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Outsourcing as strategic tool for job creation

By Gloria Ehiaghe
11 December 2018   |   3:29 am
There is no doubt that one of the most formidable challenges facing Nigeria today is growing unemployment. Despite the country’s vast natural resources, gross mismanagement, profligate spending, poor leadership and corruption have been blamed for Nigeria’s inability to maximally improve on the quality of life of its citizenry.  According to statistics from the National Bureau…

Job Creation

There is no doubt that one of the most formidable challenges facing Nigeria today is growing unemployment.

Despite the country’s vast natural resources, gross mismanagement, profligate spending, poor leadership and corruption have been blamed for Nigeria’s inability to maximally improve on the quality of life of its citizenry. 

According to statistics from the National Bureau of Statistics (NBS), about 1.8 million youth enter the Nigerian labour market every year.

In addition to the detrimental effects on the nation’s economy, unemployment and poverty are the primary causes of addiction and substance abuse by teenagers and young adults in Nigeria. 

Indeed, youth unemployment can impose heavy costs on young individuals and their sense of dignity. It can permanently damage their employability and lead to a circle of despair and exclusion, which can undermine social cohesion and generate social unrest and conflict.

Conversely, a reduced unemployment rate will bring about improved human development and reduce poverty. It will also reduce crime and insecurity and attract foreign investment into the country.

A recent report by the International Labour Organisation (ILO), equally identified unemployment as the root cause of the growing rate of anti-social activities by the youth.

The ILO submitted that the inability to find work by young people usually creates a sense of vulnerability, uselessness and idleness, which in turn heightens the attraction to illegal activities.

To deal with the unemployment challenge, many developing countries are increasingly embracing outsourcing as a strategic tool to drive economic growth and stimulate job creation.

While outsourcing or Business Processing Outsourcing (BPO) is described as a business practice in which services or job functions are farmed out to a third party, it may involve the contracting of a business process, including payroll processing, claims processing, operational, and/or non-core functions, such as manufacturing, call centre support and facility management.

The Association of Outsourcing Professionals of Nigeria (AOPN), during its programme on outsourcing interface between users, providers of outsourcing services, and regulatory agencies recently, mentioned instances how the outsourcing business when effectively leveraged upon could tackle unemployment in the country.

The Guest Speaker, Executive Chairman, Polar-Afrique Consulting Limited, Chris Itsede, who spoke on, “Bridging the Unemployment/Unemployability Gap Through Outsourcing”, described outsourcing in all its variants, as increasingly being leveraged by many developing and emerging countries as an effective management tool to drive economic growth and employment generation.

The paradigm, according to him, holds immense potential as an effective antidote to the nagging and increasing problem of unemployment, especially amongst the youth in Nigeria. 

However, like every developmental achievement, he said the employment generating possibilities of outsourcing could only be fully realised through proper planning and implementation of a strategy to mainstream outsourcing into the national employment creation paradigm.

For Nigeria to take full advantage of the employment generation potential of outsourcing, Itsede urged government at all levels to make outsourcing a part of national economic growth and development strategy.

To leverage outsourcing as a solution to unemployment in Nigeria, he canvassed an enabling environment to attract, retain, and sustain large inflows of inbound outsourcing investments over time.

He said it was important for Nigeria to conduct a study to benchmark the country with established and other emerging offshore destinations to learn from their varied experiences, as this would enable a detailed evaluation of the country’s ranking with other destinations and guide in carving a niche entry point into the highly competitive, but lucrative international outsourcing industry.

According to him, such a study would reveal lessons and implications for Nigeria, and lead to an evaluation of options that can give the country a definitive competitive edge in the global offshoring milieu.

He said an enabling environment for international outsourcing would be characterised by the existence of a large pool of educated and skilled workforce with good communication skills.

In making the Nigerian economy attractive to outsourcing flow, he called for active collaboration between the government and the private sector players to be able to influence government policy formulation and prioritisation of projects and initiatives that would enhance the smooth functioning of the outsourcing industry in Nigeria.

Itsede urged members of the association to continue to work with the government and the National Assembly to pass the legislation that seeks to establish a legal and regulatory framework for the outsourcing industry in Nigeria. 

According to him, that would be a giant step forward in the quest to make Nigeria more attractive to international outsourcers. 

He also urged the association to prioritise the development of a robust database of its members and developments in the outsourcing industry that would be a credible and reliable of information for potential outsourcers searching for partners in Nigeria.

The new President of AOPN, Prof. Obiora Madu, said in tackling some of the sectoral challenges, the sector need government’s enabling environment to thrive.

He said the association would go into advocacy with a view to growing the unexploited domestic Business Processing Outsourcing (BPO) industry to attract external opportunities.

The new president also said the association would foster collaborations both locally and internationally for the purpose of capacity building and boost professionalism of members as well as seeks funding partners for developing the outsourcing sector.

Itsede, who gave an in-depth explanation on the evolution of outsourcing, which dated back as far as 1700s, with the practice inspired by the postulations of the English economist, Adam Smith in his seminal work: ‘The Wealth of Nations (1776)’, where he posited that companies would make substantial savings from shifting their manufacturing activities to developing countries with lower labour costs.

Businesses in developing and emerging economies had since then grown by leaps and bounds when the first outsourcing contracts were believed to have been signed in India, usually regarded as the cradle of outsourcing.

For instance, India’s Information Technology Outsourcing (ITO), and Business Process Outsourcing (BPO), now account for about 9.5 per cent of the country’s Gross Domestic Product (GDP), which offsets over 70 per cent of the country’s oil imports.

Outsourcing directly employs around four million people, with indirect employment of over 10 million in India.

Other countries such as China, Philippines, Thailand, Vietnam, and Ghana have, in varying degrees of success, also adopted the tactic to boost their economic growth and job creation.

Not surprisingly, policymakers in both industrial and developing countries have been debating the appropriate policy choices to maximize the huge prospects that outsourcing holds for economic growth and development.

Like India, many developing and emerging economies have benefited from using outsourcing to stimulate economic growth and employment generation.

Coming closer home, South Africa, Uganda and Ghana are revving up their outsourcing sector to be a major contributor to economic growth and development.

Despite all this, India continues to control over 50 per cent of the global market for outsourcing.

From the foregoing, the great potential for outsourcing to contribute to employment and wealth creation in the destination country is not in doubt.

“In order to ensure an orderly and sustained development of the outsourcing sector, it is important to have an appropriate national legal and regulatory framework to guide the activities of the industry participants.

“The national legal and regulatory framework would liberalise the sector and relax the constraints to its rapid evolution. Most of the identified areas for improvement so far fall with the sphere of the Federal Government. 

“However, in addition to the Federal Government’s intervention, state and local governments can also compete with one another by offering more favourable business environments, fiscal and physical incentives to attract outsourcing flows to their respective jurisdictions. This kind of healthy competition would see employment created by the outsourcing industry grow at an astronomical rate, even as it steadily to wealth and value creation,” he said.