Impact Sourcing: Making Good on the Promise of a Flat World

[Originally published on the Huffington Post yesterday.]

In 2005, Thomas Friedman asserted that the rise in cheap access to connectivity and hardware in developing countries was flattening the world. Outsourcing, he argued, was transforming poverty in countries like India, where over two million young people work in call centers or business process outsourcing firms (BPOs) completing work for multinational corporations. His book marked a turning point in Americans’ perceptions of India; people began seeing the subcontinent as an economic powerhouse and competitor for white-collar jobs, not as a country racked by extreme poverty.

I’d worked at the World Bank briefly as an undergrad and studied poverty levels around the world. Though emerging markets like India had seen income increases for those at the cusp of poverty, not much had changed for people at the very bottom—particularly those earning less than $1.25 a day. The outsourcing industry had by then generated billions of dollars for a few wealthy businessmen in India, China, and the Philippines, and I thought: what if we could invert the model to generate a few dollars for billions of people at the bottom of the pyramid?

Soon, the idea became a business plan, and in 2008 the business plan became a non-profit called Samasource. At the time, I called my idea “socially responsible outsourcing,” a term that has since been shortened to “impact sourcing” and adopted by a growing number of organizations. The Rockefeller Foundation has created a definition that could one day apply to a broad range of programs and people:

“Impact Sourcing is outsourcing that benefits disadvantaged people in low employment areas…they include those living in rural areas of developing countries or in slums, those without access to secondary or tertiary education, and educated people in areas of high unemployment.”

Back in 2008, no one had heard of impact sourcing. We were front-runners in the movement to run outsourcing delivery centers as non-profit businesses aimed at serving the poor, growing their incomes and, importantly, demonstrating to the world that poor people want the same things as rich people: a decent job with a steady income, and agency over their health, education, social and political choices.

The model is appealing to many in the development world because of how it differs from traditional foreign aid. Impact sourcing distributes wealth using the mechanism of the market. Foreign aid collects revenues from taxpayers and maintains a large and often costly bureaucracy to distribute it to governments of low-income countries and large NGOs that supplement government offerings.

The latter method has its challenges—aid can create perverse incentives to misreport how money is spent, to be more responsive to donors than to beneficiaries, and to allow the root causes of poverty to persist so that funds keep flowing.

Impact sourcing is a cleaner model. In this framework, sourcing firms win business from corporations that have already set aside funds for completing projects, often competing with other vendors (which forces efficiencies). The sourcing firms make a commitment to hire poor and marginalized people to complete the work, to pay workers a living wage, and to be audited on the above.

Clients pay nothing for the extra benefit of reducing poverty; they pay what they would have paid a vendor to complete their work. Impact sourcing firms, many of which are run as non-profit businesses designed to break even or earn a small profit, benefit from growing client revenues that offset the cost of recruiting and training a marginalized workforce. Workers gain a living wage, valuable computer and English skills, work experience, and socialization in a formal work environment—factors known to catapult people out of poverty.

The movement is growing. Impact sourcing within business process outsourcing alone is expected to be a $23B market by 2015. This is remarkable—fair trade, a similar concept for commodities and handicrafts, is tiny by comparison (my latest estimate is $5B).

In 2008, we started humbly with $30,000 in sales revenue and about the same amount in start-up donations, with a team of thirty Kenyan agents. Four and a half years later, Samasource has paid over $3 million in wages to over 3,500 people on three continents working from 16 local delivery centers. This direct income has supported over 14,000 people in slums and villages with few other formal income opportunities.

And now the real challenge begins. Today, roughly 75% of people living in absolute poverty (over one billion people) reside in middle-income countries like India. How do we scale the impact sourcing model to reach them? How can we get every major corporation to set aside a percentage of their sourcing budget to fight poverty through impact sourcing?

One idea is a 1% for impact sourcing campaign. The campaign would encourage every business owner to encourage her company to pledge to devote 1% of its outsourcing budget to marginalized workers; essentially, it’s an affirmative action program for global poverty reduction with no cost to the end buyer.

If every company swiftly moved in this direction, we’d eventually make good on Thomas Friedman’s promise of a flat world.

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