Don’t depend on BPOs to lessen poverty says ADB

Posted on October 22, 2011

EVEN AS the country’s business process outsourcing (BPO) industry is expected to support the economy amid the global financial crisis, the government should not depend on it as a poverty alleviation measure, a study recently published by the Asia Development Bank Institute suggested.

"As [information technology enabled services] industries do not help the more impoverished or less educated, they cannot be said to be a solution for the less employable or impoverished, let alone to the problem of rural poverty," wrote F. Tech Tschang, associate professor of strategic management at the Singapore Management University.

His study -- entitled "A comparison of the Industrialization Paths for Asian Services Outsourcing Industries, and Implications for Poverty Alleviation" -- examined the software and/or information technology enabled services (ITES) industries in People’s Republic of China, India and the Philippines.

"The sector’s contribution to overall GDP and exports can be considerable over time... However, due to the high value added and higher wages (on average), the effects on the economy are greater when considered on a per-person basis," Mr. Tschang said, explaining that "in a large, rapidly expanding economy like India’s, the industry effects on output and employment may be less significant than its effect on growth."

The study said that the Philippines -- whose primary advantage over China is its relative proficiency in the English language -- is still developing strengths in call centers and BPO, which includes legal and medical transcription, accounting services and software development, among others.

According to the technical report for the most recent State of the Nation Address of President Benigno S.C. Aquino, the information technology-BPO sector created about 30,198 jobs in the first quarter of the year and is expected to create 84,000 more within the year.

Mr. Tschang, however, posed that while the BPO sector generates employment, it does not necessarily benefit a wide portion of the populace.

"Another possible result is that the bias toward the ‘better’ educated part of the populace will enhance the disparity between those with stronger or better-fitting educational backgrounds and those without," he said, explaining that "in the Philippines’ case, for instance, heads of call centers in the mid-2000s only chose the top 10% of college students for their companies."

"This percentage likely went up over time as firms became less selective (and as supply failed to keep pace with demand), with a possible consequential deterioration in the quality of employees in their work," he added.

To solve these, the industry "can still benefit from the education of a vibrant middle class, at least in selected cities where the IT industry had a good start," the study suggested. "Only broader economic growth will help to ameliorate this diverging trend."

Sought for comment, Socioeconomic planning chief Cayetano W. Paderanga said the government looks at the BPO sector as an indirect means to alleviate poverty.

"It’s an employment generating industry, and within the whole scheme of things, employment generation [is] one of the biggest ways by which you attain poverty reduction. So it’s not a direct program but it has a large [impact] in reducing poverty," he said, explaining that "direct" poverty reduction programs include interventions like conditional cash transfers and maternal welfare programs.

"We know that if we just depend on the development of things going on the market, some people are going to be left behind," Mr. Paderanga said. "So therefore we have these direct interventions, where we want to make sure that nobody will be left behind to the extent that we can help."