The Outsourcing Industry and CSR

The International Association of Outsourcing Professionals, based in New York, counts major business process and IT outsourcing industry leaders and consultants in its membership. So when the IAOP posted a news item on “socially responsible outsourcing,” I took notice. According to the article’s author, Jagdish Dalal, “the most obvious impact of socially responsible outsourcing is on how labor is treated.”

Labor standards are obviously a critical part of any definition of socially responsible outsourcing. But in a knowledge industry such as BPO/IT, labor standards are probably not as much of a problem as the geographic distribution of outsourcing work. Why?

1. Service industries rely on human capital as a primary asset. Keeping workers happy is an essential aspect of client service — unhappy workers don’t answer calls or perform other client-facing activities well. This is markedly different from manufacturing, where horrendous labor conditions (of the sort documented by writer John Bowe) can persist because workers are found at the very bottom of the supply chain, far from the eyes and ears of end consumers.

2. Attrition is extremely costly in the outsourcing business. In India, where some firms face annual attrition of over 60%, discontinuity arising from the constant need to train new workers is a major obstacle to building long term relationships with US clients. Thanks to increasing demand for outsourcing workers in India, wages are on the rise — even a tiny pay increase can be enough to encourage a worker to switch jobs. In a market like this, exploitive labor practices aren’t common.

3. Knowledge workers tend to know their rights. There’s no question that BPO and IT jobs, given the hours and nature of the work, can take a toll on workers’ emotional and physical health. However, these workers tend to be high-school or college-educated, which means they’re less likely to be exploited than uneducated, illiterate laborers in other industries.

Any successful outsourcing firm has already endogenized good labor practices in its business model. And newcomers won’t last long if they don’t follow suit.

The real key to CSR in the outsourcing world isn’t about labor practices — rather, it’s about ensuring that some of the jobs migrating overseas from the West go to skilled, economically disadvantaged people in very poor countries and regions. The vast majority of jobs go to established locales in big cities in places like India and China. Sending a small percentage of this work to rural Asia or Africa could make enormous social impact in these regions. For such a system to work, we need to establish criteria for economic disadvantage, encourage organizations like the IAOP to buy in, and help US companies understand the business case for diversifying their outsourcing portfolio.

As always, comments/thoughts welcome!

6 Comments

Filed under outsourcing, social enterprise

6 responses to “The Outsourcing Industry and CSR

  1. claraanthony

    Very true and it is definitely Human capital who drive the growth of this industry. Companies like Cleave Global have set a good example in this segment. http://www.cleaveglobal.com/

  2. marumpa

    Good article. I will be always wait for your article.Regard

  3. Hi Leila,

    Am writing from Kenya, Africa, and I would like to express my support for your views. You have heard of the saying “Give a man a fish and you feed him for a day, teach him how to fish and you feed him for a lifetime”? A lot of the sympathy and donations that Africa and rural Asia currently gets to compensate for our poverty is often in line with “feeding Africa for a day”. However, if the global economy can help to offer employment (through outsourcing to Africa and rural Asia), this type of CSR would be in line with “feeding him for a lifetime”.

    Educated, Unemployed Africans:
    Unfortunately, the world gets very limited news of Africa. The world is not fully informed of the hundreds of thousands of well educated , relatively well exposed Africans, but who are currently unemployed. This is the group of people who will help lift Africa from its economic disadvantage. But they can only do so if they get opportunities to use their capabilities and diligence to get employment or start up enterprises.

    Outsource to Africa, Benefit Your Company:
    I am of the belief that there is enough wealth in this world, and that by enriching the poor countries, the rich countries will not get poorer but richer. The Outsourcing company benefits by outsourcing it’s lower end tasks (such as data entry, transcription, call centers, CAD drafting, website design, and so on) and focusing its resources on higher end activities such as recruiting new clients, development of new products and new company strategies. By outsourcing to Africa, the outsourcing company should still aim to attain high quality standards for their work, cost efficiency, and on-time delivery since this is the expectation for work done by qualified, well educated staff – whether from Africa or Asia.

    CSR Leap:
    As part of their CSR activities, I would encourage companies to outsource to Africa and rural Asia. The initial risk of outsourcing to a new destination will be the major CSR factor. However, the risk can be minimized by ensuring that a trial with the new outsourcing provider is done, followed by a pilot project for several months, and for large companies, they can outsource to two or more destinations.

    Outsourcing is a perfect way give Africa and rural Asia an economic leap forward!

  4. PN

    HI Diana,

    I like how well you have put the point here.

    Just a had a small comment, regarding the following, “The Outsourcing company benefits by outsourcing it’s lower end tasks (such as data entry, transcription, call centers, CAD drafting, website design, and so on) and focusing its resources on higher end activities such as recruiting new clients, development of new products and new company strategies.”

    Its not necessarily an issue of outsourcing because of the percieved “lower end” value of the task; it could also be a case of focusing on your (i.e. the outsourcing client’s) core competencies, while giving me an opportunity to service you and give you value for money and serious quality nonetheless.

    Web design and even drafting are fairly highly specialised and are part of a company’s overall marketing and /or production strategies. These are complex tasks that require strict and sound management.

    Also they may require tools that are on the cutting edge of technology, and a talented and creative team to be able to understand the clients’ felt needs and deliver on time.

    🙂
    Its about taking part in responsible globalisation.

  5. I must say, I could not agree with you in 100%, but that’s just my IMHO, which indeed could be very wrong.
    p.s. You have an awesome template for your blog. Where did you find it?

  6. “The vast majority of jobs go to established locales in big cities in places like India and China. Sending a small percentage of this work to rural Asia or Africa could make enormous social impact in these regions.”

    I don’t disagree with the notion of outsourcing a small percentage of work to regions that are economically under-developed. But as for work (as opposed to “jobs”) being outsourced to established cities, I may argue with what your perception of an “established locale” is. These cities were emerging economies when companies started to outsource business functions here. These cities grew from being economically “under-developed”, to “developing”, to “developed” status by nurturing this industry.

    The CSR leap sounds feasible but have you considered the additional costs that the organization will have to undertake in order to explore a new region – one that may carry higher risks than established locales?

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