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Letter: BPO is no long term solution
Published on June 16, 2017 Email To Friend    Print Version

Dear Sir:

Business process outsourcing (BPO) is being touted as an opportunity for the diversification of our economy. This is when businesses particularly in developed countries prefer to outsource non-core business activities usually to developing countries; these businesses prefer to use their highly paid human resources in more lucrative activities giving the off-shore countries a comparative advantage since they cannot compete directly in the core business types.

BPO companies aggregate demands across outsourcing firms and so provide economies of scale in addition to lower operating costs (labour, etc.) and incentives of doing business offshore. Hence there is competition among the developing countries via incentives (including tax free zones) to attract such outsourced business. India and the Philippines are among the largest providers of such BPO services.

Trinidad and Tobago has been able to attract BHP Billiton’s North American Petroleum Accounting and Reporting functions from Houston; in 2009 Scotia Bank located its regional shared services as a single enterprise free zone; RBC has also opened its back office service centre which supports countries in the Eastern and Dutch Caribbean; iQor, a Florida based out-sourcing company has opened a call centre in the Tamana inTech Park and is expanding into Barataria.

It is interesting to note that our comparative advantage includes rent free BPO incubation space, low utility costs, reliable telecoms infrastructure, free zones, all facilitated by our current depreciating currency. Surely, given the current oil and gas shortfalls in production and low world prices, and in fact they are a depleting resource, as a small open economy we have to earn foreign exchange to live.

The jobs that are available under BPO include back office outsourcing -- finance and accounting services -- front office services -- for example call centres dealing with requests by telephone. In Trinidad and Tobago BPO provides jobs for accountants, finance personnel, telephone sales and marketing and even technical support staff; all of which will be supported by data entry clerks and others.

In India almost three million people are engaged in the BPO sector and annual revenues are of the order US$11 billion. In the Philippines some 1.4 million are employed and provide revenue of US$22 million. Since BPO is providing both jobs and foreign exchange it is hoped that others will be attracted to our shores.

While this kind of business will be attracted to Trinidad and Tobago based on a comparative advantage and not competitiveness -- the latter based, for example, on innovation -- the question arises whether the industry is sustainable and, of importance, whether there are global signals that indicate threats to the medium to long term viability of the industry. Our diversification is a medium to long term affair and outsourcing sustainability is of concern.

Robots are threatening to undercut the outsourcing sectors as almost everything that can be outsourced can be automated. Though the technology is in its infancy a number of US and UK companies are introducing small proof of concept and pilot projects before rolling them out more widely. Studies are demonstrating that cost savings by deploying robot process automation (RPA) are far greater than sending the processes offshore (see management consultant Deloitte).

For example, while an offshore equivalent worker is 35% cheaper than the UK based one, a typical robot is some nine times cheaper! Hence businesses are choosing to go RPA rather than BPO and the latter providers expect to see their service delivery drop significantly. This suggests that the robotic technology will encourage the offshore business to return on-shore with a reduction in revenue and employment for the off shore countries.

If we in Trinidad and Tobago were to significantly embrace the current BPO model then the introduction of RPA will lead to a large number of job losses and the associated foreign exchange. If we are to maintain some parts of the business then we would have to move up the value chain; move towards becoming higher value consultants instead of simple process executors, again with job losses.

The technology of artificial intelligence when added to RPA over the next few years will make it possible to automate even more complex business processes, which, some say, will destroy the BPO industry. Still, the industry may be able to adapt, to innovate, and reconfigure itself though there is little indication of that at present.

What all of this tells us is that BPO is not the long term solution even in part to our diversification thrust. The early signals suggest that it may not be sustainable.

Mary K King
St Augustine
Reads: 3459

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