By: Yekta Karimi, GRI Data Partner Report Analyst at Governance & Accountability Institute
Those persons who tend to disapprove of the outsourcing phenomenon often think of three things when they hear the word: first, that outsourcing necessarily means offshore outsourcing; second, the idea of businesses encouraging inhumane treatment of workers and the presence of sweatshops; and third, that outsourcing is taking away jobs from perfectly capable domestic citizens and giving the jobs to foreigners.
Even though this mindset seems to be on the decline, it is still very essential to address each of these issues as they relate to effective Business Process Outsourcing (BPO).
BPO is the outsourcing of one or more parts of a company’s supply chain to a vendor, either in the same country or somewhere outside of the home country. This approach is now being complemented bybusiness process management—a management approach of aligning a business’ processes with its clients’ wants and needs.
As globalization trends in various industries increases the reach of industry players to many venues, and transparency becomes a more sought after characteristic by consumers, many large multinational companies and even smaller enterprises are now focusing on improving the business ethics of their outsourcing operations.
In fact, the relationship between many American companies, for example, and their outsourcing vendors is evolving to resemble a partnership rather than the traditional company-vendor relationships. This new model is often referred to as the Managed Service Model (MSM).
The shift to a Managed Service Model means that companies are
increasingly relying on the governance of their vendors for success.
The shift to MSM means that companies are increasingly relying on the governance of their vendors for success as up to 15 percent of the value of an outsourcing contract can be lost due to mismanaged vendor governance. This has encouraged many companies to invest in entities, both locally and abroad, which have efficient governing structures and adhere to governance best practices.
Oftentimes the ethical issues connected to outsourcing are generally perceived as the exploitation of workers living in poverty in the developing world. However, the BPO industry has the potential to empower a lot of foreign workers to lift themselves out of poverty and pursue further education. This new trend is referred to as Impact Sourcing (IS) and is steadily on the rise. IS is a perfect blend of Corporate Social Responsibility (CSR) and BPO in order to benefit the companies and consumer while also delivering a social impact.
The company Impact Hub serves as a liaison for companies and BPO service providers that hire and train disadvantaged women and youth in developing nations. Impact Hub estimates that there are 560,850 IS workers today. Even though studies show that both workers in the developing world usually approve of the presence of multinationals and that these same multinationals are aiming to enhance the working conditions of their foreign employees, the unfortunate reality of sweatshops is still something that needs to be addressed in a concrete way.
The American Prism
As expanded exposure of unethical behavior by outsourcing vendors in other countries continues, and more stakeholders learn more about certain practices or companies, American companies are forced to consider working only with vendors that practice ethical treatment of their laborers.
The news is not all bad. In places like the Philippines and El Salvador, the booming outsourcing industry has helped create a growing middle class as more people are benefiting from jobs that are stable and abundant.
Philippines Call Center.
Photo Courtesy of Yugatech BPO News
Additionally, the existence of a growing middle class and the availability of higher paying jobs means a decrease in the “brain drain” phenomenon as less people are forced to leave their countries in order to make financially stable lives for their families back home.
So why is it that so many Americans may still fear the mistreatment of employees in foreign US subsidiaries or vendor operations in the developing world? Is it feasible to expect a company to pay their foreign workers in a developing nation the same wage that they pay their American workers when we are looking at completely different economies, spending and saving cultures, and living standards?
It is important to understand the weight behind the use of the word “sweatshop.” Sweatshops are more than just businesses paying below living wages; they are also places that practice child labor; have inhumane and unsafe working environments; and are noted for the constant exploitation of workers’ poverty to work them hours on end without breaks or time for sleep.
An article on foxnews.com (2004) mentions that sweatshops for laborers in the developing world “…may actually be the best of a series of bad employment options available to them, and/or the only or best option for supporting themselves and lifting their families out of poverty.” If developed countries are to live by this standard, than we can just as easily say, for example, that the best option for American youth in poverty is to obtain a high school diploma so there is no reason to aim for anything higher.
It is understandable that child labor is a different matter in the developing world as it is in the United States. In many developing nations, removing a child from their job can result in much worse fates for them and their families. Not abiding by Western child labor law ideals does not change the economic setting of the developing countries and instead can make matters worse, sometimes resulting in child prostitution or crime.
The global community can do better to alleviate abuses on several fronts.
This is where Corporate Social Responsibility can play a large role.
The global community can certainly do better to alleviate these abuses on several fronts. This is where Corporate Social Responsibility (CSR) can play a large role. Rather than drastically eliminating certain aspects of outsourcing operations or completely ending these operations, companies – especially those that are financially able – can use their R&D resources to promote education, child and health care, and other community benefit programs to support their offshore outsourcing.
Photo Courtesy of Kheng Guan Toh and www.referenceforbusiness.com
The decline in the use of sweatshops and increasing wages for workers employed at foreign companies in the developing world can be attributed to two trends: (1) the increased demand for ethical behavior and transparency from consumers, and (2) the better understanding of the benefits of CSR.
A company that engages in CSR and practices good business ethics, can make a better case for its clients who may not believe that outsourcing is a good thing for either the company or its foreign workers. The CSR program can serve as a mitigating factor in some of the perceived negative aspects of BPO. It has been shown that companies who have formal CSR strategies have happier and more efficient employees, which means that a company that supports its BPO activities with a CSR strategy, should be able to reduce some of the potential risks related to outsourcing by creating a more welcoming environment for employees to thrive. Employees who work for companies committed to ethical practices and engage with their communities in a positive and impactful way often feel more values, happy, and safe, which results in higher productivity levels and lower risk of attrition. Indeed, a 2012 Net Impact survey showed that 45% of respondents would take a 15% pay cut, with all other factors equal, for a job that makes a social or environmental impact.
An active CSR strategy has been proven to serve as a positive financial benefit to company – Unilever is a well publicized exampled of this. However, more than just financial gains, CSR engagement results in better branding for companies and can mitigate the negative perceptions that many have on outsourcing. As more companies ensure that their BPO activities are ethical and socially beneficial, those companies that are left behind will need to find ways to catch up in order to maintain customer retention rates and remain as going concerns. BPO has even higher impact potential with the influence of CSR and IS.
About the Author: Yekta Karimi is a GRI Data Partner Report Analyst at Governance & Accountability Institute (the exclusive GRI data partner in the US, UK, and Ireland). She is also a graduate student at Columbia University’s School of International and Public Affairs, pursuing her Master’s degree in international affairs with a focus on international finance and economic policy.
Prior to coming to New York, she worked as a program director for a Small Business Development Center in California. Having lived and traveled all over the world, Yekta has invested her interest in international relations and sustainability looking to fuse the private and civil service sectors.