The Local Impact of Globalization in South and Southeast Asia

Offshore business processes in services industries

Bart Lambregts, Niels Beerepoot, Robert Kloosterman, Bart Lambregts, Niels Beerepoot, Robert Kloosterman, Bart Lambregts, Niels Beerepoot, Robert C. Kloosterman

• Publisher: Taylor & Francis
• Year: 2015
• Print ISBN: 9780367668716
• eBook ISBN: 9781317679424
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In the past two decades, several millions of IT-enabled services jobs have been relocated or 'offshored' from the US and Europe to, in particular, low cost economies around the world. Most of these jobs so far have landed in South and South-East Asia, with India and the Philippines receiving the bulk of them. This has caused profound changes in the international division of labour, and has had correspondingly wide social and economic effects.

This book examines how this 'next wave in globalization' affects people and places in South and South-East Asia. It brings together twelve case studies from India, the Philippines, China, Hong Kong and Thailand, and explores how and for whom services offshoring creates opportunities, triggers local economic transformations and produces challenges. This book in addition compares how different countries take part in this 'second global shift', investigates service-sector driven economic development from a historical perspective, and engages with the question whether and to what extent services offer a new promising avenue of sustained economic growth for developing countries. It argues that service-led development in developing countries is not easy for all the workers involved, or a guaranteed path to sustained economic development and prosperity.

This volume stands out from other books in the field in its exploration of the social and economic outcomes in the cities and countries where services have been located. Based on cutting edge empirical research and original data, the volume offers a state-of-the-art contribution to this growing debate. The book provides valuable insights for students, scholars and professionals interested in services offshoring, socio-economic development and contemporary transformations in South and South-East Asia.

1 The local impact of services offshoring in South and Southeast Asia

Introduction and overview

Bart Lambregts, Niels Beerepoot and Robert C. Kloosterman

Services offshoring and its local impacts

Services offshoring in context

Mushrooming office parks, omnipresent recruitment signs, crowds of nightshift workers celebrating the end of workdays with food and drinks at sunrise, booming catering, leisure and retail businesses: in cities such as Mumbai, Bangalore, Gurgaon, Manila, Cebu City and various others it is hard not to notice the impacts of the unfolding shift of services production from the Global North to the Global South. Services offshoring, as the process is called, has gained substantial momentum since it surfaced in the 1990s. What started with a trickle of low-end information technology (IT) functions being moved from the United States (US) to India has grown into the large-scale migration of multi-various service production activities from advanced to emerging economies. Several millions of services jobs in the Global North have already been affected (Fernandez-Stark et al. 2014) and there is potential for many millions more to follow (Blinder 2006, 2009). The underlying restructuring process and the resultant social and economic effects are far-reaching and according to some observers indeed radical enough to justify the use of powerful labels such as ‘globalization 2.0’, and ‘the second global shift’ (Bryson 2007, Freeman 2005).

To be credited for the global shift in services production is the increased tradability of various services products, enabled by important advances in information and communication technologies (ICT). The latter, over the past 25 years or so, have paved the way for the massive digitization of business processes and the electronic transfer of the associated services products. Helped further by diminishing trade barriers and the rise of a well-educated and IT-literate labour force in the Global South, firms today enjoy literally a world of opportunities to engage in labour arbitrage and expand their production networks. The IT-enabled unbundling of service production processes allows for such processes to be outsourced and/or offshored. While outsourcing refers to the migration of production activities across a firm’s organizational boundaries (i.e. contracting out a business process to a third party), offshoring concerns the relocation of activities overseas. Offshoring may or may not involve outsourcing. The former is often referred to as ‘offshore outsourcing’, the latter as ‘captive offshoring’.

Since its inception, services offshoring has become an increasingly complex phenomenon. Initially, work mainly flowed from the Global North to the Global South. Today’s movements are more intricate, with investments and jobs also migrating in the opposite direction and between countries in the Global South itself. Patterns of specialization emerge in result, sometimes based simply on the kind of language that is locally mastered (e.g. English, Spanish, French, Japanese) but increasingly informed by more sophisticated differences in skills availability (e.g. analytical and creative skills). Motives to engage in services offshoring have become more variegated too. While initially offshoring was primarily about achieving cost benefits through labour arbitrage, an emerging motive these days is for firms to source skills that are increasingly hard to find ‘at home’ but still in abundant supply overseas (Bunyaratavej et al. 2011).

The past years also have seen an impressive increase in the variety of services activities being offshored. No longer does it concern customer relations services (call centres), data processing (back office activities) and relatively simple IT services alone. Today’s offshorable services are increasingly knowledge intensive and include a choice of financial, legal, engineering, design and medical services, along with an expanding array of ever more advanced IT services (such as application development) and even research and development. In tandem with the proliferation of offshorable services, a fairly complex nomenclature has developed. The literature is peppered with acronyms such as BPO, KPO, LPO, BPM, IT-BPO, ITES-BPO and others, with BPO standing for business process outsourcing, KPO for knowledge process outsourcing, LPO for legal process outsourcing and BPM for business process management. Each refers to different subsectors or segments of the business process outsourcing industry. The acronyms IT-BPO and ITES-BPO emphasize that services outsourcing and offshoring are strongly information technology-based, with ITES standing for information technology enabled services. In this volume ITES-BPO is used to refer to the industry at large, while other acronyms may be used to identify particular subsectors or processes.

The above goes to show that services offshoring is a rapidly evolving practice. On the back of the previous wave – the global reallocation of industrial production – it deepens the international division of labour, further extends and refines global production networks, and affects the lives of people and the fate of places in myriad ways. Unsurprisingly, the trend, also dubbed ‘the next wave in globalization’ (Dossani and Kenney 2007), is increasingly recognized as one of global consequence. The number of periodicals, blogs, conferences, consultants and scholars engaging with the topic is growing rapidly. Political attention has become considerable as well, notably in the most affected countries (e.g. the US, India, the Philippines), but also beyond those. International development organizations have become aware to the development potential as well and have emerged as active contributors to the debate (see e.g. Asian Development Bank 2011, 2012, Ghani and O’Connel 2014, UNCTAD 2005, UNESCAP 2011, World Bank 2007, 2009, 2011, 2012).

Much of the academic debate so far has essentially centred around two major themes. A first body of literature approaches services outsourcing and offshoring from a business management perspective. It concentrates on the logics for firms to engage in outsourcing and offshoring, explores the challenges involved and develops advice mainly targeted at business practitioners (see e.g. Bäumer et al. 2012, Berry 2005, Brown and Wilson 2005, Couto et al. 2007, Eltschinger 2007, Kobayashi-Hillary 2008, Metters and Verma 2008). A second debate focuses on the question how services offshoring affects the economies of the countries and regions from where the work departs. A central question here is whether offshoring of relatively low value-added tasks creates opportunities for the ‘freed’ labour to engage in higher value-added activities and (thus) strengthens the (global) competitiveness of local firms, or whether the trend primarily adds to local unemployment problems (see e.g. Bardhan et al. 2013, Breznitz and Zysman 2013, Levy and Murnane 2005, Massini and Miozzo 2012, Milberg and Winkler 2013, Rubalcaba 2007).

Concentrating on local impacts in the Global South

This volume engages with a third dimension of services offshoring, and one that so far has remained little studied. It concerns the local impact of services offshoring in the economies where the work lands, with a focus on South and Southeast Asia: the part of the world that attracts most of the services offshored (Tholons, 2014). A trickle of publications addressing the effects of services offshoring in the Global South has started to emerge (e.g. Ahmed 2013, Amante 2010, Beerepoot and Keijser 2014, Benner 2006, Fernandez-Stark et al. 2010, Graham and Mann 2013, James and Vira 2012, Ofreneo et al. 2007, Taylor and Bain 2005). Many issues, however, remain underexposed – a deficit this volume aims to address.

As noted, in ITES-BPO hotspots such as Mumbai, Manila, Bangalore, Gurgaon and Cebu City it is hard not to notice how the arrival of thousands of export-oriented services jobs brings changes to the city. Most visible of course are its physical manifestations: the mostly newly built office towers and business parks, often well-guarded and surrounded by restaurants and shops catering to the office workers; the manifold recruitment signs and activities (e.g. walk-in interviews in popular and accessible places); and of course the bustle created by the crowds of office workers either on their way to work, during break times or after work hours. Yet, beyond these a range of other, less clearly visible but perhaps even more far-reaching effects can be conceived as well. First of all, services offshoring, in the same way as manufacturing offshoring has done and still does, pulls local economies into the global economy. ITES-BPO firms, be they the result of foreign direct investments or be they home grown, are fixed or flexible parts of the global value chains (Gereffi and Fernandez-Stark 2010) or global production networks (Coe et al. 2004) of multinational corporations (MNCs) and their likes. Essentially, the arrival of an ITES-BPO industry means that a local economy and its actors assume a role in specific, global value creation processes. While this creates opportunities, it also introduces dependency (decision-making power in global production networks often is not located where the ITES-BPO activities take place) and other challenges. Assimilation into the global economy by way of the arrival of an ITES-BPO industry can be seen as a process of ‘strategic coupling’ (Coe et al. 2008, Kleibert 2014, MacKinnon 2012), or in other words as a process, involving both local actors and global producers/investors, in which local assets are purposefully linked with the needs of global producer capital. How this process plays out bears relevance for the way a locality becomes inserted in the global production networks (e.g. its value creating role, its degree of control over affairs, the resources supplied, the return on resources received, its potential to not only create but also to capture value) and as such determines the potential for realizing local and regional development.

Yet, to a certain degree irrespective of how the strategic coupling process plays out, the arrival of an offshore services industry creates opportunities for a local economy. These of course include employment opportunities for those who are interested in and qualify for working in an ‘international’ office environment, but also business opportunities and potentially more for those commanding the supply of facilities that ITES-BPO firms need. Providers of office space and information and telecommunications infrastructure, suppliers of supporting services such as security, catering, transport and housekeeping, collectors of taxes, and those that manage to appeal to the consumerist desires of those employed in the ITES-BPO industry, may anticipate business. The business generated, in turn, may result in job opportunities for others, including those who do not qualify for working in the ITES-BPO themselves. Indian and Philippine industry stakeholders estimate that every ITES-BPO job creates about three jobs elsewhere in the local economy (IBPAP 2012, NASSCOM 2014). While these represent estimates rather than proven numbers, an employment multiplier effect is likely to exist. Beyond direct employment, increased business and indirect employment, the industry is also likely to offer employees the opportunity to acquire skills and as such to contribute to peoples’ employability (Beerepoot and Hendriks 2013, Marasigan in this volume) and skills accumulation in the labour force at large, which must be considered assets from social and development perspectives.

The rise of an industry that is globally connected, export oriented, relatively well paying and applying international standards in at least part of its business processes, is also likely to trigger transformations in the economy that surrounds it, especially of course if this industry manages to accumulate some volume compared to the size of the surrounding economy. Such transformations may extend to supporting industries, which may have to step up their performance in order to qualify for business (see Kumar in this volume), to government regulations, which may have to be adjusted in order to accommodate new business practices, to the educational sector, which may want to respond to new industry and labour market demands (Kleibert 2015), and so on. In addition, for ITES-BPO employees a job in a relatively well-paying, internationally oriented work environment may open the door to a new lifestyle. Competitive wages are likely to transform the lives of employees and their next of kin in various ways, and for some may bring middle-class status within reach. Simultaneously, being part of an international work environment is likely to affect workers’ self-image and consumer preferences. If indeed, as for instance Fuller and Narasimhan (2007), Murphy (2011) and the World Bank (2013) suggest, services offshoring is contributing to the rise of a new middle class in the emerging economies that benefit most of the trend, the potential of the development to transform societies cannot be underestimated.

The above is not to say that services offshoring for the receiving economies represents a carefree pathway to participation in the global economy and – possibly – development, quite the opposite. There are important issues and challenges that should not be overlooked. A pertinent question for example is who stands to benefit from the trend and who not. The question may be addressed at the global level (i.e. advanced/sending economies versus developing/receiving economies) but also at the level of the receiving economies themselves. How inclusive or exclusive is access to the jobs provided (Beerepoot 2010)? Who provides the supporting infrastructure and receives the rents and fees payable by the industry? Who stand at the receiving end of the consumer spending of the ITES-BPO workforce? Do the answers to these question point at existing social, economic and political power configurations simply being reaffirmed or does the arrival of an ITES-BPO industry provide opportunities for new categories of actors to enter the playing field and/or make a step up the social ladder? Another major challenge for receiving economies concerns the question how to make sure that the arrival of an offshore services industry is going to sustainably contribute to real development and not fall into a low value-added, non-embedded services branch plant economy or worse. If regional development is at least in part about successfully progressing from making basic contributions to value creation, to being able to ‘move up the value chain’ or to engage in ‘value enhancement’, and to eventually increase the level of control over one’s contributions (value capturing) (Coe et al. 2004), the challenges for those local economies currently producing footloose and low value-added services in foreign-controlled global production networks, become crystal clear.

South and Southeast Asia in the spotlight

Geographically, as noted, the book’s focus is on South and Southeast Asia. While services offshoring is a truly global phenomenon, the largest concentrations of offshored services activities are found in this part of the world. India and the Philippines have surfaced as the world’s most important locations for offshore services production (Asian Development Bank 2012, Dossani and Kenney 2007, 2009, World Bank 2007), with India distinguishing itself in the domain of IT-intensive services and the Philippines excelling in contact services. Other countries and cities in the region join in too, however, and are busy carving out their niches in this emergent global services production landscape. Malaysia takes part (Brooker 2011), China, in an attempt to diversify away from manufacturing, seeks to hook up (Freeman 2005, Zhang in this volume), Hong Kong is establishing itself as the region’s foremost centre for merchanting and merchandising services (Sigler and Zhao in this volume) and Bangkok slowly emerges as a hub for Japanese contact services (Lambregts in this volume). The scene in the region is evolving rapidly. What started as a relatively straightforward cost–benefit seeking production relocation process with mostly western firms in various roles guid...

Table of contents

• Cover Page
• Half Title page
• Series page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• List of Contributors
• 1 The local impact of services offshoring in South and Southeast Asia Introduction and overview
• Part I The latest wave in globalization Long-term and comparative perspectives
• Part II Capitalizing on (offshore) services in the shadow of giants A look beyond India and the Philippines
• Part III Labour and industrial organization in the latest wave of globalization Challenges, opportunities and transformations
• Part IV Offshore services and the making of a new middle class
• Index