PrecissPatrol White Paper : Outsourcing to Developing Economies Set to Grow

The practice of outsourcing business and professional services began in the 1980’s and has since evolved considerably. A growing number of firms, agencies and non-profit organizations in developed economies such as USA and Europe are now outsourcing non-core activities to countries in Asia, Africa, The Caribbean and Latin America. Recent trends also indicate a change from outsourcing only routine clerical tasks to the current practice of outsourcing projects that require highly skilled professional personnel.

Developing countries are staking a larger claim in business service provision and have been the destination of a growing volume of outsourced projects. According to the International Trade Center (www.intracen.org), since 1990, growth in the export of business services from developing economies has been 50% higher than that from developed market economies, and the volume is largely expected to grow.

The Role of the Internet

The volume of trade conducted through the Internet has been forecasted at more than US$7 trillion by the year 2004. This vast medium has spawned exciting opportunities for firms in developing countries, who are now able to export their services without leaving home. Countries in Asia, Africa, The Caribbean and Latin America are able to market their services through the Internet and in some cases even deliver through this medium.

In Asia, Indian firms have been in the forefront in this area, and have been particularly successful in the last few years. Countries in Africa that are involved in the exportation of services include South Africa, Kenya, Zimbabwe and Uganda, with more expected to begin in the near future. Caribbean countries including Jamaica and Barbados have had particular success in customer support through call centers and there has also been growing activity in back office operations in some countries in Latin America.

Outsourced Services

Some of the services most commonly outsourced to developing countries include professional services such as:

• Accounting
• Architecture
• Construction engineering
• Customer support
• Internet research
• Software development
• Web site design and maintenance

Also popular are information processing services such as:

• Data capture and processing
• Translation services
• Transcription services such as legal and medical transcription
• Secretarial services
• Claims processing such as health insurance claims processing
• Mailing list management
• Text keying

Over the years, there has been a change in the type of work that developed-country firms have been willing to outsource. There has been a shift from outsourcing of clerical type work, to more skilled, professional type of services.

If charted on a scale, outsourced projects will usually fall within three categories:  

Why developing countries?

Reasons why US and European firms are increasingly partnering with firms in developing countries include the following:

• Ability to obtain skilled labor for positions that would otherwise attract less qualified staff in developed countries.  For instance, companies outsourcing their customer support function are able to obtain university-graduate-level staff in developed countries, who are usually willing to take on such assignments.
• Lower labor costs. Contracting companies are able to obtain 30% – 40% cost savings as labor costs are considerably lower in developing countries.
• Differences in time zones – this is especially important where 24 hour service is required by the contracting firm. A company in Africa or Asia, for instance, may take on work during hours when their US clients have closed for the day.

Improvements in some areas of developing economies have also led to their increased ability to attract work from abroad. Some of these include:

• Improvements in telecommunications infrastructure – in Africa for instance, improvements in telecommunications infrastructure and other necessary services such as power and transportation have been key in enabling African firms source work from abroad
• Improvements in educational standards – countries such as India and Kenya have a large population of well trained, English speaking professionals
• Accessibility – improvements in air travel in many of these countries have encouraged foreign firms to outsource work to them. In some instances, contracting firms may require to visit locations where they have established working relationships with local firms.

The Future

It is now becoming clear that for many outsourcing firms, what began close to 25 years ago as a cost-cutting measure has evolved into an important way of achieving efficiency within the organization.

It is expected that in the next few years, the relationship between contracting firms in developed economies and firms in Asia, Africa, The Caribbean and Latin America will continue to evolve, and to foster partnerships that will be beneficial to both parties in the long run.

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