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The BPO industry can still deliver what the developing world needs — “factor” income, not just “percentage” gains

April 24, 2018 Mike Dershowitz No comments exist
From the Desk of Mike Dershowitz

I have written about how the BPO industry should be proud of its poverty alleviation record, and how the industry has been good at producing positive outcomes for agents.

The fact is this: If the economics don’t work — “it” doesn’t work. What do we mean by “it”? It refers to most things in our lives. In the case I want to discuss today, the “it” is the BPO industry and its ability to radically and rapidly change an individual’s economic circumstances through delivering employment that pays someone a multiple of the income they could otherwise earn, instead of just a percentage gain.

My mom was a math teacher. And while I hated it when she used to make me solve the same problem 3 different ways, what it taught me was that in math, you can add a digit, or change a decimal point, or a denominator, and both the good and the bad that the number represents — in people’s lives — can change, and fast.

In the case of BPO firms, what they’ve changed is the amount of income a person can earn through engaging in the international trade of the BPO services industry vs. engaging in a domestic industry.

This is where international trade does what it has been doing for centuries: it changes the math vs. not trading at all. In this case, it changes the numerator of the purchasing power that individuals in the developing world can have, over the denominator of the basket of goods and services they otherwise would or can buy before that increase in income.

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Before we understand the impacts of changing what I call the income numerator for people, let’s first get some definitions in place.

(NOTE: I’m going to do all of this in Philippine Peso instead of US Dollars because I don’t want you influenced by trying to compare these numbers to US dollars. You need to understand this based on what BPO Agents in their societies experience, which is not comparable on an absolute basis to what you may experience in your daily life living in the US or Western Europe.)

  1. The World Bank definition of “abject poverty”: <100 PHP/day, (<12.5PHP/hour or <2,000PHP/month)
  2. The government-defined poverty line for the city we’re operating in (here I’ll benchmark to Iloilo, Philippines, our Philippines HQ): 284.5 PHP/day, (35.5 PHP/hour or 5,691 PHP/month)
  3. The government-defined minimum wage for the city we’re operating in (again, Philippines): 400 PHP/day, (50 PHP/hour or 8,000 PHP/month)
  4. The government-defined middle-class wage for the city we’re operating in (again, Iloilo): 789 PHP/day, ( 98.625 HP/hour or 15,780PHP/month)

What are we looking for here? Like many things in economics, we have to go back to the math. Three basic mathematical concepts are relevant here: percentage vs. multiple vs. absolute changes in income.

Think about your own income. If you’re already in or above the middle class, percentage changes in your income can have a large effect on the quality of your life and what you’re able to do with your money. But, if you’re fighting for survival in a developing world economy, earning the abject poverty rate or the minimum wage, and especially if you’re earning below the middle-class wage, percentage changes in income are not enough.

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Let’s talk briefly about what is abject poverty. You can read more here for the official definition, but it’s really all about insecurity: food insecurity, health insecurity, personal safety issues (at times), and more than likely limited access to clean water, electricity, and communications networks.

food insecurity and poverty in the Philippines

Image from Pixabay

Think living out in the fields, in subsistence agriculture, struggling for survival every day. I’ve been to these places; it’s not pretty.

That’s where you need multiple changes in your income — where your income changes by a factor (i.e. many times) what it currently is. In order for you to afford the things that lift you out of the daily fight for survival that is poverty, you need a multiple change in the income numerator you earn. And that’s where the BPO industry, within the existing economics with clients, has had and can still have the largest impact in the developing world.

If you’re earning 50 PHP/day (again abject poverty according to World Bank), earning 55PHP/day or a 10% increase in your income won’t alleviate all the factors of insecurity you face on a daily basis. It won’t put your kids in school, help you build a house, or get you consistent access to healthcare.

But the average call center or BPO job pays 1.5 to 2 times the minimum wage. Or to be specific, at 2 times the minimum wage, the BPO industry is paying eight times the abject poverty income rate.

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What does this do for people previously living in abject poverty? Here are some key changes experienced by one of our agents previously living in abject poverty (whose name I will withhold now but will write about in a later post):

  1. Working outside every day to working inside in an office
  2. Traveling to a town to communicate vs. having a mobile phone in your pocket
  3. Using a toilet vs. using a pit that you cover over after a week or so
  4. Living in a concrete structure vs. living in a bamboo one with a tin roof
  5. Getting more education by working and going to school at the same time
  6. Having access to private healthcare vs. government healthcare
  7. Having money to invest in your family

And these are just the big things that have changed for this agent. All of these gains were made within the framework of a BPO job that was made possible by a data entry contract with a larger, US company. (Remember that Rethink Staffing is late to the BPO game — this has been going on for 30 years.)

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No matter how much fun we make of Agents in the developing world through TV shows, nor how much politicians in the US complain about “stealing jobs,” a call center job — since it engages in international wage arbitrage — has provided an income change multiple to developing world populations it employs.

Clients get a lower cost, true (and billion-dollar multinational companies have been created in the middle of this trade), but Agents make more money than they could otherwise — multiples of their previous income — because the average starting salary of a call center agent industry-wide is at least 1.5 times the minimum wage, and sometimes higher. The Agents’ income numerator over the denominator of costs in their respective societies has increased dramatically.

The call center industry has already done a lot to move people out of abject poverty.

The fact is that the call center industry has already done a lot to move people out of abject poverty. While I generally object to the way our industry treats people in the developing world (see my original post here), you can’t argue with the economics we’ve experienced over the last 30 years. The BPO industry has lifted millions of people out of poverty and will continue to do so.

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If you have questions about fair trade entrepreneurship and how it applies to your company or you just want to talk about outsourcing in general and how to set up a business in the developing world, feel free to contact me or leave your comments below.

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