Wednesday, March 23, 2005

Exporting labor through BPO

By Edgardo B. Espiritu

It’s graduation time once again. We put such a great value on education that this event usually represents the fulfillment of a big part of Filipino parents’ dreams for their children.

Graduations bring pride, happiness and hope to Filipino families. But the sobering reality after the graduation rites is that thousands of new entrants to the labor force will have to find jobs. And the perennial situation is that there are too few jobs to go around. Many of these young hopefuls end up as part of the unemployment statistics.

In the current situation in the Philippines, one sector that is counted on to provide jobs to new graduates, and others who have been scouring the job market for a longer period, is the business process outsourcing or BPO sector. This includes the most familiar type of BPO operation, the call centers, as well as a range of other activities, such as medical transcriptions, accounting and other back office operations, and higher value-added ones, such as animation and other creative services and software development. These services are provided either by local firms under contracts with the outsourcing global firms or by foreign firms that either use the outsourced services directly or also for sale to global firms. These BPO operations usually pay relatively higher salaries than other industries, and this is why job seekers, including graduates from the best schools, vie for the still limited number of jobs that they offer. But BPO operations definitely remain a growth area in the Philippine economy as the process of global economic integration proceeds.

I have already tried to show in a previous piece under this column that international outsourcing basically constitutes trade in services. It allows foreign firms to provide certain services to consumers or other producers in their home markets using our workers. Outsourcing is just a natural consequence of firms seeking greater efficiencies and bigger profits. It is an integral part of the global value chain systems that have been made possible by new technology and freer markets, the same forces behind the overall trend of globalization.

BPO operations in effect enable us to export our manpower services without our workers having to leave our shores. It is also changing the nature and structure of our labor exports. Before, and still currently although to a lesser extent, exporting workers at the lower end of the skills spectrum involved construction workers and machine operators to the Middle East. Now with BPO, we are able to sell the services of our accountants, programmers, other IT specialists, and so on in the world labor market while they remain in the country.

Moreover, like free trade in general, outsourcing brings the benefits of increased specialization and bigger markets, such as greater efficiencies and the so-called economies of scale and scope, increased employment, and lower prices of goods and services. The benefits accrue not only to the developing countries that provide the labor services but also to the developed countries that purchase them.

But just like free trade in general, outsourcing also gives rise to controversial political eco­nomy issues. Most of these revolve around the same protectionist opposition to free trade. Outsourcing is looked at as an increasingly important cause of lost jobs in developed countries. In fact, the protectionist lobbies seem to be scoring some points recently. For instance, it has been reported that in the US and Australia, new laws are currently being initiated to limit out­sourcing activities by firms with government contracts.

Further, these protectionist views seem to ring truer in the case of outsourcing than in the case of the usual trade in goods. In the latter case, particularly as regards simple manufactured goods such as those currently massively imported by developed countries from China, the jobs affected are lower skilled ones, which, after all, the developed countries have long clearly lost any advantage in. But in the case of outsourcing, the jobs being lost are middle or higher skilled ones that still have a significant bearing in developed countries’ job markets.

But fighting this tide of global outsourcing activity seems to be a futile effort in the long term. This trend is a product of strong economic forces. Firms will always look for ways for reducing costs, improving efficiency, and increasing their profits. The developed countries from where outsourcing activity emanates are therefore sure to benefit from these advantages that are achieved by its firms, and in addition would realize second-round benefits from business expansion and increased trade with the labor services-exporting countries. Addressing the political and labor issues that outsourcing engenders, therefore, rests largely on the developed country governments, on how well they can redistribute the gains from this activity and re-tool and re-deploy the affected workers.

For the services exporting countries like the Philippines, on the other hand, the benefits seem to be more clear-cut. BPO operations in the country provides us the opportunity to export our labor without the negative social repercussions of actually deploying workers overseas, such as separated families and exposure to grave physical, emotional, moral and other types of risks. Further, since the skills required by these operations are often also those normally needed in rapidly developing economies, such activities do not create artificial and externally determined changes in the skills and career structure of our labor force. Thus, outsourcing does not, for instance lead to an oversupply of nurses when the external demand for such specific types of workers suddenly dries up.

With such clear and substantial benefits, we should therefore aim to attract as much BPO activities as possible to maximize our country’s potential gains from this global trend.

1 comment:

Anonymous said...

Hi Winsome, I saw a page listed in a profile at that talked about high school class reunions and somehow it sent me here. I'll check out your site while I'm here. Have a good day. See ya.. Dave.