Although many Caribbean countries are looking to offshore outsourcing to rejuvenate their economies, it is not plain sailing. Here are five cautions.
In these tough economic times, when unemployment is high, and traditional sectors are not generating the revenues desired, many Caribbean countries are looking to offshore outsourcing, specifically the call centre and business process outsourcing (BPO) segments, to help to improve their economies. Relative to other industries, such as hospitality and agriculture, an outsourcing firm can launch operations in a few weeks, once the decision is made, and can double or even triple their staff complement in a few months. Hence policymakers frequently tout the industry, as it can result in quick wins in creating jobs, and can be used as a signal to the public (and to other investors) growth in the economy and activity by the ruling government.
However, all of the excitement around growing call centres and BPO in the Caribbean is overshadowing a number of sobering considerations. Five are outlined below. Whilst it may not mean that countries should abandon their focus on that sector, a more careful strategy may be necessary to manage those challenges.
1. Costs still matter
One of the greatest inducements for firms to outsource parts of their operation is the cost savings they are likely to incur when they do so. This focus on lower cost was the impetus behind offshore outsourcing, and the emergence of countries, such as India, China and the Philippines, as top locations. Recently, experts have been suggesting that costs are no longer the key deciding factor when firms decide to outsource. Instead, the focus is on the expertise, efficiencies and service improvements that can result when third party service providers are used.
However, while client firms might now be more aware of the fact that outsourcing parts of their operations allows them to focus on their core business, whilst not compromising on the quality of the operations they have devolved, cost is still a factor. The business model has to work for the outsourcing firm, which will allow them to cover all of their costs of operations and turn a profit at the price point that is palatable to both them and their clients. Most Caribbean countries are not necessarily seen as “low-cost countries”. With limited and premium value real estate, relatively high per capital Gross National Income and Gross Domestic, to name a few, these can make the numbers (in business models) unworkable and less likely to result in investment.
2. Our relatively small population size scares away prospective investors
Another important deciding factor in the site selection process for an outsourcing location is the extent to which a provider can grow in that particular location. Although a firm might start small, with only 10 seats for example, typically, they grow to at least 100 seats, as it is usually only when they ramp up their operations that they truly become profitable.
The top outsourcing firms global have tens, and even hundreds, of thousands of employees worldwide, and frequently have at least 500 employees in any one location. Hence, many firms will not even bother to consider most Caribbean/CARICOM countries, as we may not have the population sizes that will allow them to scale their operations to sizes that will make the effort and the investment worthwhile.
3. RPA will transform industry to detriment of developing countries
As with any other industry, technology continues to transform the outsourcing industry. One of the biggest and most talked about trends recently is robotics process automation (RPA):
Robotic process automation (RPA) is the application of technology that allows employees in a company to configure computer software or a “robot” to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses and communicating with other digital systems.
(Source: Institute for Robotic Process Automation)
Whilst firms are getting excited about the efficiencies that RPA is likely to introduce – which in principle should be welcomed – it is also likely to alter the types of jobs, and the corresponding skill sets, for which humans will be needed. For developing countries, such as those in the Caribbean, which are looking for outsourcing to absorb large numbers of their skilled and semi-skilled population, RPA is likely to change the manpower needs and numbers.
4. Competition for investment is stiff for call centre and BPO investment
It is already becoming evident that most Caribbean countries are eager to grow their offshore outsourcing business. However, competition is stiff both within the region, in the Americas, and worldwide. Countries are offering a broad range of incentives, such as tax breaks, rent-free office space, rebates and grants, if firms will establish (and grow) an operation in their country.
Further, many countries are playing a long game. For example, they have introduced programmes to get their population trained for the industry and to improve their multi-language capabilities. Others are building technology parks, to ensure that adequate space is available at affordable rates to encourage and support firms to establish and grow their presence. However, many of our countries want to attract investors but do not have any cogent package on offer, when compared with other countries that are also vying for their business.
5. Smaller and mid-sized firms can be fraught with risk
In light of the fact that many of the smaller Caribbean countries are unlikely to attract the attention of the larger and more prominent outsourcing firms, small and possibly mid-sized firms would need to be targeted. However, unlike the larger outsourcers, some of which are publicly traded companies, and so have a reputation in the industry, have top clients, and adhere to standards, such as with respect to environmental health and safety, the smaller firms tend to fly under the radar.
In the early 1990s, when many Caribbean first dabbled into outsourcing, as quickly as the jobs came, they left. Further, many local support service providers and creditors were also left in the lurch unable recover monies payable for services already rendered.
It therefore means that to some degree, and depending on the firm, there can be greater sense of risk for countries. Many of the smaller outsourcing firms are privately owned, they have little or no reputation in the industry, and hence the results of due diligence exercises conducted can be limited.
Image credit: Mighty Travels (Flickr)