THE SOCIAL AND ECONOMIC EFFECTS OF TELESERVICE EMPLOYMENT IN DEVELOPING COUNTRIESThe most significant development in the past 10 years has been the dramatic rise in communications capabilities and the subsequent fall in communications pricing. These forces have opened the door for the trade in employment services on a global scale. The teleservices industry has grown rapidly in the developing world and current trends indicate that it will continue to expand into many low cost countries. This article analyzes the impact that the trade in teleservices can have on the social and economic development of these recipient countries. The interaction between foreign investment and the economy can be quite complex and there are certain costs and benefits that are associated with this kind of work. The relevant question for development experts is whether the positive aspects of this industry outweigh the negative ones and whether this type of growth good for the long term economic and social development of the country. To analyze the costs and benefits of the teleservices trade, one must take into consideration a plethora of variables that encompass economic, societal and technical subjects.
1. EMPLOYMENT
One obvious benefit of teleservices for developing countries is the amount of employment that they bring. Richardson and Belt point out in their article "Saved by the Bell," that call centers in the North East and Highland regions of the UK have created a large number of jobs in a short period of time. In India, three cities, Delhi, Mumbai and Bangalore account for most of the country's call center employees (Taylor and Bain, 2004). India's BPO sector will provide the country with around $60 billion dollars of exports by 2008 (Farrell and Zainulbhai, 2004). And since the customers of call centers live outside the region, these new jobs can be considered as net new employment because they do not displace other local jobs (Richardson, 2001: 86).
Salaries in Indian teleservices are slightly lower than those in the IT/software sector, but they are higher than average salaries for other white collar professions. Subsidized food and transportation are industry standards (Taylor and Bain, 2004). The twenty-four hour functioning of international call centers means that local vendors can stay open longer creating a booming `after hours' sector among local businesses which further increases employment. In addition, these jobs are `new' to the labor market and hence diversify the labor market so as to counteract the overdependence on a few industries.
India is not the only country that is attracting call center investment. A new report by Datamonitor describes how `nearshore' countries in Eastern Europe are providing attractive opportunities for the Western European market. Eastern European countries in particular possess an educated labor pool, business friendly political regimes and relatively stable currencies.
The Czech Republic, Poland, and Hungary will be the destinations of choice higher-end care for German and English-speaking customers.
Romania and Bulgaria will focus on routine customer care queries. Romania will focus on Italian and French clients, while Bulgaria will concentrate on customers from the UK and Germany.
Croatia and Slovenia have an excellent opportunity to win business in Italian and German-speaking customer care.
The Baltics (Estonia, Latvia and Lithuania) will remain the outsourcing location of choice for firms servicing Scandinavian customers.
Morocco and Tunisia will remain focused on French customer care. However, Morocco is likely to diversify into Spanish and English speaking services (TelecomWeb, 2004).
In another report, Datamonitor researchers analyze the Latin America and Caribbean market. They found that call center employment in that region is growing at 17 per cent from 336 000 in 2003 to an expected 730 000 in 2008. The primary destinations being both Mexico and Brazil, who together make up 86 per cent of the entire teleservice population (Datamonitor, 2004).
Francophone Africa has emerged as a destination for French companies, especially along the west coast which lies on the route of a high-quality fiber-optic link between Europe and Latin America (Gray, 2004). Left out of the picture for the most part is Central and Southern Africa as well as many smaller Asian countries. Language is the major factor blocking their entrance but many of these countries face other problems including; lack of telecommunications infrastructure, low education levels, hostile regulatory regimes as well as political and social instability. The competition for teleservice positions is intensifying and countries that do not initiate reforms will be shut out from this type of foreign investment.
As teleservice agents tend to be young educated urban dwellers, it is apparent that most citizens are excluded from the industry. Poor rural communities do not receive any direct benefits from the development of call centers. The concentration of call centers in big cities may serve to further drain rural communities of their brightest talent. However, call centers in the North have had success locating themselves in small towns and rural areas. And while moving into small towns in developing countries may never be an option like it is in Iowa and Scotland, in India companies are beginning to move to smaller cities to tap into newer and cheaper pools of labor as well as to qualify for state grants and incentives (Taylor and Bain, 2004). Meanwhile the dichotomy of rich high tech industries growing simultaneously against the backdrop of extreme levels of urban and rural poverty is surreal.
2. FOREIGN DIRECT INVESTMENT
Economic theory gives us two approaches to understanding the impacts of FDI on recipient countries. The first approach is based on standard trade theory and is grounded in the writings of MacDougall (1960). This partial equilibrium comparative-static approach prioritizes and quantifies the distribution of investment capital. MacDougall argues that foreign capital will raise the marginal product of labor and reduce the marginal product of capital in the receiving country (Blomstrom and Kokko, 1996: 1). These writers also emphasize other positive externalities associated with FDI such as tax revenue, economies of scale, technology transfer and competition induced efficiencies.
The second approach, established by Hymer (1960), relates to theories of industrial organization. This school of thought examines why firms move aspects of production abroad to produce the same goods that they produce at home. For them, FDI represents some market imperfection or interference that fractures markets. Hymer saw firms moving abroad for strategic reasons to either a) exploit specific advantages over foreign firms or b) to remove competition and eliminate conflict.
In reality, the relationship between multinational companies and developing economies varies between industries and countries. The specific characteristics of a receiving country's industry and legislative environment are crucial determinants for the benefits of FDI. The teleservices trade brings up many issues and offers examples of both positive and negative externalities.
Teleservices are both capital and labor intensive and depend on advanced technologies. Therefore, the amount and type of investment companies bring in can be a substantial source of capital for the receiving country. For example, evidence has shown that the extra call center traffic encourages governments to invest in communications infrastructure (Richardson, 2001: 86). McKinsey Global Institute calculates that a country like India is poised to capture $0.33 (see graph 2.4) from every dollar that was previously spent on business processes in the US. This net benefit comes mainly through wages paid ($0.10), local profits ($0.10) and suppliers ($0.09), but also includes central and state government taxes ($0.04). These are significant numbers that any government seeking to attract services needs to take into account.
The extent to which a country regulates its industries and FDI flows can have a major impact on its ability to foster investment. The rise of India as a destination for back office processing, coincides with its economic reforms of the early 1990s committed to liberalization, privatization, and globalization. Since liberalization began the country's GDP has doubled and poverty rates have fallen by nearly a third in both rural and urban areas. Business process outsourcing, along with IT and software, are the most open sectors in the country. The early success of British Airways and GE proved to the world that India was a credible option for outsourcing. The presence of foreign firms has made Indian companies reorganize, boost productivity, compete and expand globally (Farrell and Zainulbhai, 2004).
The major government policies that directly impacted the call center industry are; the promotion of tax breaks and financial incentives, the deregulation of telecom markets, the establishment of Software Technology Parks and export processing zones, as well as labor market deregulation. In addition, the National Association of Software and Service Companies (Nasscom) has been instrumental in representing the interests of the industry before the government through its research and lobbying efforts. Aimed at modernizing India's communications capacity, the central government in 1999 launched the National Telecom Policy (Taylor & Bain, 2004). This major initiative was aimed at deregulating the telecom industry, opening local and long distance services to competition and increasing investment in fiber optic cable. The initial effects have been positive, characterized by increased investment and falling per-minute usage rates.
3. HUMAN CAPITAL
Another benefit that call centers can bring, regards the type and nature of the new jobs. Often the countries attracting this kind of employment do not have a history of service sector employment and so call center positions can stimulate the updating of skill sets (Richardson, 2001: 86). The list of just a few of the useful skills includes, computer knowledge, customer service, communication, team work, linguistic, critical thinking and problem solving skills, as well as the stimulation of educational demands. The teleservices industry can promote skills by training employees in these areas, but also by placing other skills in demand and influencing university enrollments.
Research shows that most international call centers have a higher than average commitment to training and progressive management that can positively influence overall business and work cultures (Richardson, 2001: 87). The trade in services can be a tool for the expansion of human capital. This occurs when the service jobs call for a deep understanding of a system or technical expertise. This allows citizens to use their creative minds to succeed as opposed to depending on resource commodities to progress.
Call centers studied in the North have experienced criticism for the lack of opportunities for promotion and their flat hierarchies. This limiting structure may be partially responsible for the high attrition rates associated with teleservices. A 2002 study of British call centers found that most employees never move off the `bottom rung' of the career ladder and that younger and educated workers are easily frustrated in this industry (Belt, 2002).
In her essay, A New Women's Ghetto? Women's careers in call centres, Vicki Belt identifies two main career paths that agents can take. The first path involves promotion within the call center itself, while the second path views the call center as a `foot in the door' to the parent company. In an industry where women make up 70 per cent of UK agents, Belt concludes that women most often take the first route and that men are more likely to choose the second.
The study found that the rapid growth of this sector combined with high attrition rates, was creating opportunities for the promotion of women that do not exist in more established industries. One significant factor is that most call centers offer flexible work schedules which favor women with families. In fact, their extensive interviews revealed that call centers were widely regarded as `female friendly' organizations.
However, the study also concluded that women in UK call centers were having trouble advancing into higher positions beyond middle management. This `glass ceiling' effect may be due to the lack of management opportunities, the absence of training and the incongruous roles played by team leaders and managers. In addition, the researchers found that women have been generally excluded from making the jump to power positions within the parent company.
It is unclear how these findings are relevant to the developing world in such a country specific issue as gender. The fact that women are well represented in most call centers means that more research needs to be done on the impacts of teleservices and gender in developing countries.
4. IMMIGRATION
A fourth potential benefit of international teleservices is in the reduction of migration for young and skilled workers. Call centers are attracting younger educated workers, the exact demographic group that many regions have trouble keeping. The new and dynamic teleservice industry could help to motivate some of them to stay, offering them better work at home than they could find through migration. This potential benefit is hard to understate because the loss of young talent is a major hurdle to countries worldwide. Making jobs come to them, rather than uprooting citizens to find jobs, is ultimately more efficient and effective for poverty alleviation and development.
One of the glaring ironies of the global labor market is the number of high-skilled well educated immigrants working in menial and low-skilled positions throughout North America and Europe. It is not uncommon to find African and Asian doctors driving taxis in Washington, D.C. As we see the services trade grow, and the skill premium rise in LDC's, the infamous `brain drain' could begin to decline. In fact we are already seeing signs of this reversal in the trade of financial and legislative services. Communications technology will allow specialists to practice their trade where they live rather than where the market dictates. The positive externalities associated with this change have the potential to be significant. Students would be motivated to study subjects that are now in local demand and entrepreneurs will be able to use their creative talents at home with a stable market of paid professionals. For LDCs, keeping their best and brightest minds close to home could become a reality rather than a frustrating failure.
5. SOCIAL COSTS
There are social costs ascribed to teleservices that must be considered in any analysis of the sector. Universally, call center work has been recognized as stressful, intensive and tedious. The combination of repetitive tasks performed in a high pressure environment have led to annual attrition rates of 25 to 35 per cent in India. This high turnover rate is considered by many to be the most significant challenge to the BPO industry (Taylor and Bain, 2004). In addition, much of the work needs to be performed at night on shifts that can last between eight and ten hours, up to six days a week. This can have negative effects on an agent's health as well as their social and family life. Not surprising then are the reported problems of exhaustion, withdrawal and burnout by agents in India (Talyor and Bain, 2004). What we see here is a very different industry than the one that exists in the North where many call center agents work just part-time during the day. The physical and psychological costs of intensive call center work, seems to be higher in the developing world.
CONCLUSION
There are many limitations on the teleservice industry including, promotional ceilings, mobility of jobs, intensive work, consumer backlash, newer technologies, etc. However, unemployment is so great in the developing world that it supercedes whatever negative externalities are associated with the teleservice trade. India alone has 40 million officially unemployed citizens with another 35 million people joining their workforce over the next three years (McKinsey, 2004). It is imperative that governments and public policy analysts understand the significance of the relationship between public policy and employment growth. Issues of infrastructure, subsidized property, education and training are vital to attracting inward investment. And while promoting inward investment is crucial, policy experts must also focus on fostering a business climate that encourages endogenous growth in teleservices.
The economic benefits will be compounded if the companies that perform the services are indigenously owned and run. To guard against the mobility of foreign owned, low skilled teleservice jobs, development strategies need to build off the initial inward investment by expanding their capabilities, filling new and higher-skilled service positions and keeping up with the evolution of the industry. Two good examples of this would be the Indian companies TATA and Wipro. Wipro especially has been an early pioneer of the offshore servicing sector as well as one of the industry's top earners. Throughout their history, this particular company has successfully responded to global demands for its services. Even today Wipro is at the cutting edge of service outsourcing initiating new programs and looking to engage their clients in new and better ways. It is important that indigenous firms take the lead because in the end, countries cannot develop through outsourced work, they must become initiators, breeders of new ideas that add value to the economy.
Communications technologies are poised to change forever the services industry. Today we see amazing examples of people providing high-skilled services over fiber optic cables. Growing wage differentials between regions are driving these phenomena well into the foreseeable future. Ultimately it is up to the citizens and entrepreneurs of developing countries to decide to what extent and to what level they can service the global market. Teleservices are just a part of the trade in services that is taking off, and unemployment rates in developing countries are staggering. However, teleservices have the potential to be both a positive and significant tool for social and economic development.
Contributed by
Rich Zielinski
Richard Zielinski is a researcher at the Progress and Freedom Foundation, a digital economy think tank located in Washington, DC. The views expressed are his own. He can be reached at rzielinski@pff.org
