What about Outsourcing?

Should you look for and take jobs in the Outsourcing sector? Is it growing or dying? How do I know good companies from bad ones in this world? Today we deal with all these questions directly. Join us!  

Transcript

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Hi there. I'm Todd Jensen and welcome to the world of work. If you're living in one of the countries of the developing world, and I hope you're listening from there, because that's where my prime audience is living, the audience I'm trying to reach. Do you know where your first job has a very high chance of coming from? It's not government, it's not manufacturing, and it's not in a startup. Outsourcing. Call centers, IT services, back office work, remote support, data processing, customer service. This is the global system that quietly employs millions of people, young people, and almost nobody talks about it as a system. So today I'm going to walk you through all that so that you have a good sense of what the industry is about, what's good in it, what's good for you in it, and some things to watch out for. What is outsourcing? When I say outsourcing, I mean what is usually meant work that is done in one country for a company in another country. Like Facebook uses companies in other countries to moderate content before it goes live, or Microsoft uses companies to provide global support from companies all around the globe. But outsourcing is done in country as well. Big outsourcing company in India may contract with several smaller or more specialized outsourcing firms in tier two or tier three cities in the same country. Or a major manufacturer may outsource work to companies in the same country. But outsourcing started and is largely fueled by big economies using teams of people in the developing world to get things done. Outsourcing work for many years has included things like customer support centers, technical support, finance and accounting processes, human resources, back office, software development. Sometimes it's called BPO, which stands for business process outsourcing. Sometimes it's called IT BPM, which is information technology business process management. It's called ITO, which is IT or Information Technology Outsourcing. And some people call it GBS, Global Business Services. Different names, same idea. So in summary, it's usually a company in the US, UK, or Europe that hires people in India, Philippines, Kenya, South Africa, Mexico, because the labor is cheaper, talent is available, English is strong, and the infrastructure exists. So that's the system. I received some advanced media training once for a company that I worked for on how to handle the full range of questions from reporters. My position was high profile enough that I did some interviews. The test interview for me to pass this course that I was sent to was from somebody acting like a hostile reporter asking why my company used outsourcing and why I was denying jobs to people in my own country by shipping that work offshore. Well, that answer from my experience was easy. Yes, the labor costs are less than than if it were if I were to do the same kind of work in my country, the U.S. And it's not a marginal cost difference, it's a significant cost difference. But there are two other really fundamental reasons. In these countries we work in, I said to this hostile reporter, is where the talent is to do this kind of work. And it's also where the infrastructure is. So get the idea out of your head that the only value in outsourcing is the low wages. Um this system, this global system has created a wealth of talent and infrastructure that makes large-scale digital projects of all varieties possible. I wanted and needed reliable and high-quality execution. So I went where the talent was. I went where I was most likely to get that, which was in the developing world. So how big is the outsourcing industry? Let's anchor this with some real numbers. Globally, the outsourcing services market is over $1 trillion annually. The BPO, which is a sub segment of that, the business process outsourcing, alone is around $300 billion a year. That's a huge and core part of the global economy. Let me give you a couple of other numbers that put that in perspective. And these are Wall Street Journal numbers that I'm citing now. The estimated combined revenue from the semiconductor industry, we've heard a lot about the semiconductor industry over the last couple of years, is about $400 billion. So global outsourcing service market is over a trillion. Semiconductor industry is around $400 billion. The AI hardware demand is expected to be between $100 billion and $400 billion annually by 2027. So that should give you a sense of how huge that outsourcing service market is. India has around 6 million people in the tech and outsourcing related service sector. Philippines is about 1.9 million. South Africa is close to 270,000. Egypt, about 60,000 in mostly export-focused roles. Kenya, around 45,000, and Jamaica, around 50,000. It's just a sampling. But it gives you some idea of how big the job market is for this kind of work in these developing countries. And it gives you a sense of how gigantic India and Philippines are. And this information is just what we can measure cleanly. Companies don't usually list specifics in terms of their numbers of employees for competitive reasons. And if they did, that data would be outdated almost as soon as they put it to their website. Hiring numbers go up and down depending on the number of major projects happening in that company, though there's always a core number of people employed. So, anyway, I hope this gives you a sense of the size. And here's a really important part for you. In many of these countries, 60 to 75% of these workers are under the age of 35. These companies are looking for you. This industry is a youth employment engine. When I was spending millions of dollars as a buyer for the operations that I ran for the e-commerce company that I worked for, my projects were mostly high-complexity transcription projects, handwritten content transformed into digital databases. Even today, AI is still not cracking the code on every type of handwriting. So this work, you know, this was 10 or 12 years ago. So this kind of work was difficult, and it took really smart, well-trained people to do it well at a scale and from different source languages, like old European records that needed to be transcribed. When I started in this company, all this work, this outsource work, had been done by two companies in China. They were both different and had different capabilities, but I had a clear mandate to grow our capacity, and I wanted to manage my risk, and also wanted some competition for the jobs that I would make available to have done. So all those things were important to me. As a principal, it was important for me that the partners I dealt with were profitable, but I also have to manage my costs as an operation. So I wanted some competition that helps everybody involved stay sharp and efficient as I was searching and testing for different vendors. So I spent several years building out partnerships in Kenya, Bangladesh, Mexico, Vietnam, in addition to China, Philippines, and India. The Latin America market is unique because it's got a time zone overlap with and proximity to the U.S. This is called near-shoring, outsourcing nearby. European companies often do the same type of thing, but they're historically looking at countries like Ukraine before the war, Poland, many of the former Soviet satellite countries that are developing are doing the kind of near-shore work that Latin America is doing for the U.S. market. So what's happening in this industry right now, now that you have some background? Here are the areas that are growing fast, all AI-related services. There's a real appetite for AI. AI has proven that it can do certain kinds of things well, and it shows promise that it can do more of those kinds of things well. So it's a huge market. And so AI-related services, maybe that's installation of features or functions within a company's infrastructure, and that's something that's often handled by outsourcing companies. Data processing is growing fast, cybersecurity, cloud operations, analytics, and global capacity centers. These are big companies that build internal teams, but put them in different countries close to the geographies in which they work. There are a few areas that are under pressure. Traditional call center work is being gradually replaced by chatbots. And people, in my experience, people don't like talking on the phone as much anymore. They really don't like calling in to ask support questions. They'd much rather chat with somebody. So that's changing the kind of work that's happening in call centers. Voice-based customer support is under pressure and repetitive back office processing. Think about something like a mortgage application. You fill that out digitally online, and you have all this accompanying paperwork that comes with it. Most of it typed and in similar kinds of forms. Well, sometimes 10 years ago, that work had to be data-entered and lined up so that all the data would flow into an algorithm to compute yes or no answers or data on the applications. Technology services, just software that is able to go in and handle something without any AI component, has replaced some of this work in the last eight to ten years. But AI, it's important for you to understand that AI isn't killing outsourcing jobs, but it is changing the shape of all those jobs. And it's opening up more opportunities for outsourcing work to happen. Think about that for a minute. So you want to have autonomous vehicles, and autonomous vehicles have to be able to use their camera to read road signs to safely navigate and get where they're supposed to go. Well, I know companies that have spent years doing data annotation and data correction and validation for these programs that are they're trying to build these huge models of data and experience and to train the AI so that it can intelligently discern if that sign says that the exit is in two miles. If that exit, you know, so you're thinking, well, how hard can that be? The sign says the exit's in two miles. Yeah, but the the image that the camera on that autonomous vehicle takes is different at 3 a.m. and it's different at noon. It's different if the wind blows a branch down in a corner of that sign. So every feature, every part of life that AI hopes to touch requires a huge amount of training data and validation work. A lot of that work is being done right now in the developing world in outsourcing companies. So when you're getting started, one of the things you might find is that you're an overqualified entry worker. You have a university degree, it's your first job, and all you could get was a job in customer support. Why? Well, it's available, it's structured, and it pays something. I just want to tell you if that's your situation, and I know it's a lot of people's circumstance. Don't panic, don't ignore that kind of work. Get the job and do it well. I mean, obviously, if you can get something in your industry, great, but those are going to go to people with a degree and experience before they go to you, probably. So go somewhere where you can get some experience and do the job and do it well, and this will separate you from many who come in with a this is a lesser job attitude, and maybe start to feel bitter or hope or hop back and forth to several jobs. Be useful, and your qualifications will be very attractive additions to open other job possibilities for you within that company. And also don't be afraid to take on training and supervisory roles. Sure, you know, maybe you went to school to do non-supervisory stuff. But leadership skill and experience is very valuable in every sector that you hope to work in. Outsourcing companies have leadership and training opportunities where you can get a really good foundation. Learning how to manage production, learning how to manage people, learning how to manage processes, learning how to lead and motivate. All those qualities, skills are really, really important. And those entry-level jobs put you in striking distance of doing other kinds of work like that. Other valuable experience that you get from outsourcing, if that's not where you want to spend your whole life, is building English skills. That's going to broaden your appeal to many multinational corporations that are working in your country or working in a country you might want to go to. You're building experience, you're learning how to work in Western organizations where the focus is different than it may have been in your local community. I've had experience with many cultures at work that have a non-urgent approach to production and deadlines. I've seen it in a lot of places. To learn how to work differently in an organization where your clients, your management is expecting you to work with urgency and to take quality and production, speed, responsiveness seriously in your daily work. If you learn how to acclimate to that, it's a big separator that opens up opportunities for you. I mentioned maybe you have eyes on transferring into another country somewhere. You want to work in the UK or Canada or the UAE or somewhere else. These are great jobs to give you experience with the cadence and culture of multinational corporations, and that's going to be noticeable and valuable. So to summarize the overview of outsourcing, it's not just an industry, it's the first step into the global economy for millions of young people. And it is changing. The ladder is there, but it's adapting and it's finding ways to be valuable still and increasingly in this new technology environment with AI. You know, if you are excited about gaming and your phone and all this kind of cool technology stuff, and you want to work in cool technology spaces, the outsourcing industry is almost always on the leading edge of taking companies to where they need to be to fit into the new technological environment. So outsourcing is an important step where you're going to be exposed to a lot of technological jobs and some of the leading edge stuff as well. So let me talk a bit about what good outsourcing companies do. Obviously, you have more opportunities to move up and to be in a stable situation if you work for a large global firm, one that has operations in many countries. They have, as an upside, more momentum in winning clients, more diverse work for you to go after and grow into more diverse roles for you. But the downside is that they're almost always more bureaucratic, meaning they probably have more applicants coming in and have to sort them all by experience and education levels or the number of languages that the candidate speaks. It makes it a little harder to get hired into those kind of companies, larger companies for the for that reason. They probably have better benefit programs, maybe better pay, but it's also harder to get things done in there because they're a large organization. That's just the nature of larger organizations. So there's pluses and minuses. But don't ignore the smaller firms. In many cases, there's a greater sense of team and mission in those smaller companies. They're really good at. And it's made them attractive, and they have a steadily growing number of clients and revenue and a and a bright future. And you get into a firm like that that has a bright future, you have to learn how to do lots of different things, and that really makes you valuable as they grow. So, you know, smaller outsourcing companies that are on an upward trajectory are a great opportunity for you to grow rapidly and gain a lot of experience. Good outsourcing companies also care a lot about the locations they work in. One of the things you should look for is if they're investing in the education and well-being of young people in their community. There is a concept called impact sourcing. I'll do a separate episode on that. Sourcing means to identify people who have some barrier or disadvantage to winning jobs in the outsourcing industry and helping them gain access to jobs in that industry. Maybe the barrier is low literacy or education, maybe it's some physical disadvantage, or maybe it's the reality of poverty and being so overwhelmed with just surviving the day that the thought of taking a bus down to go apply for an outsourcing job is just not even conceivable. So good companies, large and small, take at take issues like this into their operating countries seriously, and they put time, money, and attention into doing something about it. What do they do? They find ways to attract applicants from these different areas, select some and take them in and train them. They bring them up to speed and accommodate whatever the limitation was with the goal of making them full contributors to the team, paid contributors to the team. I've worked with many companies that have been really successful at doing this, and they have a long record of taking thousands of people over the years that would have never had a chance to get these kind of jobs. They weren't in reach, but they went and found them and made a pathway for them to come, and if they were willing to work and learn, they developed them and they came in and they were productive and they're making good money. Some of these people who, you know, were just in terrible circumstances, applied to be part of these programs, and years later they're working as project managers or trainers or even developers. In in this in this outsourcing space. So I think the great stories and it's changed the trajectory for families together, not just these individuals. So, but there's also an advantage to the company. They're opening up pathways to a wider labor force, which helps them keep wage inflation down. They're doing good in their communities, which makes more people interested and eager to work for them. And it makes a great impression on clients that look at the details of these programs and think, you know, man, I feel really good about doing business with a company that's creating some sustainability. You know, sometimes outsourcing companies will go into an area and they'll just mine it for talented young people until there are no more talented young people, and then they'll just shut down their operations and go to a different city. A company that's investing in a broader range of where the labor can come from, where the people who can do the work can come from, says a lot about their willingness to stay and make a difference in that community for years to come. So it's it's a good signal about the company and about their mission. So what about the risks in this industry? Where are the where are the biggest pitfalls? I'm just going to give you three to watch out for. First is avoid the churn machine outsource company. That's what I call it. That's what a lot of other people call it, churning machines. These are companies that are just trying to keep seat filled. Pressure is high, performance pressure is constant, there's little training, you feel like you're always behind and you're not doing good enough. These firms have really high turnover because people burn out within six to twelve months. And it's not necessarily a bad first job, but it's not a place that you want to stay for very long. So, how do you know one of these, if the company you're applying to or looking at or working in right now is one of these churn machine companies? The turnover is really high. There isn't time for training or development of the team ever. No one ever seems to meet the standard of production, or it's always shifting out and up. Supervisors and managers sit in their offices and are never around or talking to the team, unless it's to come tell you how you missed the production quota for the day. And another sign is that the tools and furniture are often old, uncomfortable, and inefficient. I remember some places that I visited, their monitors were so old, and people were hunched and squinting at these monitors because that didn't produce enough light to be able to see clearly. It just it it says that the company either has a cash crisis, can't it can't invest in capital, or it's totally detached from the nature of the work that's actually happening on the floor. You know, it's got a bunch of owners or or bosses that, you know, the numbers are are producing adequate work, and they turn over their staff regularly, but there's lots of people that want to come in and fill those positions. So they don't really notice that part of the business because it's paying the bills today. But you don't want to work for a company like that. It's not a good sign, it's not a good future, it's an unpleasant place to work. Another thing to look out for is anything that feels and looks like a sweatshop. There are actual sweatshops out there, and don't just stay away from those. I visited every operation I considered doing business with or that I was doing business with, and I was looking for if there was an appropriate level of safety consideration in the building for the employees. We've read these stories about a bunch of people in a garment factory being killed in a fire because all the doors or windows were locked or something horrible like that. You have to go look for those things. You have to go test and check and see if those things and and make it clear that you expect the people that you're working with to be safe and you want some wage integrity. Do they have written contracts? Do they have quality leadership? Is there development? Are they are they building their team from within? So are workers turning into trainers and trainers turning into supervisors and supervisors turning into project managers? It's a healthy ecosystem because they're getting promoted, they're they're they've got a future, and they have the benefit of all their experience with the company and the tools that the company's using, and they're more likely to innovate. There's just a lot of benefits from having a system that promotes from within. Sometimes you need to bring in external expertise, so I understand that, but you want regular growth from within, and it doesn't really happen in sweatshop environments. I was walking around once in a uh Chinese town, southern China, is around the evening, and I walked by this row of garages, open garage doors, like uh maybe like a storage shed with the door open, and then, you know, a rectangular box of a room back. And all of these garages or areas were filled with stacks of fabric. And there were there was an operator in front of an old sewing machine with a gigantic stack of fabric on one side and a gigantic um box, series of boxes of sort of finished parts uh on the other side, and it was just crowded and dank and poorly lit and poorly ventilated, probably dangerous. Anyway, this was some garment industry or something, or I don't know what they were making exactly, but it wasn't the kind of stuff that I was hiring for, but I noticed it while exploring the the town. Well, it's a that's a sweatshop, and maybe these are small family businesses and uh whatever, but you know, when I saw the the fat guy sitting outside smoking a cigarette, I thought, well, there you go. You know, everybody else is working and slaving away, and this guy's not adding any value to the organization, as far as I could tell. So if it looks and feels like it's a step back in civilization with an overlord and stalls for slaves to work until their fingers bleed, and all the benefits go to the obnoxious, rich, fat guy smoking out on a chair outside, run away. Don't have anything to do with that kind of stuff. Uh, you don't want any part of it. These places are out there, but you don't have to have anything to do with them. The work I did was always in technology, so it's a lot harder to have a sweatshop around technological work, technology-centered work, but we still had to be vigilant and looking for these kind of things. We often hired firms to go in and do inspections to make sure that workers had written contracts and they had they would go in and audit the pay to make sure that they could prove that they had paid the people a full safety inspection of all the buildings that they worked in. You have to you have to do that. So look for those kinds of things. Finally, the last bad thing I'll warn you to look out for is watch out for exploitation or scams. You shouldn't have to pay for your training. You shouldn't have to surrender your passport or visa for your employer to keep. You should have a written contract for your wages and benefits. There are many, many real, profitable, satisfying places to work. If something feels off, keep moving along and find something else. Look for the things I've described in good companies. Well, there you go. You're an expert on outsourcing now. Uh worked in the industry for many years on the buyer side, buying services. I've worked on the provider side as well. I've met some of the brightest, most capable people in my career in the world of outsourcing. So remember, be valuable, take responsibility for where and how you work, make the business better. It's my goal to share insights and qualities that will help you open bigger and better doors for you throughout your career, making you happier and more prosperous. If you like what you're hearing, rate and subscribe on your favorite podcast platform and invite others to listen. Stick with me on this journey as I tell you how the world of work really.