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.
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.firstname.lastname@example.org.
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
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)