BPO is no long-term solution

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. TT has been able to attract BHP Billiton’s N 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 outsourcing 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 rentfree 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 TT , 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 of 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 TT 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 robotic process automation (RPA) are far greater than sending the processes offshore (see management consultant Deloitte).

For example, while an offshore equivalent worker is 35 per cent cheaper than the UKbased 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 onshore with a reduction in revenue and employment for the offshore countries.

If we in TT 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