) is either living in poverty or unemployed. The same report specifies that nations need to urgently create about 600 million productive jobs over the next decade in order to generate sustainable growth and maintain social stability and cohesion. A recent Global Scan BBC poll listed unemployment as the fastest-rising concern around the world; jobless rates in Spain and Greece now hover regularly around the 20 percent mark, and are as high as 40 percent in countries such as Kenya, and even higher in other developing nations.

High unemployment disproportionately impacts people from underserved communities, such as those already living in poverty and younger workers. Youth workers, defined as people under 30 seeking employment, for example, comprise a large part of the labor force in many developing countries (i.e., it is estimated that 65 percent of Kenya’s labor force is made up of youth) and their unemployment rate can be up to three times higher than the average rate in many countries.  

The irony is that many of the unemployed workers happen to be extremely skilled, but have few opportunities available to them. For instance, approximately 90 percent of Kenyans under 30 are able to read and write, but face unemployment rates that the World Bank says could be as high as 70 percent.

 

Can BPO help the BOP? Assessing the potential of Impact Sourcing

The key question – for the Rockefeller Foundation and for development organizations more generally – is whether these two trends can be combined to both service the needs of the expanding BPO sector, while alleviating unemployment and poverty for those in poor and vulnerable communities.

Many Impact Sourcing Service Providers (ISSPs), such as Digital Divide Data (DDD), Samasource, and Rural Shores, have shown that workers from the BoP and other disadvantaged communities can perform some types of BPO activities. We do not yet have long-term studies, but there is some evidence that Impact Sourcing can have positive impact on multiple aspects of well-being for workers and their families. Reports indicate that Impact Sourcing employees benefit with income increases of 40 percent to 200 percent. Employment in Impact Sourcing is important for workers because it also serves as initial entry point into the formal economy, which leads to valuable job experience that can help workers pay their way through school, receive higher education and move towards better careers.

Impact Sourcing, however, is still in a relatively early stage of development with approximately 150,000 workers and a market estimated to comprise about $4 billion, or 3 percent of the larger BPO industry. While these seem like large numbers, some have concluded that the Impact Sourcing sector has the potential to eventually employ 3 million people and account for about 25 percent of the larger BPO industry within five to 10 years.

Why do we face such a large disparity between potential and reality? While the potential benefits of Impact Sourcing are compelling, it does face some challenges that have hindered success to date. Some ISSPs have had difficulty securing work from clients; in particular new ISSPs that have not yet established a track record. ISSPs have also had difficulty partnering with larger BPO companies because they don’t have the necessary scale and processes in place to effectively sub-contract work from larger organizations. There are also challenges relating to hiring and training workers from disadvantaged communities, in addition to a lack of adequate infrastructure in the places where many ISSPs operate.

 

(Harun, an Impact Sourcing employee working for Daproim, mid-stage ISSP providing virtual employment opportunities to students, outside his house in Nairobi, Kenya.)

 

Looking forward

As we hope you can see, there are many elements of Impact Sourcing that need to be unpacked and further assessed in order to get an improved and more accurate picture of the true potential and reality of the space. In the next three parts of this series, we will share key findings from our visits to ISSPs in Kenya and learn more about the challenges they face and the best practices they’ve enabled to overcome constraints. We will also share discoveries from our conversations with ISSP employees that help us get a deeper understanding of the holistic impacts on workers and their families.

The long-term hope is that through our collective efforts, the Impact Sourcing space can grow at a faster pace by enabling the necessary interventions in order to develop the large-scale employment opportunities that can transform the lives of poor and vulnerable communities across the world.

 

Sateen Sheth is the manager of Research Project Implementation at the William Davidson Institute.

Ekta Jhaveri is a former WDI research associate who contributed research and support to this article.

 

 

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