How Outsourcing Has Changed The Global Economy

By Nadine Flores | Aug 10, 2018

Businessbusiness outsourcingforeign companiesmanagementmanilaoffshoringOutsourcing

The BPO (Business Process Outsourcing) industry has changed ever since it was first introduced around the late 80’s. In the following decade after companies have discovered its benefits, more and more enterprises shifted focus towards cost-effective measures and outsourced necessary business processes. Up until today, the BPO Industry continues to grow and increase in demand, serving as a catalyst for dramatic changes in the global economy.

Outsourcing Raises Human Capital

According to Kenneth Arrow, a Nobel Prize winning economist, the cumulative knowledge and skills people acquire through experiential learning contributes to a country’s human capital. In the outsourcing industry, even graduates fresh out of college are able to hold office positions. All new employees undergo training, and continue to learn new skills as they are constantly faced with new responsibilities and challenges. This regular upskilling of staff members help develop inexperienced applicants into well-rounded and valuable employees.

asian staff office

As a country’s human capital grows, more and more people contribute to the general economic development of its nation. Robert Lucas, another Nobel Prize economist, states that when people learn more skills and acquire new knowledge, the human capital gets additional benefits because new learning builds on top of old learning and the returns are greater each time new learning is earned by the working population. Lucas developed a model describing the role of human capital in economic development, and how accumulation of such human capital can have increasing returns to scale in contrast to physical capital, the marginal productivity of which is constant.

Since outsourcing allows cross-country learning through foreign employers training their offshore staff members, call centre employees become valuable human capital. In addition to human capital, higher skilled workers increase the quality of services rendered. Instead of relying on physical capital and export of goods alone, a developing country with highly skilled workers can export services through business process outsourcing and other methods. Take India for example, where BPO and ITO (Information Technology Outsourcing) contributes a total of 9.5% to the country’s GDP and employs around 3.5 million people. Aside from their country’s natural resources and tourism industry, India uses the outsourcing industry to generate income.

To quote an article from the Philippine Daily Inquirer, “Workers that serve sophisticated global markets must acquire skills through training and experience that a purely domestic service market would neither have exposed them to nor have demanded of them. Management practices, administrative processes, governance, and quality assurance among BPOs have had to be raised to international standards to survive in the competitive global market.” Valuable human capital is key to making a country’s economy internationally competitive.

 

Outsourcing Drives Economic Growth

Just in the Philippines alone, the BPO industry is expected to add as much as $1 Billion in revenues this 2018 and generating at least 70,000 jobs for Filipinos all over the country. The International Outsourcing Portal writes that many companies are looking to offshore staffing in developing nations for key business processes with 40% of business executives planning to outsource their business processes where the economics of scale have a greater impact.

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Aside from the emerging markets where jobs are outsourced, the BPO industry also brought benefits back to first world countries like the US and the UK. Since the labour rendered is cheaper, companies save on production of goods and service. Consumers in these places enjoy lower prices, leaving them with more money to spend on other things they need.

All in all, outsourcing is a global trend that has helped many nations get an economic boost. It’s akin to a two-way street: countries that outsource enjoy savings through lower wages and reduced prices of good and service, and those being outsourced to benefit from new jobs and an increased national income. It is still up to you on how you will utilise the economic benefits of outsourcing for the greater good.

 

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