From Bangalore to Manila and Prishtina: How is the ITO & BPO outsourcing industry transforming these emerging economies?
ITO & BPO Outsourcing: An Opportunity for Emerging Economies
Technology and geo-economics is shaping a new economic reality and is giving birth to totally new industries. This economic shift has given birth to IT & BPO outsourcing, which as a concept has become one of the main drivers for economic growth, especially in the developing countries. Outsourcing benefits corporations by cutting costs, increasing their profits and product quality.
At the other hand, when MNCs provide outsourcing contracts in the host country, a large pool of labor workers are required for this process which makes the unemployment rates go down. As a result, employed people with have more money to spend, raising the standard of living and the quality of life. This has a chain macroeconomic effect attracting more and more other investors and boosting the local economy. Bangalore in India, Manila in the Philippines and Prishtina in Kosovo are some of the global success stories of this transformation.
Bangalore? Yes. We all know about it. But, how it all started? Kiran Karnik, ex-head of Nasscom, in his book ‘The Coalition of Competitors’ tells the upcoming story. Jack Welch, ex-CEO of General Electric, was in India to persuade the country to place an order for the production of G.E. aircraft engines. Sam Pitroda, a technology adviser to the Indian Prime Minister, Rajiv Gandhi was present at the meeting.
As recounted in “The Coalition of Competitors,” after Mr. Welch said what he wanted from India, Mr. Pitroda said, “Fine, but first we want you to outsource $10 million of I.T. software work to India.” G.E.’s famous boss was surprised, but he finally said, “Fine. Done. ” And G.E. became the first U.S. company to outsource software work to India. The rest is history…
Generating annual revenues of more than $60bn, India’s IT & BPO outsourcing industry has been the driver of the country’s economic ascent (FT, 2010) with Bangalore being at the hear of it. The IT Outsourcing industry is valued at 150 billion USD (HBR, 2018). It generates 9.5% of the country’s GDP and employs around 3.5 million people (Outsourcing portal, 2016). An example is CISCO Systems which has created 6000 jobs when they made a $1.1 billion investment in Bangalore, India. Other US companies pouring billions in India are Ford, American Express, GE and Microsoft.
As an illustration, the largest three outsourcing companies in India (Genpact, TATA and Serco) employ more than 130.000 people Yourstory, 2017). The IT & BPO industry is celebrated for its ability to put the country on the map as a destination for high-quality, low-cost technology skills, and for being an engine of wealth and job creation.
Philippines? Yeah, Asia again. Outsourcing in the Philippines started to gain traction after the 2009 Global Financial Crisis as American and European banks under regulatory scrutiny and cost pressure began offshoring complex business functions. Manila, the country’s capital, is well on its way to becoming the next Asian outsourcing miracle. The financial infusion from outsourcing jobs reduced the needs of the young Filipinos to fly overseas for high-paying jobs leading to the expansion of the middle class.
World Bank estimates that BPO revenues could soar to well over US$50 billion and provide some 2.6 million jobs by 2020. As of 2012, BPO workers have earned $8,849 on an average while working in the call centers in Manila, which was almost three times the minimum wage in Metro Manila (Flatworld Solutions). The overall contribution of this industry to the country’s GDP is around 10% (This Week in Asia, 2016). It has enabled their purchasing power that property and auto sales in the country during the year saw an increase of 24.5% while the neighboring countries were in decline.
What about the South-Eastern Europe, the Balkans region especially? According to Fatmir Hyseni, CMO at Kosbit, one could easily argue that this region has the potential to leverage a market worth $110 billion EUR (Outsourcing portal, 2016). 30% of the top 100 global outsourcing companies are already in the region (Colliers International, 2014).
In Bulgaria, number of employed people in the IT & BPO outsourcing sector reached 42 thousand in the year of 2015. Furthermore, the number of companies equals 364, while the total income for 2015 amounts to EUR 1.4 billion, or 3.4% of country’s GDP (IT HUB, 2015). Romania had revenues of EUR 1.4 billion in 2013 with 60000 people employed (ZDNET, 2014). Back in the 2012 edition of Ernst & Young, Poland ranked 7th in the world in terms investment attractiveness (Software mind, 2018) which shows the financial impact the industry has had in these economies.
Prishtina, the capital city of Kosovo, was seriously affected for good by the investments in this industry. IT & BPO outsourcing has given a new face and a new financial infusion to the country which is offering services to global telco companies like AT&T and Vodafone. Taking into consideration the new firms that have been established there is a significant growth of annual sales. In absence of official statistics, a simple guess is that this industry brings around 70-80 million EUR per year to the fragile Kosovo economy.
IT & BPO Outsourcing has unleashed a new playing field for 3 billion new players. ‘Tom, the playing field is being leveled.’ This is what Infosys’s CEO Nikelani, said to Thomas Friedman in 2005, the author of the bestselling book ‘The World Is Flat: A Brief History of the Twenty-first Century’. By this, he meant that countries like India were able to compete equally for global knowledge work as never before – and that America had better get ready for this. ‘The world is flat’ exhaled Friedman thinking of the first day he went to visit to India and the chaotic buildings and people on motorbikes. Now, a few years later, there were new houses built, new infrastructure and new cars on the shiny roads paved by this powerful industry.