Slumdog Millionaires: Can Impact Sourcing Alleviate Poverty?

By Chacko Kannothra and Stephan Manning.

Call centers, tech support, payroll processing – more and more service jobs are performed abroad. Global outsourcing is one of the most controversial trends of our time. To some, it is mainly a cost-cutting exercise which has led to job losses in Western economies and has started a ‘global race to the bottom’. The recent shift of clients and providers to second and third-tier outsourcing locations to keep labor costs low is an indicator of that. To others, outsourcing has also generated new income and entrepreneurial opportunities especially in developing countries. Clearly, in particular for the young and educated in urban areas, such as Bangalore in India, the outsourcing sector has been a career stepping stone. But how about the vast majority who still live in poverty? Will the global service industry widen the gap between the new urban elite and the rest? Maybe not if we believe in the new trend of ‘impact sourcing’ – the creation of outsourcing jobs and training opportunities for the poor and disadvantaged, in particular from slums and rural areas. Impact sourcing was celebrated a few weeks ago at the 17th World Outsourcing Summit as a promising way of combining business and social benefit. The Rockefeller Foundation even calls it a means towards reducing poverty. But are these claims realistic?

Impact sourcing has been promoted by the Rockefeller Foundation since 2011 as part of the PRIDE program (Poverty Reduction through Information and Digital Employment). The initial goal was to promote more inclusive development by assessing the viability of recruiting socially, physically or economically disadvantaged parts of the population for outsourcing jobs. These may include youth from slums, hearing-impaired, women or ethnic minorities. Supported by the Foundation, entrepreneurs in countries such as Kenya, Ghana, Nigeria, Egypt, Morocco and South Africa adopted the impact sourcing model. Another early adopter was Samasource, a San Francisco based outsourcing firm which pioneered the microwork model – the creation of standardized, simple tasks for disadvantaged staff with often limited skills – which received high client appreciation. Some of today’s impact sourcing service providers include Digital Data Divide (DDD) (Kenya), TechnoBrain (Tanzania), Rural Shores (India) and Cloud Factory (Nepal). Services provided by these firms include content management, data entry and conversion, transcription, call center services, digital publishing etc. DDD for example provide content services for Harvard, Stanford and ancestry.com.

Predictions about the economic and social impact of impact sourcing have been promising. The Monitor Group (2011) suggested that employees in this sector will benefit from income increases between 40 and 200 percent. Impact sourcing is also expected to increase family investment in healthcare and education. It was estimated that impact sourcing would have a potential to be a $20 billion market by 2015 of which $10 billion will be the direct income for 780,000 people. By 2020, according to the research group Avasant, the market will grow to employ 2.9 million people. Impact sourcing will provide jobs and skills that boost employability and generate a potential for higher wages in the future.

But how likely is impact sourcing really helping the poor? One possible scenario is rather worrying. Our own research suggests that under certain conditions impact sourcing could in fact widen rather than close the gap between the privileged and the disadvantaged. In line with a recent study by Francisco Gino and Bradley Staats in Harvard Business Review, we found that for most impact sourcing service providers (ISSPs) this business model is only feasible if they focus on rather low-paid ‘microwork’ as pioneered by Samasource. This may have two consequences. First, clients will continue to associate impact sourcing with low-skilled jobs and thus doubt the ability of respective staff to provide more advanced high quality work. Second, clients will see the main business benefit of impact sourcing in cutting labor costs even further. This for example has been one of the major drivers of ‘rural sourcing’, the employment of staff from rural or suburban areas. Praising the ‘positive social effects’ of such practices may further legitimize cost cutting and thus limit job and career opportunities for the poor.

bus

There is, however, a more promising scenario. Many ISSPs collaborate with local NGOs and community organizations not only to facilitate hiring but also to provide training opportunities that potential employees can benefit from beyond any particular job. One example is Craft Silicon Foundation in Nairobi, Kenya, which operates a bus that provides computer training to youth in one of the largest urban slums (see picture*). While only a certain percentage might be future hires of Craft Silicon, others learn skills they can employ in various ways in their lives. Another example is B2R based out of rural India: 33% of their profit after tax is invested back into the communities they operate in. Cloud Factory, established in 2008 in Nepal, trains and employs youth to work on both simple and complex software projects in a region where unemployment rate is as high as 40%. In all these cases, job opportunities are combined with the training of generic skills that further capacity building and increase employability of the poor. Strong community ties and a sense of social mission shared by many ISSP entrepreneurs are key enabling factors.

These local experiments give hope, but there is big challenge facing many ISSPs: global client acceptance. In order to meet client expectations – and, in fact, in order to attract clients in the first place – ISSPs are pushed to scale up and professionalize operations. Samasource has found a model, in collaboration with local partners, that combines community engagement with a global professional appearance towards clients. Yet, other, more locally rooted ISSPs have struggled to get clients’ attention, and either maintain a niche status or serve as subcontractors for larger mainstream providers. To further promote client acceptance, impact sourcing experiments should be seen by industry players, NGOs and development agencies as an opportunity to introduce independent certification of responsible sourcing practices, similar to the food industry (see related blog). This may help generate value for clients independent of potential cost advantages. And yet it would be different from conventional CSR, as it affects practices of hiring and training as core aspects of the outsourcing business. However, such mainstreaming attempts also depend on end consumers. Would it make a difference to any of us to know that the call center operator who changes our flight itinerary has an advanced college degree or was recruited from an urban slum through impact sourcing?

Clearly, the chances of any one kid to become a ‘Slumdog Millionaire’ through impact sourcing are minute. Yet, there is a good chance that, in the long run, millions may benefit from employment and training if impact sourcing is taken in the right direction. The question is whether impact sourcing will serve as another justification to cut costs, or whether industry players, NGOs and development agencies see a joint opportunity in mainstreaming responsible sourcing practices. So, what do you think: does impact sourcing have the potential to contribute to poverty alleviation?

Chacko Kannothra is a PhD student and Stephan Manning is an Assistant Professor at the UMass Boston College of Management. Both are members of the Organizations and Social Change Research Group. They have conducted field research on impact sourcing in Kenya, India and the United Status. For further information please email us: Chacko.Kannothra001@umb.edu, Stephan.manning@umb.edu.

References

Avasant Group (2012): “Report: Incentives and Opportunities for Scaling the “Impact Sourcing” Sector.”

Simon Ciuri (Jan 29, 2014): Business Daily Africa: School on wheels takes computer skills to slums.

Cloud Factory: Social Mission.

Francesca Gino and Bradley R. Staats (2012) in Harvard Business Review: The Microwork Solution.

Website of the International Association of Outsourcing Professionals (IAOP): Annual World Outsourcing Summit

KfW Website: India – Social Entrepreneur. Jobs for young people in rural India.

Paul Klein (Sept 18, 2013) in The Guardian: Outsourcing has a bad reputation but are there reasons to be cheerful?

Monitor Group (2011): “Rockefeller Report: Job Creation through building the field of Impact Sourcing.”

Rockefeller Foundation (Jun 17, 2011): The Rockefeller Foundation to Foster Impact Sourcing in Africa: Poverty Reduction through ICT Jobs

Samasource (Dec 16, 2012): Managing Messy Data with the Microwork Model

Sarah Troup (Feb 21, 2014) Blog post for The Rockefeller Foundation: The Financial and Social Value of Impact Sourcing

Oliver Wainwright (Jan 27, 2014) in The Guardian: Guardian Cities: welcome to our urban past, present and future

* Picture taken from the article by Simon Ciuri in Business Daily Africa (Jan 29, 2014)

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8 thoughts on “Slumdog Millionaires: Can Impact Sourcing Alleviate Poverty?

  1. THis is a very good trend for alleviating povery in the world while usefully engaging the disadvantaged population to be very productive. Personally i feel that there is more that the corporations can do to address some of the social issues and this is one such way that is mutually beneficial. Many of the call centre jobs that are routine, require low skills and education can be done well by this disadvatanged population by giving them proper training. I think with some experience these ISSP company employees can be very effective in their work and do the job at a lower cost. By using the ISSPs and lifting this this disadvantaged population above the threshold where they can now lead a decent family life, support education of their children, it is possible to break the chain of a family / community being disadvantaged for generations. There has to be a balance in everything and any improvement in the balance of using the talent pool from advantaged and disadvataged population will be a great direction for addressing some of the social issues and a better society.

  2. As Impact Sourcing and technology simultaneously mature, we see more and more jobs being outsourced that previously required a high level of education and talent to procure in the US. For instance, once only thought of as simple call center jobs, Impact Sourcing now extends to programming and even a high degree of product development tasks. No longer are purely low-talent, low-education jobs being outsourced purely for cost savings. As of late, developed countries are seeing the vast talent pool across the world and utilizing developing countries for just that – their talent. With firms like Craft Silicon honing untapped talent worldwide with their “education buses”, I think we will start to see an influx of similar moves from competing firms. Rather than exploiting developing countries for their cheap labor, these firms will aid in lifting these areas out of poverty and into a long line of careers.

  3. The title of this article “Can Impact Sourcing Alleviate Poverty?” is well thought and is a growing concern as well. There are many examples that I have read and heard about Impact Sourcing. I have an optimistic view, when I see from the employee’s perspective.

    Since, rural areas get new infrastructure and job opportunities in their area. It initiates a chain reaction of new opportunities and scope of investment. For any company that invest, becomes center of gravity for other companies to have a branch in that area.(P.S.-The reasons for other companies to invest could be ‘direct competition’ among rivals or strategy of hiring people who ‘now have experience’.)
    At the end, people ‘get experience’ and ‘exposure’ to the world of technology. If not making them millionaire’s, but definitely giving them a source of income and a new thinking that can pave way to new opportunities.

    Nandita Gupta
    Graduate Student

  4. About impact sourcing I have a concern that whether these workers will be back to poverty again since the companies gradually shift the labor markets to the lower costs places. For example, China has been a huge labor market for a few decades, but with the gradual rise in costs more and more foreign factories are moving to cheaper countries such as Africa, an emerging labor market. Those workers in China are difficult to get a job even that is informal, and have to go back to rural regions, which means go back to poverty again. So I think impact sourcing perhaps can alleviate poverty temporarily, but it is hard to determine after decades.

    Silu

  5. I think that, even with caveats included, this may provide some hope
    for some– which is better than no hope for any . Hopefully, if the
    movement gains traction, there will be wider acceptance,and more
    buy-.in where it counts.

    Thanks for an interesting viewpoint.

  6. Chacko and Stephan,

    You make a great point of showing that while in some cases it is possible to use impact/out/rural sourcing to create jobs and help spread wealth, it isn’t as easy or replicable as the proponents of it would like the world to think.

    For example if employee John Doe is hired full time to work for a tech company. However it is determined that 75% of his daily work could be impact sourced through a “micro work” system to Plain Jane without any significant drop in quality or deliverabilty. They pay Plain Jane $20/hr as opposed to John Doe’s $40/hr. When an employee currently handles a wide spectrum of tasks that may have them performing tasks that they are “over-paid” and “over-qualified” for. This would allow the company to trim fat if they can then either get John Doe to now work part time for the 25% of the time they need his higher level of skill or offer him a lower wage due to the shown actual use of his skill. This drop in earnings could change John’s life in a very dramatic and negative fashion as they have created the need for him to get a second job and negated the job they created for Plain Jane.

    While staying focused on the bottom dollar what other elements are not being properly accounted for. In the example of Plain Jane and John Doe, if there isn’t a very well designed info structure for information flow it could cause a situation of “one hand doesn’t know what the other is doing” and the transition of information between the two employees. Couple that with the fact that John may be hostile towards Plain Jane there is a higher chance that the idea of outsourcing John’s duties sounds better on paper than it will be in practice.

    My personal feelings are that in a culture that is obsessed with trying to run “leaner and meaner” that the focus is easily drawn to objective concepts without a real comprehension of the bigger picture. Blindly dismissing or under valuing important factors just because they aren’t easily managed through large data algorithms will result in “unforeseen” adverse results. Yes, John and Plain Jane may both be able to complete the same task 75% of the time, but there may be a aspect to the way John does it that cannot be categorized/valued/tracked correctly by his company and therefore is not part of their value equation. I see the next revolution of business optimization is to focus and understand not just WHAT but WHY negative or positive outcomes happen to better understand what is apples to apples and what is apples to oranges.

    ~ Joe Booth

  7. Great article! Completely different dimension, I could see that there is a good scope of marketing as impact sourcing has strategic & social edge! In a way to facilitate this process., awareness should be created among government bodies to entice companies by offering tax benefits, special branding like Go Green status!!
    Vignesh Natarajan – Graduate Student-UMass Boston

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