Socially Responsible Outsourcing 101

Socially Responsible Outsourcing Empowering the Poor Through Remote Work Leila Chirayath Janah Founder & CEO, Samasource source responsibly. TM

Summary The $160 billion global services industry has created over 1.5 million jobs These are mostly concentrated in big cities in China, India and the Philippines As a result, over 170 million skilled workers in developing regions such as Africa and rural Asia are left out Unemployment is one of poverty’s greatest ills. Socially responsible outsourcing can help.

Contents 1 2 3 4 5 6 1. What is outsourcing? 2. Who beneﬁts currently? 3. Outsourcing and socio-economic development: the problem 4. One solution: socially responsible outsourcing 5. Case studies 6. Appendix

What is outsourcing? 1 2 3 4 5 6 What is outsourcing, anyway? “The services trade at arm's length that does not require geographical proximity of the buyer and the seller.” (Jagdish Bhagwati, Columbia University economist) Business Process Outsourcing (BPO) is practiced by most of the Global 1000 and includes a wide range of services: Creative services, software and web application development, call Client-facing processes center, web-design and maintenance Decision-based processes HR services, live chat and SMS services Transcription, expense processing, video captioning, medical billing, Rule-based processes online reseach, translation Data entry, transfer and coversion Data entry, document management and scanning tasks

What is outsourcing? 1 2 3 4 5 6 Where is it done? $120-150B global business process outsourcing market Eastern Europe USA $3.3B $90B China & Southeast Asia $3.1B Latin America & India Caribbean $17B $2.9B Middle East & Africa $425M Source: NASSCOM-McKinsey Study 2005; http://www.indobase.com/bpo/global-market-of-bpo.html

Who benefits? 1 2 3 4 5 6 Outsourcing: who benefits? Poll result: what is the impact of outsourcing on the US economy? “They try to blame the economy and market conditions . . . . But the real reason we've lost jobs is outsourcing.” Helps 17% —Gary Nilsson, President CWA Local 1365 Not sure 14% “Tech companies made tremendous Hurts profits with these workers, now they're 69% throwing them away . . . when these jobs go overseas, they're not coming back.” —Christina Huggins, AT&T employee and Second Executive Vice President Most Americans think outsourcing hurts the US economy. Source: http://www.pollingreport.com/trade.htm Source: the New York Times; www.outsourceoutrage.com

Who beneﬁts? 1 2 3 4 5 6 Outsourcing: who really beneﬁts (part 1) Large Outsourcing Firms 1.5M knowledge jobs ...7 billionaires Remote Work Websites 200K+ knowledge projects 46% 1% US Canada, UK, Australia 11% Europe & Latin America India Africa 17% 25% Source: Company websites; Alexa.com

Who benefits? 1 2 3 4 5 6 Outsourcing: who really benefits (part 2) Technology and knowlege jobs can lift entire families out of poverty. Home Work Bombay, India Bombay, India Dharavi, South Asia’s largest slum Call center floor Over 2.5M people living on 175 hectares Many of India’s 1M BPO workers commute from slum areas

Outsourcing and Socio-economic development 1 2 3 4 5 6 The problem: many poor regions are left out Perception that economically 277% of per-capita income spent depressed regions are open for on tertiary education in some countries aid, not trade + + >175M skilled workers in Africa, Few opportunities for rural India and China smaller ﬁrms to connect to US clients + + 60% unemployment among No socially responsible university and high school graduates option that promotes economic development = = Talent Client Surplus Deﬁcit

Outsourcing and Socio-economic development 1 2 3 4 5 6 The problem: talent surplus (part 1) 32 million rural Chinese leave their towns each year for big cities, in search of work 45 million rural Chinese youth are currently enrolled in senior secondary schools Source: Wang, Dewen. “China’s Rural Compulsory Education: Current Situation, Problems and Policy Alternatives.” Working Paper Series No.36. 2003 The Organization for Economic Cooperation and Development (OECD) reports that there are 130 million surplus workers in rural India Source: “Rural BPO.” Drishtee BPO Presentation. March 2008. Over 990,000 young people graduate from secondary and tertiary institutions in Ghana and Kenya each year and face staggering unemployment Source: Kenya Ministry of Education; Ghana Ministry of Education; Samasource research November 2007 - March 2008.

Outsourcing and Socio-economic development 1 2 3 4 5 6 The problem: talent surplus (part 2) “You ﬁnd people completing “The dilemma in Kenya, and Africa at large, their university education with is that the cost of education is getting so honors, and the best they high...upon ﬁnishing, you can’t get a job that can get is a one-off job doing will offer returns commensurate with what something unrelated to what you’ve done in school.” they studied. So you end up going back to the rural area Freda Adundo, IT degree candidate, Kenya where you grew up to do farming.” Peter Kimwele, business degree candidate, Kenya “It’s like the Western countries are missing a generation which they want to import from Africa...our economy and our brains are in America. Why can’t people earn an income while they stay here?” Martin Ntembe, business degree candidate, Kenya Source: Samasource interviews (Kenya School of Professional Studies: Nairobi). November 2007 - March 2008.

Outsourcing and Socio-economic development 1 2 3 4 5 6 The problem: talent surplus (part 1) Results from a survey of nonprofit IT and business managers How do buyers find outsourcing partners? What is important in choosing an outsourcing partner? Personal/professional referral Direct mail/email Over 75% of buyers think social responsibility is Web-based search Advertising important in choosing an outsourcing vendor Advertising is Quality somewhat effective, 19% but costly for small firms Cost 10% Social responsibility 5% Customer Service Direct mail and 67% web searches seldom connect Location service providers Most find work through to clients personal and 0 25 50 75 100 professional referrals Source: Samasource Outsourcing Practices Survey (48 responses) . March-October 2008.

Outsourcing and Socio-economic development 1 2 3 4 5 6 The problem: talent surplus (part 2) “We have to focus on “Kenya was hit hard after the elections delivering quality services to [earlier this year]. One of our workers, Mona, our clients rather than has two kids and is a single mom. This is procuring business.” her life, this is her livelihood. We need to generate a sustainable pipeline for business Gagan Singh, Source for development to ensure this doesn’t keep Change, India happening.” Gilda Odera, Skyweb Evans, Kenya “Business development is a major challenge for us. We can’t afford to send salespeople to the US every few months to drum up business and work on branding” Steve Muthee, Daproim, Kenya Source: Samasource interviews, March-October 2008.

Socially responsible outsourcing 1 2 3 4 5 6 One solution: socially responsible outsourcing (1) Channel outsourcing dollars where they’re needed most $160B services Small ﬁrms Marginalized people industry $$$ a small slice of the pie talented workers with companies in the poorest few opportunities places

Socially responsible outsourcing 1 2 3 4 5 6 One solution: socially responsible outsourcing (2) Socially responsible outsourcing creates positive social impact by: Outsourcing jobs in sub-Saharan Africa 1 Ghana directly generating jobs for skilled Senegal workers in low-income regions with Kenya high unemployment levels Uganda 0 1,000 2,000 3,000 4,000 2 1 direct job 2.5 indirect jobs indirectly generating jobs for semi- and unskilled workers 3 reducing skilled-labor emigration, or “brain drain,” in low-income regions

Socially responsible outsourcing 1 2 3 4 5 6 Guiding Principles for SRO from Principle Purpose 1 Get money into high poverty areas 2 Keep money in high poverty areas 3 Keep money in good companies Responsible business Service providers + Buyers Academics Industry Consultants

Socially responsible outsourcing 1 2 3 4 5 6 1 Get money into high poverty areas SRO companies are: (1) Located in a “low-income” country, or (2) Located in a “middle-income” country and most of its employees are from a “low-income” region within that country.

Socially responsible outsourcing 1 2 3 4 5 6 2 Keep money in high poverty areas SRO companies should meet at least one of the following three requirements: (1) At least 1/2 of the Company owned by people living in same region as 2/3 of employees; or (2) Reinvests a minimum of 40% of its revenue in the community or in another SRO; or (3) Legally registered non-proﬁt

Socially responsible outsourcing 1 2 3 4 5 6 3 Keep money in good companies Progressive Labor Policies Fair wages, worker repre- sentation, active recruitment of disadvantaged people on- veriﬁcation the-job procedures training and including random education, reinvestment in checks, employee hotlines community initiatives Transparency Community Contributions

Case studies 1 2 3 4 5 6 Case Study: Digital Divide Data Location: Phnom Penh, Cambodia and Vientiane, Laos • Nonprofit social venture led by Harvard graduate Jeremy Hockenstein • Started in Phnom Penh in 2002 with 25 employees • Types of services: form and survey processing, transcription, digitization • Offers education for sex-trafficked women, on-site medical care, scholarship program (financed through donations) • Currently employs 500+ people at 3x Cambodian minimum wage • Operationally self-sufficient with revenue from services for clients including the Harvard Crimson

Case studies 1 2 3 4 5 6 Case Study: Daproim Africa Location: Nairobi, Kenya • Run by Steve Muthee, a young entrepreneur from rural Kenya • Started in 2006 with 4 people • Types of services: form and survey processing, transcription, digitization, web development • Offers part-time work to local university students and facilities for disabled workers • Plans to grow to 20-30 people • First large project branded as a socially responsible outsourcing ﬁrm: $13K • In pipeline: projects for clients including Benetech, a Bay Area nonproﬁt, and the African Braille Center

Case studies 1 2 3 4 5 6 Case Study: Preciss International Location: Nairobi, Kenya • Run by two women, Mugure Mugo and Ivy Kimani • Started in 2002 with 5 employees • Types of services: online research, data processing, subtitling, transcription • Offers part-time work and on-site training to university students, young mothers and recent graduates • Planned growth to 70-80 employees • 30% of revenue goes to ﬂoor employees • In pipeline: projects between $10K and $100K for clients in the US and UK

Case studies 1 2 3 4 5 6 Case Study: Oriak Digital Location: Nairobi, Kenya View Video >> http://www.youtube.com/watch?v=bjD97YlNhDU

Thank you! Leila Chirayath leila@samasource.org

Appendix 1 2 3 4 5 6 How the guiding principles were developed Samasource spearheaded a series of conversations with many organizations from November 2007 to July 2008 to help develop the “1.0” version of these guidelines. They are only the beginning. In this ﬁrst iteration, we left out several important considerations, such as labor and environmental standards for service providers. It is our hope that these principles evolve into the ﬁrst fair trade system for services. To learn more, please visit www.sourceoutpoverty.org. Organizations consulted Responsible business groups Service Providers + Buyers Academics Industry Consultants

Appendix 1 2 3 4 5 6 Wage differentials BPO and IT jobs can increase incomes among the poor by as much as 90 percent hourly average wage on oDesk daily ofﬁcial minimum wage $20 $15 $10 $5 $0 Ethiopia Ghana Kenya Niger Indonesia Pakistan Vietnam Sri Lanka one of several thousand Kenyan programmers

SRO at samasource Sama means “equal” in Sanskrit. We are a social business helping bright but marginalized people in poor regions ﬁnd digniﬁed jobs by expanding their access to markets. Our method has three parts: screen train market + select

Appendix 1 2 3 4 5 6 Pilot results $140K in contracts 6+ micro-businesses data entry and website digitization packages image app testing moderation video content captioning updating research virtual assistance assistance samasource

Appendix 1 2 3 4 5 6 How we do it Samasource operates as a nonproﬁt social business. Raised Earned $37,500 $140,000 85-90% of earnings All-volunteer staff to directly to our Donated hardware partners and software 45-85% of their Frugal to the core revenue supports staff salaries, training, and other costs samasource

Appendix 1 2 3 4 5 6 Samasource team Leila Chirayath Jess McCarter CEO VP of Sales Visiting Scholar, Stanford University Founder. Sagebit Consultant, Katzenbach Partners Founder, RideBit World Bank Development Research Group Consultant, aSmallWorld.net BA, Harvard University (African BA, Dartmouth University Development Studies) Expertise: start-ups, 10 years in software Expertise: Outsourcing, social sales and development enterprise, development Henry Thairu Kenya Program Advisor Deputy Vice Chancellor, Jomo Kenyatta University of Agriculture and Technology Chairman, Kenya Council of Science and Tech PhD, Norwegian University of Science and Technology, Trondheim (Thermodynamics) Expertise: Entrepreneurship, education, technology in Africa Advisory Board Premal Shah Darren Berkowitz President, Kiva Founder & CEO Emeka Okafor Katherine Barr Director, TED Global Partner, Mohr Davidow Ventures Ken Banks Mohamoud Jibrell Developer of Frontline SMS CIO, Ford Foundation

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Socially Responsible Outsourcing 101

by Leila Chirayath Janah on Oct 22, 2008

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