Outsourcing: the answer for high volume jobs?

Investment through international offshoring and outsourcing is a key way countries worldwide improve their economies and provide jobs for their citizens. This post examines the industry in light of recent reports that thousands of jobs will soon be created in Jamaica…

Last week, the Jamaica Observer newspaper reported an “American firm to bring up to 3000 ICT jobs”. The report, based on comments made by the Minister with responsibility for Industry, Investment and Commerce, did not reveal the name of the firm, but indicated that a fuller announcement would be made in the coming weeks.

This post examines the global offshoring/outsourcing industry, which provides businesses with cost effective options to manage the cost of doing business in their home countries. We provide an overview of the industry and discuss the range of services that could be established.

International outsourcing

Although not readily acknowledged by the general public, offshore, and especially outsourcing, services are a vital source of jobs and foreign direct investment in many economies, particularly developing countries. According to Caribbean360, the Jamaican Government indicated at the unveiling of its 5-point plan for Jamaica’s ICT/Business Process Outsourcing (BPO) sector that

… global expenditure which totaled US$460 billion in 2007, is projected to reach US680 billion at the end of 2011. Further, that information from the firm, International Data Corporation (IDC) suggests that the global market will grow at n annual rate of nine per cent, and reach approximately US$1 trillion within three years…

The United States (US) is the largest outsourcer of services. Hence the countries of the English-speaking Caribbean, with their close geographic proximity to North America, are well positioned to take advantages of such opportunities. Moreover, Jamaica, being the largest English speaking country in the Caribbean, and the third largest in the Americas, behind the US and Canada, is eager to capitalize on its distinct nearshore advantages, as a key source of investment and jobs, and to improve its economy.

Based on A.T. Kearney, which produces a widely recognized annual ranking of offshoring destinations, there is stiff competition for offshore and outsourcing investment. According to its 2011 index, India, followed by China, Malaysia, Egypt and Indonesia, are the top services locations. However, with the global economy still on the mend, there is a growing trend for US businesses to relocate the offshore operations closer to home, which means that Caribbean and Latin American markets will be growing exponentially in the coming years. The most recent ranking of Caribbean and Latin American countries is shown in Table 1.

It is interesting to note that the Dominican Republic (DR) is not included in the A.T. Kearney index. The DR has largest outsourcing sector among Caribbean islands, and is generally considered to be a highly competitive location, based on factors such as the cost of doing business, available labour pool and the package of incentives offered to investors.

Moving up the value chain

Although several countries in the region are actively pursuing outsourcing investments, to many of us, BPO operations, and specifically data and call centres, are largely perceived as entities that exploit both the country and its citizens. Generally, the experience has been that, in exchange for significant concessions and allowances, those operations usually promised to employ sizable numbers of lower skilled labour, but frequently did not deliver. They are also quick to relocate if more attractive offers are secured. Further, for those who were employed, it quickly became apparent that the pay was low and work conditions were difficult, leading to high attrition and poor morale.

Notwithstanding past experiences, it is expected that Caribbean Governments will continue, to varying degrees, to pursue outsourcing opportunities. However, there are two key elements that should be adopted to limit the likelihood of past occurrences.

First, it is critical that countries aim to be more discriminating with regard to the entities that are allowed to invest. It is important that some due diligence is performed to determine, among other things, the extent to which the prospective investor is reputable, along with its experience and track record in the industry.

Second, countries should consider broadening the scope of the investment it wishes to attract to include services higher up the value change, as shown in Figure 1.

It is important to highlight that as one moves up the value chain, there is greater need for professionals and other highly skilled workers. Depending on the operations that are being established, skills sets required could include accountants, lawyers, computer programmers and software developers. This area offers a variety of niche markets that could be explored, which may offer us in the Caribbean, a comparative advantage over our Latin American counterparts.

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