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!