Rockefeller Monitor Impact Sourcing

Job Creation Through Building the Field of Impact Sourcing
WORKING PAPER JUNE 2011
Supported by
Table of Contents
List of Acronyms 2 3 4 4 4 4 4 4 8 8 8 13 13 13 15 17 17 24 28 28 29 30 33 34 36 39
1. Foreword from The Rockefeller Foundation 2. Framing

Focus and Definition Methodology The Purpose of this Paper Intended Audience
3. Industry Context 4. Defining, Sizing and Mapping Impact Sourcing

Naming and Defining the Field Mapping the IS Field Sizing the IS Field Global IS Sizing Assumptions The Business Case for IS The Demand for IS
5. Case Studies and Impact Sourcing Models

IS Case Studies IS Models
6. Key Challenges for the Field

Demand Constraints Positioning and Branding Constraints Supply Constraints
7. The Action Agenda

Five Priority Areas for Focus in the Coming 2-3 Years Appendix: List of interviewees Endnotes
List of Acronyms
ANDE BoP BPC BPeSA BPO CDIA CSR DDD DMO GIIN GIIRS GNI ICT ILO IS ISSP(s) ISO MNS NASSCOM NGO NREGA PRIDE PR Services SETA SME XML
Aspen Network for Development Entrepreneurs Base of Pyramid Buyer Purchasing Criteria Business Process enabling South Africa Business Process Outsourcing Certified Document Imaging Architect Corporate Social Responsibility Digital Divide Data Data Management Operators Global Impact Investment Network Global Impact Investment Rating System Gross National Income Information and Communication Technology International Labor Organization Impact Sourcing Impact Sourcing Service Provider(s) International Organization for Standardization Multinational Corporation National Association of Software and Services Companies Non-Governmental Organization National Rural Employment Guarantee Act Poverty Reduction through Information and Digital Employment Public Relations Services Sector Education and Training Authority Small and Medium Enterprises Extensible Markup Language
1. Foreword
he Rockefeller Foundations mission to promote the well-being of people throughout the world has remained unchanged since its founding in 1913. Today, that mission is applied to an era of rapid globalization, in which we seek to ensure that the benefits of globalization are more widely shared and its challenges are more easily weathered. One of our strategic goals is to ensure that poor and vulnerable populations benefit from more equitable economic growth. Achieving this goal requires actions that accelerate poverty reduction by improving the capacities of poor and vulnerable populations to contribute to, and benefit from, innovations in productivity, training and technology. Africa is the region of the world with the highest vulnerable employment rate, which in some parts of the continent can reach up to 77 percent. The lack of employment opportunities for Africas poor and vulnerable is a substantial obstacle to the development of the continent. The Rockefeller Foundations Poverty Reduction through Information and Digital Employment (PRIDE) work aims to harness the global outsourcing sectors innovative employment and efficient service delivery models, and substantially improved Information and Communication Technology (ICT) infrastructure in Africa to create jobs for people at the base of the pyramid who would otherwise not have the opportunity for sustainable employment. PRIDE is aimed at creating sustainable employment opportunities for people at the base of the pyramid by fostering a critical new arm of the outsourcing industry called Impact Sourcing (IS). IS employs individuals from the base of the pyramid as principal workers in business process outsourcing centers. These centers will provide high-quality, information-based services to domestic and international public- and private-sector clients. Employing people from the base of the pyramid in these centers will provide them with sustainable income which can lead to positive social outcomes, helping to improve their livelihoods and the livelihoods of their families. The employment opportunities are also likely to create demand for education and training, thus enhancing the productive outcomes of investment in those areas as well.
In 2011, the Rockefeller Foundation plans to support the development and testing of IS business models, support research on key interventions and continue to build the network of key IS stakeholders to advance the field. This working paper produced by Monitor Group is an important analysis of the IS opportunity that should inform participants in this sector, as well as potential partners seeking to support it. The Rockefeller Foundation is proud to support this ongoing work and partner with the extraordinary organizations that continue to drive important innovations in this field. We hope that we can build momentum for IS as a new chapter in our hundred year history of helping to build innovative solutions to increase the well-being of people throughout the world.
James Nyoro Managing Director, Africa Regional Office The Rockefeller Foundation
JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

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2. Framing
Focus and Definition The Purpose of this Paper
The objective of this paper is to build a shared understanding of current IS activity, parameters, size and potential impact and to assess activities that could be undertaken to help this field grow. Highlighting the key delivery and social models, the main obstacles to growth, and the interventions required to drive this endeavor forward will showcase the potential of IS and map the critical actions required to nurture it. Other key aims are to understand data gaps that need to be tested or filled, and to identify the stakeholders who need to be involved.
his paper focuses on using the power of business process outsourcing (BPO) to create sustainable jobs that can generate step-function income improvement for those at the base of the pyramid, defined as individuals who live on annual incomes of less than $3,000 of local purchasing power. We have termed this emerging field Impact Sourcing. Impact Sourcing (IS) employs people at the base of the pyramid, with limited opportunity for sustainable employment, as principal workers in business process outsourcing centers to provide high-quality, information-based services to domestic and international clients.
Intended Audience
For individuals who work in IS, this paper aims to broaden understanding of other players, models, challenges and interventions. This will enable IS entrepreneurs to react and contribute to a view of the growing field and to identify common obstacles that need to be addressed. For government officials, this analysis aims to enhance understanding of the nascent IS field, its impact and the key actions that governments can take to catalyze it. For existing business process outsourcing (BPO) providers, the objective is to raise awareness of IS and its various models, and to identify potential links and partnership opportunities between IS and BPO organizations. For clients, buyers and corporate social responsibility (CSR) managers, this paper seeks to introduce the concept and the advantages of IS. For nongovernmental organizations (NGOs), donors, and philanthropic foundations, the goal is to provide information about IS and to highlight areas where these players can support it, whether as clients, enablers or funders of activity in the field. And for all interested actors, this paper is designed to spur a conversation about the emerging IS field and what it will take to scale both its social impact and commercial prospects across a range of markets and conditions.
Methodology
To build on previous research and explorations, the Rockefeller Foundation asked the Monitor Group to estimate the global opportunity for Impact Sourcing, and to vet these findings with experts well-versed in different aspects of the field. Specifically, the Rockefeller Foundation engaged Monitor to size the market, understand how IS will evolve in different market settings, begin to identify the key interventions required for the field to scale rapidly, and articulate the areas of uncertainty where additional data and further activity may be needed. As part of this research, Monitor conducted more than 120 interviews across 13 countries3 with IS managers, BPO providers, outsourcing experts, employees, outsourcing clients, government officials and other individuals linked to the IS space. In addition, the Foundation assembled a group of 25 industry experts, BPO providers and other industry participants at a meeting on Impact Sourcing in Nairobi in December 2010 to test emerging hypotheses and identify key challenges to address in the field. Impact Sourcing is global by nature, and although the market sizing reflects this, the detailed research is primarily focused on India, an established BPO market; South Africa, an emerging market; and Kenya, a recently established market.

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3. Industry Context
ver the past two decades, global corporations have leveraged improved technology and global connectivity to outsource not only the manufacturing of physical products, referred to as contract manufacturing outsourcing, but also business processing activities to low-cost markets. Since then, BPOfocused on informational and transactional serviceshas become a renowned example of our increasingly interconnected world economy and has contributed to the growth of a number of emerging markets. The BPO industry is estimated to have created more than 270,000 jobs in the Philippines between 2005 and 2008.4 By one estimate, this global industry is expected to reach $178 billion by 2015.5
Exhibit 1: Top five BPO destinations with respective market size, employees and expected growth rates
Ranking Country BPO Market Size 2010 ($ Billion) BPO Employees (2010) Expected Growth Rates
1 2 3 4 5
USA India Canada Philippines China
47.60 18.40 15.00 9.40 6.30
1,190,000 768,000 375,000 500,000 158,000
-2% 15% 3.5% 20% 20%
Source: Monitor analysis, IT World Canada, BPO Association of the Philippines, NASSCOM, industry experts7

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To illustrate the size of this sector, Exhibit 1 summarizes the market sizes, employee numbers and expected growth rates for the five largest global BPO destinations. The negative growth rate in the United States underlines the undeniable fact that, in certain circumstances, BPO is linked to shifts in job location.6 The debate on the merits and demerits of outsourcing have been the subject of countless discussions and is not a focus of this paper. Regardless of its pros and cons, outsourcing is an undeniable reality and a practice that is likely to continue. As it grows, there is an opportunity to create BPO jobs that benefit disadvantaged individuals in low-employment areas in all segments of the market.
The above-mentioned job shifts are not limited to the United States or the Western world. As the BPO industry matures, it is also seeing costs rise in the urban centers of these emerging economiesespecially in Indiaand, as a result, corporations are already seeking comparable services from lower-cost providers in other markets. The BPO sector is growing in other emerging economies with low labor costs and comparative advantages in education and language. Countries emerging as BPO locations include China, Vietnam, Kenya, South Africa, Egypt, Morocco and Ghana.8 Moreover, many countries have observed the value of a vibrant BPO sector to the local economy, and have undertaken extensive campaigns and incentives to develop their own BPO sectors. For example, in 2009, South Africas Department of Trade and Industry published a strategy for developing the BPO sector in South Africa, determining that BPO had the potential to create 100,000 new jobs over four years.9 Also in 2009, the Kenya ICT Board, which works to promote Kenya as an ICT and BPO destination, developed a similar strategy for Kenyas emerging BPO sector that aims to create 80,000 jobs by 2014.10 As they work to develop their BPO sectors, most countries focus on generating higher-value service jobs, such as those in contact centers, which need higher-skilled (and better-educated) employees.
Indeed, the Kenya ICT plan focuses primarily on segments that require college-educated workers, and contemplates how universities can train a growing number of students in these skills. While BPO has been recognized and analyzed as an opportunity for job creation, generally, the sectors ability to provide employment and higher incomes for those at the base of the pyramid has not yet been thoroughly evaluated. Both historically and in the public imagination, the BPO sector has been associated with high-end, high-contact functions like call centers, which have required significant levels of education and language literacy. The income benefit of this booming sector has been undeniable for those who have participated in it, but anecdotal evidence suggests that the majority of employees in this sector have not come from disadvantaged geographies or populations. Most BPO employees in India, for instance, have college educations, even in rural areas. In contrast, most of the growth in South Africas BPO sector in recent years has comeas a result of significant government investment in trainingfrom high school graduates in low-employment areas. A handful of outsourcing providers with a social mission to benefit disadvantaged populations and regions have emerged to create the nascent subfield of Impact Sourcing (IS), which formally employs individuals in locations with low alternative employment opportunities. Comparatively in its infancy, IS represents a tiny fraction of the overall amount of work currently flowing through BPO processes. This shift from traditional BPO to IS was sparked by a variety of factors. In India, the push toward IS has been driven by an established and thriving BPO industry that experienced rising cost pressure in urban centers such as Bangalore. Indian organizations like eGramIT thus based themselves in rural areas with good power and telecommunications infrastructure and hired rural university graduates. As a result, they can offer services that range from basic data entry to domestic voice
work at significantly reduced prices while offering well-paid jobs to people who have limited opportunities for sustainable employment. South Africa, on the other hand, is an example of a country that had little BPO industry upon which to build its emerging IS field. South Africa explicitly aimed to build a BPO sector with the intent of having social impact and employing youth. South Africa made its first move towards IS when, in 2008, the government started a program to invest in training unemployed high school graduates for the BPO sector, alongside efforts to incentivize top BPO providers to open operations in South Africa. As part of the pilot program, public bodies (such as the South African Post Office) and private consulting, BPO or staffing companies (such as Deloitte) trained more than 1,100 high school graduates from low-employment areas, with 77 percent of them finding jobs afterwards in the BPO sector.11 Over time, the South African investment has created more than 20,000 jobs that serve both domestic and international clients. Kenya began moving into the BPO space with its Vision 2030 Strategy which identified BPO as one of the sectors through which Kenya could achieve economic growth.12 While the largest players in this field are KenCall and Horizon, which have employed traditional university-educated staff, Kenya has also seen the emergence of companies like Nairobi-based Daproim (which aims to employ university and high school graduates from lowemployment areas who struggle to gain first-time employment) and organizations such as Ken-Tech Data (now known as Techno Brain BPO and employing both university and high school graduates). The nascent IS space in Kenya focuses on services that range from basic data entry to knowledge-based outsourcing tasks such as research for web-based search engines. These are primarily supplied to international and domestic clients across the private and public sectors.13 Examining IS in India, South Africa and Kenya is enlightening because these are the countries that currently show the greatest concentration of Impact

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Sourcing Service Providers (ISSPs). Moreover, they are also archetypes of broader categories of countries. Each represents a nation with BPO industries at different stages of evolution: India is a mature, globally recognized outsourcing destination; South Africa embodies the second wave of global outsourcing locations; and Kenya is part of a new category of emerging BPO players with a smaller base of activity. These nations also represent different income levels and sizes. Across all IS countries several trends and industry drivers have helped to grow this nascent field:
n The increasing reach and decreasing cost of

telecommunications is expanding the list of countries and regions that can compete for BPO work.
n There is continuing pressure on corporations

and, to some extent, governments to deliver services, particularly non-core services, in a cost-effective manner.
n There is increasing demand for the digitization

of non-digitized records across the private and public sectors. This includes the one-time drive to catch up as well as a continued need to transfer non-digital data.
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n There are increasing levels of government activity that lends itself to BPO tasks such as archive digitization, the growth of e-government platforms and universal identity number projects.
n Levels of educational attainment are improving, but are not being matched by improving employment opportunities. A number of IS players have demonstrated success in specific contexts. However, given the early stage of growth of this subsector, a comprehensive and substantial effort to define, size and evaluate the potential of IS globally is required.
4. Defining, Sizing and Mapping Impact Sourcing

Naming and Defining the Field
Several key variables together form a map of the opportunities and segments for suppliers of IS and BPO services.16 These variables were selected so the IS market could be divided into a number of segments, with each one demonstrating significant and meaningful differences in terms of location, employee profiles, challenges and required interventions to drive growth and impact. The key variables include: On a preliminary level we have defined IS in relation to who is employed in order to delineate its impact on people that will significantly benefit from increased income and sustainable employment.14 In all cases, this would include people with limited opportunity for sustainable employment. In rural India, for instance, most ISSPs employ college graduates with limited alternative employment. Some alternatives for employment are state jobs, which are relatively few, or positions in informal retail, casual labor or self-employment in extremely low-wage situations. Another alternative is participation in the national rural employment guarantee scheme, which provides 100 days of paid work to all poor, rural households.15
mpact Sourcing (IS) can be defined as any BPO activities that provide formal employment or supplementary income to individuals in lowincome areas of cities and rural towns with limited alternative employment opportunities. IS is context specific because it provides work in areas where it is otherwise scarce.
n Country income levels, based on the World

Bank categorization by gross national income (GNI) per capita,17 as BPO industries have very different talent pools from which to draw in low-income versus middle-income countries, and as some development actors consider middle-income countries, by definition, to be lower development priorities than low-income countries. (Note that a number of other factors usually correlate to country income levels, including presence of telecommunications, power, and other state services.)
n Employee education levels, divided into tertiary education, high school education and high school leavers with at least eight years of schooling and basic literacy. In addition, there are three sub-variables, designed in most cases to describe the lack of alternative employment possibilities:18
Mapping the IS Field

There are a range of possible boundaries for IS. It can be defined in several ways: in terms of rural versus urban operation centers; in terms of workers education or income levels; or by measuring the increase in the income or quality of life of BPO workers and their families. For some observers, any scheme that employs even college-educated rural men and women is high impact. But for others, a definitive impact can only come from employing the truly poor and marginalized, who, unlike their college-educated counterparts, have little chance at a formal job. Though boundaries are not straightforward, one can take a view of the market that is modular and includes ranges.
n For high- and upper-middle-income countries,

impact can be achieved by employing individuals with only a high school education or less, who otherwise have limited prospects for sustainable employment compared to collegeeducated individuals.
Exhibit 2: IS Supply Segmentation

No High School High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural D Emerging BPO Industry Source: Monitor analysis Rural Urban F High School University/ College Graduate
High-Income Country
Upper-Middle-Income Country
B C E
Established BPO Industry Low/Lower/Middle Income County
n For low- and lower-middle-income countries,

we differentiate between the presence or absence of an established BPO industry,19 as this factor affects what interventions are required to drive outsourcing activity.
n For low- and lower-middle-income countries,

we further distinguish between urban and rural areas, as opposed to low/high employment opportunity areas. While some urban areas correlate closely with high alternative employment opportunities (e.g., Pune, India), not all do (e.g., Kisumu, Kenya). The urbanrural variable is a more meaningful distinction in this context, with more relevant and actionable implications for operating ISSPs in countries with an emerging BPO sector. For example, the availability of connectivity and power, the presence of skilled managers, and the level of workforce education are all variables that determine what BPO services can be offered, and that can vary significantly between urban and rural areas.
ISSPs in all six segments21 employ individuals who are otherwise socioeconomically disadvantaged in the context of their countries, and would struggle to find alternative employment. They all supply services ranging from voice and internet-related ones to more basic ones such as data entry and digitization. The main characteristics of each of the segments are outlined on the following pages.

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We have broken the analysis into six different IS segments (see Exhibit 2), which have a combined 2010 market size of about $4.5 billion, set to rise to about $20.4 billion by 2015. This market is similar in size to the $20 billion global orange juice industry.20 Each of the six segments has the potential to raise incomes and provide jobs for people with low alternate employment opportunities. Each has the potential to create employment for individuals, whether they are affected by poverty in low, middle or high-income countries. The guiding principle is that an IS facility will create higher-income job opportunities for otherwise disadvantaged populations whether it is based in downtown Detroit, a slum area in Sao Paolo or a rural village in India.
Segment A
No High School High Income Country Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural Rural Urban A High School University/College Graduate
Low/ Lower/ Middle Income County
Source: Monitor analysis
SEGMENT A includes IS in low-employment areas within high-income countries, providing work to individuals who either did not complete or have no education beyondhigh school, and who otherwise have limited job prospects in their national context. The United States, United Kingdom, Canada, Ireland and Israel all fall into this segment. In the U.S., for example, unemployment in certain areas of Detroit stands at 50 percent.22 ISSPs tend to provide voice services where a native accent is considered an asset. Clients are mainly from the domestic private sector. Examples of ISSPs serving this model are Call Britannia in the U.K. and Accenture Development Partners (ADP) in the U.S. Call Britannia is a call center with a social mission that is located in the high-unemployment area of Croydon (South London) and that favors hard-to-employ applicants and invests extensively in training so it can hire those who are permanently jobless or who lack relevant skills. In the U.S., ADPs outsourcing initiatives have created living-wage employment for the Umatilla tribe the state of Oregon. ADP has trained 250 tribe members in IT, and its centers offer outsourcing services to U.S. clients at contact centers and in software development and image processing.23
Segment B
No High School High Income Country High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural Rural Urban B A High School University/College Graduate
Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry
SEGMENT B encompasses low-employment areas within middle-income countries such as Mauritius, South Africa, Argentina, Brazil and Russia. These countries may be middle income in aggregate, but can still contain large pockets of poverty. Consider South Africa, where the rural unemployment rate is 50.3 percent.24 Such IS operations typically employ individuals with a high school education or less. Services are very similar to those in segment A, with a focus on voice services for international and domestic clients where a neutral accent is key and where technical reasoning is less paramount. Clients for the voice segment tend to be international, mainly from the U.K. and the U.S., and mainly from the private sector. Data services are typically provided for private, domestic clients. Companies like Genpact in South Africaa unit of one of the largest global outsourcing firmsare examples of this, employing high school graduates to service, among others, the SABMiller account.25 A typical company in this segment may have several hundreds of employees with high schooland some universitydegrees. Such a company would usually provide back office or voice work, commonly working in direct partnership with large corporations.
Segment C
No High School High Income Country Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural Rural Urban C A High School University/College Graduate
SEGMENT C includes IS in urban areas of low- and lower-middle-income countries that already have an established BPO industry employing individuals with high school degrees or less. India, China, Vietnam and Ukraine fall into this category. Services here typically include voicebased work for primarily domestic providers, and are often skewed toward document management, document publishing and image-related services. In this segment, clients are predominantly local government agencies and mid-sized domestic and international companies. The Anudip Foundation, which runs urban and peri-urban centers in India, and MSK Global, which has an IS operation in the Philippines, are examples of segment C IS players, which tend to be smaller BPO providers, often with around 100 high school-educated employees. Anudip, for instance, is located in West Bengal and has clients that are mostly local government agencies or mid-sized domestic and international companies focusing on basic data-based tasks.
Segment D
No High School High Income Country Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural D Rural Urban A High School University/College Graduate
SEGMENT D includes ISSPs that employ individuals with an incomplete high school education and that are located in rural areas of low- and lower-middle-income countries like India, the Philippines and Chinaor rural areas of other countries with less-well-developed BPO sectors, such as Kenya. In this segment, tasks mainly (but not exclusively) include basic non-voice services such as data entry, digitization and videotagging. This work is typically provided to domestic government and private-sector clients as well as international private clients. Organizations operating in segment D include B2R Technologies, Express Automation and a number of smaller organizations. B2R Technologies is an Indian rural-based IS provider with 100 employees offering basic data services. Its clients include a large international education provider and a local NGO. Express Automation is a rural Kenyan ISSP that also provides basic data services and that is linked to a parent company BPO, the much larger Indian company Paradigm Infotech.

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Segment E
No High School High Income Country Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural Rural Urban E A High School University/College Graduate
SEGMENT E includes ISSPs that employ high school and university graduates in rural areas of low- and lower-middle-income countries with an established BPO industry, such as China, the Philippines, and India, where unemployment levels are above 50 percent for certain groups. 26 This segment often includes domestic voice services and otherwise covers a broad range of tasks starting with repetitive ones such as data entry and digitization but ranging up to publishing, document management and internet-based services. Most organizations in this segment are currently located in rural India. One example is RuralShores, which has centers in Bagepalli in the state of Karnataka. RuralShores workers process time sheets for United States trucking companies, under subcontract to a larger urban Indian BPO.27 Employees are mainly university graduates who work in data, knowledge-based outsourcing and domestic voice services. Clients tend to be large BPO providers, IT companies, domestic government clients and international and domestic private-sector companies.
Segment F
No High School High Income Country High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural Rural Urban F A High School University/College Graduate
Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry
SEGMENT F includes IS in rural and urban areas in low- and lower-middle-income countries without a large, established BPO industry. In urban areas in this segment, workers are typically high school graduates and dropouts, while in rural areas, they are typically high school and university graduates. Usually, IS is in low-employment areas where unemployment stands at 40 percent such as Kenya.28 The service mix is lower value, such as publishing, document management, and data entry and digitization, and it is less likely to include higher-end voice activities. Work for this segment comes primarily from domestic-government and private-sector clients, but also from international private clients. Adept Systems, Dapro Information Management, and the IS component of Ken-Tech Data (now Techno Brain)all based in Nairobi, Kenya exemplify companies in this segment. Such companies recruit from a range of educational backgrounds and commonly focus on services that include basic data as well as more sophisticated, knowledge-based tasks. Adept Systems, for instance, employs about 20 people, some of whom are IS workers, and serves primarily international clients, to whom it provides basic data entry and transcription services.
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Sizing the IS Field

Today, the total global IS market generates an estimated $4.5 billion in revenues, representing 3.8 percent of the entire $119 billion BPO industry and directly employing about 144,000 people across all segments.29 Of this, $1.2 billion is estimated to reach IS workers as employment income. Analysis suggests that the share of IS in total BPO could increase to approximately $20 billion in 2015, directly accounting for 780,000 jobs and just over 11 percent of the $178 billion total BPO market. Of this, more than $10 billion will reach IS workers through employment income.30 The growth of IS can be seen as being driven by four key factors. First, there is the continuing expansion of the global demand for BPO services overall. Second, there is increased domestic demand for outsourcing in emerging economies (not just from the private, but also from the public sector, supported in particular by e-government and record digitization trends). Third, there are cost pressures that will push traditional BPO services into cheaper locations in peri-urban and rural areas. Fourth and finally, there are rising wage expectations among traditional BPO employees that will force service providers to open up lower-end tasks for less-educated individuals. Analysis suggests that by the year 2015, direct IS employment in all segments could result in approximately 624,000 additional indirect jobs, which include all associated IS jobs such as managerial positions, with 3.2 million lives impacted. Exhibits 3 and 4 highlight how these expected revenue and job numbers break down across the different segments in 2010 and 2015 respectively.
also takes place in upper-middle-income countries with organizations employing individuals without tertiary education. But here, different, specific interventions are required to grow the sector (segment B). For lower-income nations, the market size of IS varies significantly. Interventions necessary to bolster IS in places with an established BPO industry vary significantly across urban areas (segment C) and rural regions (segment E). On the other hand, countries without an established BPO industry need to engage in similar actions in urban and rural areas to push IS forward (segment F). Part of this requires establishing the viability of an overall BPO sector in the country. The exceptions here are interventions to strengthen IS for rural individuals who did not complete high school but who have attained basic literacy. Interventions for these workers would be largely similar in lower-income countries with or without an established BPO industry (segment D).
The Business Case for IS

Key components of the business case for IS focus mostly around the ability of ISSPs to provide a high-quality service for a cost that is typically 40 percent lower than an average established urban BPO. This is especially compelling for the rural operators in India who are competing against an established set of players with contracts already in place. IS leverages the fact that for certain tasks, base-of-the-pyramid service providers cost less to employ and can undertake small-scale, sometimes part-time work that is often unattractive to traditional BPOs. However, three factors help determine the competitiveness of an ISSP: (a) the
Global IS Sizing Assumptions

This map and the accompanying sizing are based on the recognition that IS affects various populations in different ways, occurs across a broad range of contexts, and requires very specific interventions depending on the context. For instance, IS occurs in low-employment parts of high-income countries when less-educated individuals receive BPO employment (segment A). IS
Impact of IS
mpact Sourcing (IS) employment provides measurable increases in income levels. Data suggests that IS employees benefit from income increases between 40 percent and 200 percent. In addition to the benefits of formal, stable employment, our research suggests that IS employment also increases family investment in health care and education.
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Exhibit 3: 2010 IS Market Size by Segment and Percent of IS Market Size32

No High School High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural D$2M, 0.05% Emerging BPO Industry Rural Urban F$0.03B, 1%
Direct Jobs: ~3,700 Percent of Total BPO: 0.03%
High School
University/ College Graduate
High-Income Country
A$1.3B, 29%
B$0.9B, 21% C$2B, 44% E$0.2B, 6%
Direct Jobs: ~26,400 Percent of Total BPO: 0.8% Direct Jobs: ~71,000 Percent of Total BPO: 1.7% Direct Jobs: <100 Percent of Total BPO: 0.002% Direct Jobs: ~10,500 Percent of Total BPO: 0.2%
Established BPO Industry
Source: Monitor market sizing model
Exhibit 4: 2015 IS Market Size by Segment and Percent of IS Market Size

No High School High School University/ College Graduate
High-Income Country
High-Employment Opportunity Low-Employment Opportunity High-Employment Opportunity Low-Employment Opportunity Urban Rural D$0.1B, 1% Rural Urban B$2.4B, 12% C$12.4B, 62% E$3.5B, 17% F$0.2B, 1%
Direct Jobs: ~65,000 Percent of Total BPO: 1.3% Direct Jobs: ~508,000 Percent of Total BPO: 7% Direct Jobs: ~5,700 Percent of Total BPO: 0.1% Direct Jobs: ~145,000 Percent of Total BPO: 2%
A$1.4B, 7%
Established BPO Industry
Emerging BPO Industry
Source: Monitor market sizing model
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Exhibit 5: Comparative Costs for Urban BPOs and Rural ISSPs in India (in US$)
800 700 600
583 583 750
The Demand for IS

Current IS clients are private-sector companies, telecommunication firms, third-party BPO providers, and local and international organizations outsourcing segments of their business processes. On the public side, government constitutes a key client, especially through e-government services and archive digitization. Foundations and educational institutions are other public clients currently and potentially buying from ISSPs. Twenty-one customers or customer agents were interviewed for this analysis, with their views including perspectives from executive and purchasing sides. They gave feedback about their buying criteria, preferences, behavior and attitudes towards IS activity. Similar to conventional BPO customers, IS customers primarily desire cost savings and increased efficiency through outsourcing. Based on interviews, it appears that only a small proportion of IS clients are driven primarily by the desire to invest in a social cause.35 A substantial portion of potential clients for IS say they are interested in it primarily for cost savings.36 Their main interest is receiving a certain quality of services for the most competitive price, and with a minimum risk of failure. Buyers will then have a set of secondary criteria around language requirements, security needs, scale preferences and turnaround speed. An IS label may be seen as adding valuebut only if the buyers quality and price requirements are met first. Buyer interviews suggest that most clients know where the work is processed, but are initially hesitant to outsource to IS destinations if these are perceived to be less developed in terms of infrastructure, technology or education levels. Interviewees, however,
500 400 300 200 100 0

Average Monthly Salary Rural ISSP 114 200
540
4 Average Training Cost Urban BPO Average Monthly Telecom Cost
40
Average Churn Percent
Source: Monitor Analysis; Interviews with RuralShores, eGramIT, Anudip, BPO Experts 33
comparative cost of recruiting IS employees, (b) the comparative cost of training these employees, and c) the comparative rate of employee attrition. These comparative data highlight the fact that rural ISSPs in India benefit from lower salaries, lower training costs,34 lower attrition, and similar telecom costs to their urban counterparts. This combination of factors creates a cost advantage for the ISSPs, and also indicates what levers potential field builders can pull in addressing key challenges to help ensure that these organizations have compelling value for their customers. There are countervailing costs to consider as wellespecially for those managing rural BPOs. These costs include backup power and connectivity, plus the high cost and difficulty of attracting and retaining middle management. These cost constraints will emerge more significantly as the IS field begins to grow beyond the relatively limited number of centers in place currently.
Primary Buyer Purchase Criteria
n n n
Cost Quality Risk
Secondary Buyer Purchase Criteria
n n n n
Language Security Scale Speed
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Exhibit 6: Global BPO spend breakdown by category and industry vertical38

2010 Global BPO Spend Percent Breakdown by Category 2010 BPO Revenue Percent Breakdown by Vertical
Training Procurement 6% 2%
BFSI* Hi-tech/Telecom Manufacturing 6%

22%
50%
Human Resources 16% Finance & Accounting 23%
Retail 4% Customer Care 52% Healthcare 3%
T&T** 5% Cost & Utilities MPE Other 0%

2% 2%
7% 10% 20% 30% 40% 50%
expressed broad agreement that when such concerns are overcome, there is an interest in competitive IS services. A much smaller segment of clients, whose mission may be socially oriented, would prefer ISSPs to traditional BPOs and could have a certain willingness to pay a premium for IS services. Universities, large NGOs and charitable organizations fall into this category. Especially where such organizations fear public pushback for outsourcing some of their services, IS could present an effective and socially responsible alternative that could even be seen as enhancing their brand. As a result of an increasing expected demand for IS services over the next five years, the client mix for IS is expected to shift slightly to a greater share of international work. Today, we estimate that international services account for 10 percent of all IS, a figure which is expected to rise to 25 percent by 2015.37
Of the overall BPO market, basic voice services account for 30 percent,39 and basic data work 17 percent, which combined constitute almost all of what we believe to be the total addressable services market for IS. Within this addressable market, voice services for IS split into (a) basic inbound calls for domestic and international clients, and (b) in- and outbound voice for domestic clients. Within the basic data services, experts expect the more low-value services (i.e., form data entry, transcription, image-tagging and digitization services) to be relevant for both international and domestic clients. Knowledge-based services, such as document publishing and management, as well as location-based knowledge services such as local research, are expected together to be more relevant for domestic clients. The IS service mix is expected to shift from its current composition. Currently, data work constitutes an estimated 90 percent of IS with the remaining 10 percent of IS coming from voice services. Driven by an expected increased local demand in emerging markets, voice work is anticipated to increase to approximately 20 percent by 2015.
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5. Case Studies and Impact Sourcing Models

IS Case Studies
As is the case with any field in its early stages, there are a range of different actors using a variety of models to provide services in this sector. The following case studies in Exhibit 7 illustrate some of the archetypes of service provision in this subfield. These case studies illustrate some of the key issues and operating constraints that need to be managed as these companies and the overall field of IS both grow. The following five case studies showcase a selection of ISSPs located in a number of countries, employing individuals with a variety of educational backgrounds, and demonstrating a range of different IS models that are further described later in this section.
Exhibit 7: Case Study Reference Table

txteagle Founded Profit Status Urban/Rural 2009 For-profit Mainly urban Global, with most work happening in India, China, Indonesia Impossible to define 700,000 Samasource 2008 Non-profit Urban, peri-urban and rural India, Kenya, South Africa, Pakistan, Haiti Fluctuates but 900 cumulatively Not disclosed Basic data and image tasks Transcription Location-based services Creation and content moderation RuralShores 2008 For-profit Rural eGramIT 2006 For-profit Rural and peri-urban Rural India DDD 2001 Non-profit Urban and peri-urban Cambodia, Kenya and Laos
Geographies
Rural India
Employee numbers Annual revenue in USD
800
700 (~400 full time, 300 part time or on contract) Not disclosed Basic data and image tasks Inbound/ outbound voice Translation research and technology solutions 4%
750
Not disclosed Basic data and image tasks Inbound/ outbound voice Rules based transaction services
2,300,000
Basic data and image tasks Services offered
Basic data entry and image tasks Data base creation and management
Attrition Rates Intermediary Micro Distribution Subcontractor Partner Direct
Not applicable
Varies from negligible amounts to 30% x x
Not disclosed
5%
x x x
40
Source: Monitor interview, web research All data current and accurate as of January 2011
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txteagle
xteagle41 is a for-profit company based on an infrastructure-free, distributed model that connects workers through mobile phones or the internet, providing them with local knowledge sourcing or basic BPO tasks in return for payment in the form of airtime credit or mobile money. These tasks range from market research, local data collection and opinion research to data processing. Going forward, the company is focusing primarily on market research and local data collection, i.e. work that can only be done in a specific location, as these types of tasks are not subject to traditional BPO cost pressures and therefore enable txteagles workers to earn greater compensation. This model can provide work to anyone with the required internet connectivity or mobile phone connection. Approximately 80 percent of its workforce is urban and from middle class backgrounds, but the 20 percent non-urban workforce can give global organizations unprecedented access to insights about local conditions, customs and markets. From an educational perspective, roughly 25 percent of txteagle workers have tertiary education, the rest being high school graduates. Importantly, the company does not aim to provide full-time employment or career development paths through its work. Instead, it aims to provide individuals with an additional source of incomeprimarily in small amounts that vary from country to country, as this model assumes that earnings are supplemental to other sources. Currently, txteagle has its strongest presence in China, India, Latin America, Southeast Asia and Africa. In this model, recruitment is conducted through internet cafes and similar technology hubs that attract new staff members, for whom they are paid a finders fee. Quality control is managed through algorithms; maths instead of managers is a company dictum. While this no-infrastructure, no-training model keeps costs low and allows for a quick scale, the system is not able to provide a predictable, stable or full-time salary level of income to its workers.
PROFILE OF RECRUITS n Average age: 24 years n Education: 25% tertiary edun n n
n JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING
cation, 75% high school Male: Female ratio: 70:30 Urban: Rural ratio: 80:20 (txteagle estimate) Background: Most workers are urban and middle class, high school and university graduates Compensation: Workers earn $0.5 to $5 for completing a 20 minute survey ($2 average)but pay depends on nature and complexity of task. Recruiters receive $0.25 for every person who completes work Attrition: not applicable
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Samasource
amasource42 is a non-profit based in San Francisco that acts as an intermediary to 16 service providers in five countries43 across the globe. It is responsible for marketing and selling IS work by branding it fair trade and focuses mainly on clients in the United States and United Kingdom. Once work has been acquired, it is split into micro work which is then distributed to ISSPs in different countries, with these ISSPs managing the day-to-day execution of tasks. This allows smaller companies to work with clients and on projects that they would otherwise not be able to access. Using this approach and also employing consolidated marketing and sales at the front end, Samasource has been able to create employment for more than 1,000 individuals over the last three years. Because the company works with such a variety of service providers, the way in which base-of-the-pyramid individuals are impacted varies. In some cases, service partners working with Samasource directly hire these employees. One example of this is Horizon Contact Centers in Kenya which hires from slum areas. Others have employed refugees (e.g., Built on Respect in Dharamsala), while other service partners have benefitted low-income communities indirectly through the trickle-down effect of employing well-educated individuals in situations of high youth unemployment. For example, salaries paid to employees of Kenyan service providers such as Daproim are on average 45 percent above alternative employment options.44 One of the key challenges here is ensuring that base-of-the-pyramid workers benefit through this model and that work streams are predictable and reliable for service providers.
Anudip Employee
PROFILE OF RECRUITS SURESH n Age: 19 years n Education: University student of English (BA) n Family: Lives with his parents in Kodiya, his father is an JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING
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n Average age: 24 years n Education: 70% university
n n
graduates, 30% high school graduates Male: Female ratio: 50:50 Background: In Kenya most employees are urban (lower) middle class, in India workers have less education and are often rural Compensation p.m.: Earn $80$280majority of peers are unemployed and dependent on their families Attrition: varies depending on service providers from negligible amounts to nearly 30%
accountant. Suresh heard about Anudip (a Samasource service provider) through his friends and attended computer training at an Anudip Training Center. After its completion, the trainer recommended that he apply at the MERIT center where he was successful in gaining employment. He joined Anudip to be independent from his parents for his university fees. It has been his ambition to work at a computer center. He earns $112/month and recently became a full time employee. Suresh enjoys his work. He has the flexibility of managing his schedule when he has exams or other college commitments and is happy about the support he gets from Anudip.
Anudip has a good atmosphere to grow.
RuralShores
uralShores45 currently has eight IS centers across India, all located in villages with populations of less than 20,000 and all at least three hours drive from cities. By paying upwards of $70 per month, RuralShores offers employment that is twice as lucrative as local alternatives. RuralShores is responsible for business development and overall management, but as it scales the company, it plans to expand using a partner and subcontractor model. In this system, the center partners handle daily task operations and process associate recruitment while the parent company runs middle and top management procedures and acts as the main client interface. Most of RuralShores employees are high school graduates from agrarian, low-income families, some of whom pursue college education on the side. The management positions are usually filled with experienced hires from urban BPOs, who are paid higher wages to ensure retention. Income increases are 100 percent above average salaries for other employment options. Few employees have alternative career possibilities, so the attrition rates are much lower than the urban average of 40 percent, making it possible to operate with a lower cost base. The reduced cost and low attrition rates are the principal reasons that rural ISSPs in India appeal as lower cost alternatives to mainstream BPOs. Because of its location and cost structures, RuralShores prices its services about 40 percent less than urban BPOs. The company is planning on aggressive expansion over the next ten years, aiming to create 500 new centers that will each hire 200 workers. All told, this will provide additional employment for an estimated 100,000 rural individuals.
Rural Shores Process Associate

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING PROFILE OF RECRUITS n Average age: 18-25 years n Education levels: n Age: 22 years n Education: College drop-out (dropped after 2nd year) n Family: Father is a farmer, 2 brothers (in college and 4th VENKATALAKSHMI
gProcess Associates: High school, graduates, some pursue college while working gProcess Leads & Center Managers: Graduate and post-graduate degrees n Background: Most employees come from agrarian families with low income levels n Compensation p.m.: ~$70 as a PA ~$180 as a Center Manager plus benefits
grade). She has been working here for 8 months and currently works on the clients driver log process. Before RS, she worked in Bangalore at a banks back-office. Though she earned more, she was not happy with the work and quality of life. Since shifting to RS she has worked on 4 processes and is also doing a course in tally accounting. n Goal: To work in a government job (she plans to appear for entrance exams.)
I am the only girl working in my village. I want to continue learning here and eventually work in a government job.
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eGramIT
GramIT46 uses a direct delivery model, contracting with BPO buyers directly for work performed in centers they manage in rural areas. Through a decentralized system, the company has the capacity to quickly ramp up for larger projects due to its virtual workforce bench. It has four centers in Andhra Pradesh, India, located in rural villages with between 1,000 and 15,000 inhabitants. The rural locations mean eGramIT can provide services for a cost that is about 40 percent lower than prices charged for comparable work by urban BPOs. The eGramIT workforce is comprised of rural university graduates who earn $80 to $340 per month, nearly twice as much as they would earn working for rural alternatives, such as government schools. Their wages are almost on par with city salaries, resulting in extremely low attrition rates of around 4 percent. Comparatively, BPO attrition rates in urban India can be as high as 40 percent. The income boost is further increased by higher savings rates for employees, as they can continue living with their families and can thus save money on their work commutes, lodging and food. By working in shifts, eGramIT employees can also continue supporting their families by earning other sources of income and helping with family activities, such as running the household, farming or shopkeeping. Rural employees receive training that costs the company $500 per employee, compared to a cited average of $1,500 in nearby urban locations. eGramIT is able to provide a range of services to its domestic and international clients: basic digitization services, product profiling, image editing, bill and payment processing, voice services, and knowledge-based tasks such as translations, research, technology solutions and customized software. For all these services, prices fall below those of urban competitors.
eGramIT Junior Process Associate

19
PROFILE OF RECRUITS n Average age: 25 years n Education levels: Most are
ARINDAM n Age: 32 years n Education: B.A. in Social Work n Family: Married with two children. His parents also live with
n n
college graduates, some are post-grads Male/Female ratio: 45:55 Background: Most employees belong to agrarian families with low income, small percent have fathers in government jobs Compensation p.m.: $100 as a process associate to ~$34040 as center manager Attrition: 4% vs 40% in urban BPOs, average tenure in eGramIT is 1.5 years
him and his father runs a provisions store. Arindam was a teacher at the local government. school when he heard about eGramIT. As a teacher he was earning as little as $30 p.m. and wanted a better job. After undergoing the training program of eGramIT, he joined them in 2008 as a trainee at a salary of $35 p.m. Today as a PA, he earns $100 p.m. and finds himself better equipped in skills and in a financially better position. Working the early shift allows him to manage both his job and help his father with their little village store. n Goal: To continue working here and grow at eGramIT.
I save most of my salary from eGramIT and have invested in a small piece of land in a nearby town for my childrens future.
Digital Divide Data
DD47 is a social enterprise with the explicit objective to create jobs for poor and disadvantaged youth in developing countriesand to empower them to participate in the global economy. DDD is registered as a not-for-profit organization in the United States, as an international nongovernmental organization in Cambodia, and as a private business in Laos and Kenya. The organization started in 2001 by hiring a small group of youth in Phnom Penh; as of 2010, it has grown to more than 750 employees in four offices in Cambodia, Laos and Kenya, with an annual earned revenue of $2.3 million. DDDs staff of data management operators (DMOs) are primarily poor and disadvantaged youth. DDD aims for gender balance among its staffand about 10 percent of DMOs have physical disabilities. In Cambodia, staff are paid approximately $100 per month compared to a Cambodian per capita income of $54 per month. Prior to starting work, DDD trains DMOs in the English language, technology and soft skills, at a cost of $500 per employee. Additionally, the company provides DMOs with scholarships to study at local universities. By providing jobs with scholarships and the potential for a career path to disadvantaged youth, DDD has been able to keep its attrition levels very low. After about three to four years of employment with DDD, DMOs graduate. Most leave to take higher positions in other companies, where, on average, they earn $281 per month. Some graduates are promoted internally to serve as managers. The employment period and opportunity to attain a university degree allows staff members to develop personally and build their skills and knowledge to ensure lasting improvement in their income. This has a deep social impact. To cover the cost of extensive training and scholarships, DDD has relied on philanthropic support, and some volunteer and subsidized managerial talent from developed countries. DDD provides digitization services to for-profit businesses, including publishers and content hosts. It also services nongovernmental organizations such as development agencies and universities and government agencies such as national libraries. For some larger contracts or contracts requiring specialized skills, DDD has used a subcontractor model, partnering with other firms to complete a portion of the client work. The organization initially started by providing basic data entry services. Over time, it has endeavored to move up the value chain, providing services such as extensible markup language (XML) tagging that is less commoditized and thus less subject to decreasing payment rates. DDD aims to employ 1,500 disadvantaged youth in Southeast Asia within the next three to four years, and has recently opened a center in Kenya.
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DDD (Digital Divide Data) Operator

PROFILE OF RECRUITS n Average age: 17-21 years n Education: High School BUN n Age: High school diploma n Education: College drop-out (dropped after 2nd year) n Family: Bun began as a security guard at DDD in 2007, and
n n
n n
graduates; employees receive a scholarship to study at university Male/Female ratio: 53:4747 Background: Youth from poor families, many from rural areas, 10% with physical disabilities Compensation p.m.: $100, depending on location and other factors Program attrition: 2% Staff turnover: 20%
after passing exams became an operator. He now has a scholarship to study and is planning on studying business administration and English. As a result of working at DDD he is able to support his family financially.
Before I was just a student who lived in a rural area but now I can live in a big and modern city and work in an air-conditioned place.
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IS Models
As the case studies in the previous section illustrate, our research suggests that IS organizations tend to operate using one or more of the five archetypal models that are outlined below. These service delivery models are not mutually exclusive, and some organizations combine two models in their business model. The five models are micro distribution, intermediary, subcontractor, partner and direct.48 Exhibit 8 summarizes these models.
Exhibit 8: IS Models Reference Table
Micro Distribution Intermediary Scalable due to ability to leverage multiple service providers (who provide capital investment and staff) Higher management costs to deal with multiple service providers Subcontractor Highly scalable, as there is easy access to large pools of work; limited by work allocated and ISSP capacity Partner Scalable due to ability to leverage multiple partners (who provide capital investment), while keeping one brand Direct
Scalability
Highly scalable due to minimal investment costs and broad reaching coverage Limited: no on-the-ground management, training or recruitment costs Low cost, algorithm-driven quality control
Scalability limited by investment, and ability to secure and deliver large contracts
Management Cost
Higher management Higher management Lower management costs to deal with costs to deal with costs (no dealing BPO provider, multiple partners with third parties but lower clientand the and multiple facing costs parent provider systems)
Quality Control
Quality control Quality control Quality control complex and affected by multiple affected by multiple affected by multiple organizations in organizations in organizations in the the delivery system the delivery system delivery system Centralized client management/ business development (BD) Low CAPEX as service providers are responsible for infrastructure and human investment Potential for higher value product Offers full-time employment; third parties complicate impact tracking; training provided BPO responsible for client management/ business development (BD) Low CAPEX for BPO organization; IS organization responsible for all hard and soft investment Potential for higher value product Offers full-time employment; third parties complicate impact tracking; training provided
High level of quality control
Client Management/ Business Development (BD) Cost
Each organization responsible for client management and business development (BD)
Centralized client Each organization management/ responsible for client business management and development (BD); business developpartners need not ment (BD); requires source business extensive sales force Low CAPEX for operator as partners responsible for infrastructure and human investment Potential for higher value product Offers full-time employment; third parties complicate impact tracking; training provided IS organization responsible for all hard and soft investment; highest direct investment requirement model Potential for higher value product Offers full-time employment; easy to track impact; training provided
Investment Requirements
Low CAPEX due to no on-the-ground infrastructure
Product type
Product is limited and commoditized but location specific Doesnt offer fulltime employment; difficult to track impact; limited training provided
Social Impact
Other
Model well suited to introducing IS to new BPO markets; has the benefit of parent BPO IS partners are free brand; IS partners to focus on delivery, are free to focus on and to pursue delivery; higher reputheir own client tational risk for BPO relationships directly provider; complex ISSP-BPO deal structuring process; limited autonomy for ISSP
IS partners are free to focus on delivery
Model well suited to countries with established BPO sector and presence
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Micro Distribution Model

In this model, large tasks are broken down into small pieces of very basic data work, such as image tagging or transcribing small pieces of scanned text, which individuals with adequate skills can sign up to do remotely, from home or from any internet connection with sufficient bandwidth. Compensation occurs through a mobile payment infrastructure like M-Pesa or mobile phone credit. Remuneration levels are not sufficient to be a main or steady source of income, but instead are positioned as top-up income, while training and capital costs are zero. The distributed micro model has the advantage of having a broad impact, as it can potentially reach anyone around the world who has literacy and appropriate internet access. The workload in this model fluctuates due to the sporadic nature of the work and as the intermediary (e.g., txteagle, a company specializing in micro work distributed via online technology) is responsible for its own business development, marketing and client acquisition. The challenge here is to efficiently manage quality control with so many disparate sources of work. This model tends to concentrate in urban areas given the need for internet cafes, and usually employs college graduates. It does, however, have the potential to be leveraged to increase the incomes of rural farmers. Data collection on local prices, for instance, could be submitted via mobile technology. Where rural internet hubs permit, such as the digital villages in Kenya that provide free or low-cost internet access in rural locations, farmers could engage in basic data entry tasks online. This is a concept that still needs to be tested. Additionally, the commoditized work within this model could potentially become automated and thus be shifted to almost any destination. Buyer decisions for this type of work are often driven only by price, and the field is thus vulnerable to race-to-the-bottom cost pressures. Location-based services, including market research (the gathering of local opinions, prices, or data that can only be provided from a specific location) are another component of this model, which benefits from the fact that these services cannot be provided elsewhere. One example of this model is txteagle.
Remote BoP Employees

23
Client
IS Intermediary/ Service Provider
Remote BoP Employees Remote BoP Employees
Intermediary Model
The intermediary model aggregates and distributes work to different service providers, which may be geographically dispersed across the world. In this example, the intermediary is responsible for marketing and client acquisition, allowing the service providers to focus on service delivery. The type of work involved will typically be low-end, repetitive tasks. Often, the intermediary will be involved in quality control and the reassembly of smaller tasks into one whole, finished product. In some cases, the IS service provider will be linked directly to the client, assuming quality control responsibilities. The intermediary may or may not invest in training of the employees at the service provider level, depending on individual arrangements. This model requires some sales and marketing scale in order to ensure a constant work stream to its service providers all year round, since many of these providers tend to be small and have relatively limited business generation capabilities. The challenge of the intermediary model lies in managing a range of smaller providers, for both the work product and to ensure that employees at each subcontractor are from the target employee population. Samasource is one example of this model, in that it distributes work to its service partners across many geographies while remaining responsible for marketing and client relations.
IS Service Provider 1 Client

IS Intermediary
BoP Employees IS Service Provider 2
Subcontractor Model
Large BPO companies make use of this model when they outsource part or all of long-term contracts to IS centers that work exclusively for them, thus assuring business for these smaller ventures. The subcontracted IS provider acts as a captive unit for the larger, established BPO provider. The subcontractor benefits from the increased credibility and access to contracts and workflow. Quality control is easily assured in this model, as are workforce fluctuation and work sustainability, which allows services to range across a wide spectrum of degrees of complexity. Using this model is an easy way for a developing country to build its BPO credibility by signaling that it works with established providers and that its location has desirable qualities as a BPO destination for other potential investors. The presence of a larger, established BPO provider can convince customers to source their services from countries previously perceived as risky. On the downside, such exclusive contracts can hamper scale of the subcontractor, given that the entire business development process hinges upon having a large BPO. Paradigm Express in Kenya exemplifies this model because it has subcontracted work from larger BPO companies such as Paradigm Infotech in India.
IS Service Provider 1 Client Established BPO IS Service Provider 2

BoP Employees
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Partner Model
In this case, a parent IS provider is responsible for business development, while operations are managed entirely by the center partner, including quality control and the hiring and training of employees. This allows each partner to service a range of tasks across the value spectrum, while top and mid-level management are provided by the parent IS company. This model has the central advantage of requiring less of an IS service providers capital investment up front in order to ramp up to scale, and more flexibility in the face of fluctuating demand and work. Similar to the intermediary model, the smaller center partner can focus entirely on operations, while the IS parent focuses on obtaining new work and quality control. RuralShores in India is an example of this model, as it takes on customer relationships and sales, while passing on the actual work to center partners.
Center Partner 1 Client Parent IS Service Provider Center Partner 2

BoP Employees
Direct Model
In this model, the organic growth of the company is driven by business, as new IS delivery centers are only set up when there are assured work tasks to support them. As a result, this model brings great stability in terms of business supply and outputs, with increased levels of quality control, but a strong requirement for a capable sales force to keep the supply of contracts flowing. This model is capable of taking on a wide range of services, and can be combined with subcontractor or contract-supplier models. The income impact here is high, but is limited in terms of its reach, as IS workers have to live in the direct vicinity of job centers to gain employment. The direct model does entail higher infrastructure costs, as clients are hesitant to enter into the desired long-term contract without infrastructure being in place. This makes scaling up slow and sometimes difficult. There is heavy competition from smaller, urban low-cost BPO providers. When DDD and eGramIT take on work contracts directly from non-BPO clients, they are examples of this model.
Client
Parent IS Service Provide (Hub)
IS Delivery Spoke 1 BoP Employees IS Delivery Spoke 2
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6. Key Challenges for the Field
his extensive study of the emerging IS space, involving interviews with more than 120 practitioners, experts and buyers from across the BPO spectrum, identified nine key barriers to the growth of IS. This list is neither exhaustive nor final, and we envision an ongoing process whereby it is refined and potentially expanded. The nine recurring challenges fall into three themes: demand constraints, positioning and branding constraints, and supply constraints.
this trend, as its ISSPs have been able to leverage the countrys BPO brand and relatively large domestic market to access business. One way to access demand for smaller ISSPs is to subcontract to larger, more established BPOs. Several IS players are already doing this. But ISSPs must prove to larger BPOS that they can offer their capabilities seamlessly, aligning systems and processes across the bigger and smaller players. In addition to this problem, other issues can arise in subcontractor models, as illustrated in several of the case studies provided above. Finally, many potential clients appear to be unmoved by the social impact story of ISSPs. They face broader concerns about whether to move the processes being outsourced offshore in the first place, and the potential public relations and political implications of doing so. Most buyer purchase criteria for BPO work revolves not around social impact, but around the three key pillars of price, quality and risk level. In addition, most BPO providers market their services on the basis of having highly skilled employees with college degrees. This creates a paradox for ISSPs, which aim to both employ less skilled labor and also meet client buyer purchase criteria.
Demand Constraints Accessing Clients and Contracts

Primarily due to their relatively small size, the early stage of their growth, and their location in either rural areas of established BPO countries or in capitals of countries with new BPO industries, ISSPs often struggle to create relationships with clients with significant BPO expenditure. They are often unable to secure the long-term contracts that would guarantee work and enable them to invest and scale. This can become a chicken-and-egg situation, with clients unwilling to provide large contracts as they feel the ISSP is too small, and the ISSP unable to scale up in the absence of large contracts. Additionally, due to lack of economies of scale, many ISSPs are often unable to invest in significant business development activities. Part of this is driven by the fact that many ISSPs are operating in countries with an emerging BPO sector, which makes them less desired destinations for outsourcing work. This is partly driven by the simple fact that many ISSPs are new, relatively small, and dont have extensive track records. The situation is similar to that of any emerging business entering a new space with large, established players. Another driver of this is the cost and expense of maintaining a sales force that can search for clients, particularly internationally. Meanwhile, domestic clients in many countries are still relatively small. India is an exception to
Creating Anchor Demand

Many ISSPs address the customer acquisition issue by identifying a source of anchor demand in a country that is more open to using a nearby provider for services. In India in particular, several of the rural BPOs have anchored their business in local government contracts, which provide them with an opportunity to build a track record, begin to scale up, and handle a range of business processesusually on the data side. eGramITs relationship with the Department for Rural Development in the state of Andhra Pradesh is a salient example of this. Here, the company operated a telephone hotline for citizen complaints.49 However,
26
in many countries, modifying government procurement policy in favor of IS is a challenging task that would require energy, investment and patience. In some countries, there are large enough local businessesusually mobile carriers or banksthat can provide work to local outsourcers. But in other markets, particularly in Sub-Saharan Africa, there are relatively few local private-sector buyers. As a result, ISSPs report that securing a guaranteed stream of work on which they can invest and scale remains a significant challenge. As in India, state and national governments could be a significant source of this demand, but in most IS destinations, current procurement guidelines often do not encourage domestic outsourcing. In many cases, such guidelines and requirements often make it more challenging to include small providers in such government work in the first place.50
nated, heavy investment from government, the Business Trust, industry associations, and others combined to recruit top BPO players into South Africa and train large cadres of high school graduates to make them BPO ready even though such training is often expensive to undertake. In South Africa, the 40-week program, which generates the best employees and results, costs the government about $3,450 per student. These programs have tended to focus on higher-value services like voice and employees with at least a high school education.
Positioning/Branding IS to Clients
Different clients have different attitudes toward IS, and for this reason, ISSPs face difficulties in positioning and branding their offerings. As noted in the demand section above, currently a large majority of BPO clients in international and even domestic markets, across voice and data services, are primarily concerned with getting a service of a defined quality provided for a specific price. Given the business case for IS described above, ISSPs remain well positioned to compete on several of the key buyer purchase criteria. And there is a small segment of corporate clients that buy IS for reasons of corporate social responsibility, and a smaller segment of non-corporate entities that also buy IS for reasons of social impact. For example, Samasource includes Stanford University among its clients. Government clients also have diverse attitudes toward IS, varying from the purely cost-quality-risk-driven approach of some agencies to a broader national social benefit outlook found in other departments. The latter, to the extent it has been seen, occurs primarily in India among state government departments, such as West Bengal and Andhra Pradesh. It is important to note, however, that there is a paradox in this market. To convince customers to send work to an untried destination, the BPO sectors strategy has always been one of hiring college-educated workers and touting that fact as they assure clients that their vital business processes are in good hands. However, for IS to succeed on the impact side of the equation, the
Positioning and Branding Constraints Growing IS in Countries with Limited/ Emerging BPO Industries
The growth of rural BPO in India demonstrates that a domestic BPO industry can enable the growth of IS as a simple response to the need to reduce cost and attrition for certain services. This is the market that has seen the most development of new BPO models, building off the cluster of existing BPO providers, Indias established reputation, its existing customer relationships, and the management and process expertise already generally in place in the southern and western parts of the country. Conversely, ISSPs operating in countries with an emerging BPO sector face a number of additional hurdles. They are not on the radar for potential clients, their geography represents a perceived risk in addition to their IS status and size, and securing a subcontracting deal with a large BPO is more problematic because these countries are not typically on the list of places that BPO operators themselves are considering for sourcing diversification. Some countries have addressed this aggressively, such as South Africa, where coordi-
27
providers need to recruit those who are often less than college educated, thereby inserting greater risk in the clients mind and taking away one of the key selling propositions that the BPO sector has commonly used. This puts a greater emphasis on training capabilities for a given ISSP, and rigorous training may need to be not just an operational necessity, but a future selling point. Interviews with buyers, intermediaries and experts who advise clients on purchasing outsourcing services suggest that there will be, at best, only limited appeal to a fair trade branding on outsourcing choices. Such a fair trade equivalent would label IS services that successfully ensure the outsourced services create high-income alternative employment opportunities for socioeconomically disadvantaged individuals.51 On the whole, key buyer purchase criteria do not center on social impact, and in fact, some experts indicted that ISSPs working in rural areas, or with workers who have below-high-school educational achievement, would actually be an obstacle in terms of convincing potential customers that they can do the job. This raises a challenge for the IS players to both compete on the main buying criteriaespecially risk and track recordand to layer on the additional appeal of having a strong impact on the incomes of IS workers. The challenge is to do all this without negatively affecting the cost position necessary to compete for contracts.
and branding dilemma facing both ISSPs and IS clients, who frequently will not want to advertise or broadcast that they are sending any kind of work out of a company or a given country.
Supply Constraints Recruiting, Employing and Training the real BoP

We have preliminarily defined IS in relation to who is employed, in order to delineate the impact of the activity in terms of increased income and other poverty-reducing dimensions.53 To that end, we have proposed an initial working definition of IS as BPO activities that provide formal employment or supplementary income to individuals with limited opportunity for sustainable employment. Practically, this will mean looking to hire people in areas with high unemployment, from a range of backgrounds (primary school through college graduate level), depending on the context and the alternative employment opportunities for that set of potential workers. In this context, recruiting, training, and retaining employees are challenges faced by all ISSPs, irrespective of the segment in which they operate. For an average BPO operating in Bangalore and hiring urban graduates who have alternative employment opportunities, training costs amount to up to $1,000 per worker and even so, attrition can still be as high as 40 percent, thereby eroding the cost competitiveness of a typical urban BPO54 (see Exhibit 5). Interestingly, rurally based ISSPs that hire rural university graduates (segments E and parts of F) often face lower training costs in addition to the lower salaries and lower attrition rates that are associated with rural communities. Indian-based eGramIT, for instance, reports training costs of only $500 per employee.
Navigating the Political Implications of Offshoring

Outsourcing, and in particular offshoring, have always been linked in the public imagination in the United States and Europe to job losses and job exports. This has led to strong public support for legislative changes to limit offshoring, exemplified by recently proposed legislation called the Creating American Jobs and Ending Offshoring Act.52 As a result, there is always the risk that positive public relations from IS could, with a certain interpretation, turn negative as related to job losses or exports. This issue complicates the positioning
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Exhibit 9: Kenya BPO Cost Variation
1000 1,000 750 800

Training Cost in US$ 583 583
600 400 200

114 200
540 100
500
0
High School from Disadvantaged Background Tertiary Education
40
per recruit than for a conventional BPO. In Nairobi, even the training of high school graduates from slum areas is associated with an additional approximately $500 cost per employee.57 And such workers would still have to perform lower-end BPO services because the training courses can simply not substitute for a university education of several years. While some of these costs can be offset by reduced attrition rates of rarely more than 5 percent, the momentum in the field will typically tend toward hiring the best-trained workers that can be found. These are usually easier to source and to qualify. As a result, ensuring that an ISSP is employing and retaining BoP employees can be complicated, and potentially more expensive than hiring better-educated workers, even if the salary differential theoretically makes it an economically attractive long-term option.
Source: Monitor analysis and field interviews with Kenyan BPO and IS provider and IS training organization55
Avoiding the Race to the Bottom

The low-value data outsourcing services offered by most ISSPs are in many ways a commoditized, and therefore highly price-sensitive, product. As a result, ISSPs providing these services can manage only a limited sustainable competitive advantage. In the markets where IS has taken off the fastest, such as India, it has done so not out of any social mission, but simply because rural BPOs can offer the best cost position, driven by low salaries and reduced attrition, for comparable quality. Success has simply been a matter of addressing one of the key buyer purchase criteria, namely low cost. However, this has the potential to quickly lead to a race to the bottom as people increasingly enter the market to compete, especially in the lower-value data services, solely based on cost in some regions where employees are willing to work for less. It would be conceivable that the outsourcing fieldgiven the relentless pressure to take out costscould find itself in a similar position as, say, the garment industry globally. It is imperative that IS, by providing income benefits to the poorer segments of the labor economy, does not create new class of digital sweatshops.
However, ISSPs operating in areas where there is a pool of individuals who are defined as BoP (e.g., segment D and parts of segments C and F) can face major obstacles linked to recruitment and training costs. Training and recruiting BoP employees who, for instance, live in slums or peri-urban areas and lack high school qualifications, involves search and training costs that can be much higher
29
Moreover, eGramIT pays employees average monthly wages of $110, 40 percent less than average wages in urban Indian BPO centers. Due to the lower cost of living in rural areas, this remains a very attractive salary. By recruiting highly skilled graduates who have few employment alternatives in their rural locations, eGramIT is able to reduce attrition to 4 percent.56 Still, mid-level management for rural centers often has to be recruited from urban areas because such positions require higher levels of education and, more importantly, prior experience in the BPO industry. Retaining such mid-level managers in rural areas is frequently challenging due to the lower standards of living associated with life outside major cities.
Accessing Infrastructure in Rural and Low-Employment Areas

Power, telecommunication, and to a lesser degree transport infrastructure are essential enablers for a competitive IS industry. One of the reasons that rural ISSPs in India have been able to compete with urban BPOs is that they are able to access power and telecom connectivity at costs that allow them to be competitive. Despite the recent installation of a new fiber optic cable, telecom costs in East Africa remain significantly higher than in other BPO destinations, a factor that directly affects their competitiveness, even in urban areas.58 Although there are a number of pilots in the pipeline, such as Kenyas Digital Villages project,59 many rural areas in East Africa have connectivity and power infrastructure challenges that affect the competitiveness of the IS industry and neutralize any potential salary cost difference. While there is a plethora of ISSPs based in rural areas in India, elsewhere rural IS activity has been limited to a small number of pilots. Another key challenge of operating IS in rural areas is employing skilled managers. In rural India, where there is a lack of highly skilled individuals, IS providers cite difficulty in finding middle managers willing to move from urban to rural areas. If the field is to scale up with the value proposition of lowcost, low-attrition, high-skill workers in rural areas, this constraint will need to be addressed.
A number of ISSPsinasmuch as they are typical small and medium enterprises (SMEs)also face typical SME challenges around securing investment that would allow them to scale and bid for large contracts.60 Investment funding and patient capital from impact investors who understand the social potential of IS could potentially allow ISSPs to invest in business development activities, additional facilities, and training and recruitment schemes to drive significant growth. And an increasing number of impact investors are focused on livelihood creation issues, coming out of their positive experience with microfinance. However, many impact investment funds are focusedas they are in Africaon the agriculture and clean tech sectors. In addition, many impact investors are set up using a private equity fund model, in which they typically do not invest in earlier-stage enterprises. Often, impact investors also have difficulty making the relatively smaller investments of below $5 million that many emerging ISSPs need.61
Identifying Investors
Existing BPO providers and individuals with BPO experience have catalyzed the IS space in India, but such expertise, and a related willingness to invest in ISSPs, is lacking in countries without an established BPO industry. Whether it is large BPOs, such as Paradigm Infotech, investing in rural ISSPs such as eGramIT, or organizations such as RuralShores that supply contracts and recruit management with BPO experience, there is a clear link between IS growth and investment and expertise transfer from the BPO sector.
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7. The Action Agenda
his analysis identifies a preliminary list of potential interventions that could address the challenges enumerated above and that could push IS forward. This longer list of 22 possible activities is outlined in a separate document, and is positioned not as a definitive set of answers, but as a starting point for thinking among various stakeholders who may want to consider how to help the field accelerate, both in revenue terms and in terms of social impact. The following broadbrush action agenda could contribute to increased activity and growth in the field, in terms of revenue, the number of players, and income increases for the poor or disadvantaged workers employed in ISSPs. The broad action agenda reflects many of the priorities established by industry participants in a convening of key stakeholders, held in Nairobi in December 2010. Before identifying the broad set of activities, we see four potential meta-routes to scale the field, within which many of these interventions could fall. Routes chosen will, as always, depend on which segments are prioritized for focus.
(a) Attract existing large BPO companies with recognized brand names (e.g., Wipro, Genpact, Tata Consultancy Services) to set up shop directly in a country and serve large international clients, then have an outside entity train large numbers of people to make them job ready, as the South African government did to support the development of its BPO sector. This variant would encourage large firms to employ people with limited employment opportunity as well as drive the emergence of local ISSPs. (b) Anchor the growth of the nascent field in local needs, in order to generate the anchor volumes, demand, and track record that are often required to succeed on bigger contracts later. While government is one natural potential source of demand for such work, especially in countries with little established BPO sector presence, such a route to scale should not depend solely on changes to procurement rules. Instead, the anchor demand will need to come from local private-sector actors in finance, telecoms and other transaction-intensive sectors. (c) Encourage the development of smaller firms with concentrated or distributed activity and enable them to liaise with larger BPO players, such as Paradigm Express, a Kenya-based ISSP affiliated with the much-larger Indian BPO company, Paradigm Infotech. This will reduce the need for a large, client-facing sales force and allow ISSPs to become a part of the portfolio of options for existing BPO providers.
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n Route 1: In markets with an existing strong

BPO presence, shape the natural evolution toward alternative sourcing options that are rural or urban using lower-income, lower-skill workers. In this route, the main driver will be cost economics, and two main tasks will be (a) ensuring it does not become a race to the bottom, and (b) supporting the inclusion of lowerincome strata in the workforces through training and recruitment.
n Route 2: In markets with less BPO presence,

start the IS field from scratch. This route can take three forms:
Five Priority Areas for Focus in the Coming 2-3 Years

The action agenda to catalyze the fields growth centers on five broad areas:
Training, Recruiting, and Engaging BoP Workers. This area is key to realizing the prom-
ise of engaging the poor and vulnerable in the field, and reaching below the easy-to-find, already-trained employees who typically have other employment options, at least in urban areas. Here, the agenda must focus on efficient recruitment and training models that can make BoP workers part of the IS workforce, and do so in a cost-effective way. This is particularly important for both (a) existing ISSPs, which already target this segment but for whom this is a significant cost, and (b) existing large BPO providers, which may want to employ this segment of workers if all costs can be made neutral to their traditional model (as seen in South Africa).
2
Creating a Shared Platform for the IS Field. The various stakeholders who are, or will
become, active in the field will need a central point to share information, market research findings, lessons and best practices. This platform can also be leveraged to define minimum measurable standards certification around fair labor and recruitment, but also around quality. It can also represent the ISSPs in important discussions with government and clients around impact, incentives, infrastructure and procurement requirements. The platform could encourage diversification from highly commoditized services toward adding higher-value and location-specific services. It could serve as an intermediary for investors and investees, and could also help underwrite the shared costs of introducing new BPO destinations. Lastly, it could more generally assist ISSPs in building the IS brand, raising awareness and addressing perceived risks.
Creating Means of Connecting Small ISSPs with Established BPOs. Especially in
emerging BPO countries without large, established sectors in place, anchor demand is expected to come, in part, from existing BPOs that are likelier to embrace an emerging country than are end clients in wealthier economies and markets via the subcontractor model. As this stands, it will be imperative to create a means for smaller ISSPs to access these bigger BPOs and offer a way for them to diversify their sourcing base across regions, cost positions and tasks. Such an initiative would inevitably need to address bringing smaller ISSPs, whether intermediary, subcontractor, partner or contract supplier, in line with the business requirements of the bigger established BPOs. Encouraging BPOs to set up shop in emerging BPO destinations is another means of spurring IS growth in these markets.
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4 5
Introducing ISSPs to Larger Pools of Demand. This task could conceivably be under-
taken by the shared industry platform articulated in item two above. Alternately, other measures could create ways to directly raise the profile of the IS field as a viable option for large buyers. More research on end-client demand will be required to inform these efforts, but there is a definite opportunity to convene larger buyers, introduce them to the IS concept and to ISSPs, and potentially minimize the risk of their engagement of ISSPs.
Unlocking Domestic Anchor Demand. While government contracts cannot be a
panacea for the nascent field, further exploration of how to unlock the potential of government and e-government as an anchor client is warranted. In addition, any initiative in this area should focus equally on building domestic anchor demand among domestic privatesector clients for data and some voice services especially given stated procurement constraints and requirements. This may take the form of spinning off of local existing captives (e.g., for mobile operators), or other means of leveraging the local economy to provide contracts to ISSPs. Governments can encourage domestic anchor demand by enacting policies and incentives such as a minimum domestic seat requirement for any large contract outsourced to another party, or by enacting enabling procurement policies.
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Appendix: List of Interviewees

Experts
John Arnold Fairtrade UK Fatgiyah Bardien South Africa Business Trust Raju Bhavnagar BPO and Government Relations, NASSCOM Jonathan Campaigne PRIDE Africa Guy Cogan BPO Specialist, Monitor Group Michael Corbett International Association of Outsourcing Professionals Sucharita Eashwar NASSCOM, South India Jessica Freireich Impact Investment author, Monitor Group Todd Furniss Plum Tree Partners Emily Gichuki Safaricom
Cynthia Kahumbura Kenya BPO and Contact Society Eunice Kariuki Kenya ICT Board Stephen King Omidyar Network Bulelwa Koyana Interim CEO. BPeSA David Michelson BPO Specialist, Monitor Group William Miracky BPO Specialist, Monitor Group Suparno Moitra NASSCOM, East India Karim Morsli Genesis M.O. Daniel Mwanzau World Vision Ossama Nazmi Xceed Contact Center Dr. Bitange Ndemo Permanent Secretary, Kenya Ministry of Information and Communication Thu Hue Nguyen Vietnet ICT Michael Nkonu Fair Trade Africa Nicholas Nganga Horizon Contact Center Martin Njorange Horizon Contact Center Gilda Odera BPO/ITES Working Group at the Office of the Prime Minister Cyrus Ongaki World Vision Nilu Paul Strat-etech Consulting
Ed Glotzbach TPI Ed Granger-Happ NetHope Richard Heeks Professor of Development Informatics, Institute for Development Policy and Management, Manchester University Arun Jethmalani Managing Director, ValueNotes Jonty Joffe BPO Specialist, Monitor Group Stephen Jordan US Chamber of Commerce, Business Civic Leadership Center
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Tom Rausch PRIDE Africa Jeff Rich PlumTree Partners Pumela Salela World Bank Jan Schwier BPO Specialist, Monitor Group Meera Shenoy EGMM Tom Siambi ACWICT Randeep Sudan Global ICT Dept, World Bank Mac Steele author, paper on economic effects of offshoring David Stewart Horizon Contact Center Dickson Tibenkana Top Link Solutions Alhassan Umar ITES Ghana Peres Were BPO/ITES Working Group, Kenyan Office of the Prime Minister Brian Whittaker SA Business Trust
Milind Godbole Aditya Birla Minacs Mike Wells Merchants Dan Monahan Teradata Pradeep Mukherji Avasant Moses Mwaura Enablis Anish Nanavaty WNS Sid Pai TPI India Venguswamy Ramaswamy Tata Consultancy Services Anand Ramesh Everest Research Institute S.S. Rawat Department for Rural Development, Andhra Pradesh Gabriel Rozman Global Delivery Network at Tata Consultancy Services (TCS) Melinda Gonzalez Sandlin Benprise Russ Sandlin Benprise Minakshi Sarkar Ujjivan Eric Simonson Everest Research Institute R.U. Srinivas Hexaware Technologies Rein van der Horst Genpact, SA Joan Wekesa Enablis Entrepreneurial Network
35
Buyers and Buyers Representatives

Vinod Bang Mahindra Satyam Sanjeev Bhatia Wipro Jay Desai Northern Trust Denny McGuire TPI Hital Muraj Cisco
IS Organizations
Tom Abell Accenture Development Partnerships Mark Arnold MSK Global David Ashworth Samasource Dipak Basu Anudip Foundation Radha Basu Anudip Foundation Taddy Blecher Invincible Outsourcing Leila Chirayath Samasource Michael Chertok Digital Divide Data Dhiraj Dholwani B2R Technologies Pierre D'Silva eGramIT Nathan Eagle txteagle Bryan Forst Uran Software
Dr. Sridhar Mitta NextWealth Stephen Muthee Daproim Nicholas Nesbitt KenCall Catherine Nyaga Horizon Pavitra V.S. Vindhya e-Infomedia Sriram Raghavan Comat Technologies Govinda Reddy RuralShores Geoff Ridden G7 Systems Biplab Saha Source for Change Priyesh Shah Express Automation Munjal Shah Ken-Tech Data Lakshmanan Manickam Ken-Tech Data Monica Thige Ken-Tech Data Olive Muigua Ken-Tech Data Srinivas Varma eGramIT Manoj Vasudevan SourcePilani Mahesh Venkateswaran Usha Martin Rural Services Verghese Jacob Byrraju Foundation 25 Employee interviews across Adept, Daproim, Ken-Tech Data, RuralShores, eGramIT, Anudip Foundation and Uran Software
Diana Muthee Gitiba Adept Technologies Simon Healy OrphanIT Venkatesh Iyer B2R Technologies Jessica Long ADP Saloni Malhotra DesiCrew Mfanu Mfayela Bizworks Heidi Minx Built on Respect
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Endnotes
1 NASSCOM Strategic Review 2010 2 For the purposes of this paper business process outsourcing (BPO) will refer to all outsourcing activities, thus including both onshoring and offshoring. 3 The interviewees work in Armenia, Cambodia, Egypt, Ghana, India, Kenya, Kuwait, Laos, Nepal, Philippines, South Africa, the United Kingdom, the United States and Vietnam. 4 The Department of Trade and Industries (2005) Sector Development Strategy, BPO&O and NASSCOM Strategic Review (2008, 2007) and Business Process Association of Philippines (2008) via BPO Stakeholder Report from the SA Business Trust (2009). 5 NASSCOM India IT-BPO Strategy Review, 2010. 6 It should be noted that while the rate of United-States-based business process outsourcing (BPO) is declining, it is still by far the single biggest country in terms of overall BPO jobs. 7 Kavur J. Canadian outsourcing will grow in 2010, says IDC. ComputerWorld Canada. January 2010. Available at: http://www. itworldcanada.com/news/canadianoutsourcing-will-grow-in-2010-saysidc/139814. Accessed November 11, 2010. Sourcingline.com. Philippines BPO sector attains 50 percent target, revenues touch USD 4.7 billion. July 18, 2010. Available at: http://www.sourcingline.com/resources/philippines-bpo-sector-attains-50-target-revenuestouch-47-billion. Accessed November 11, 2010. Reyes, MA. RPs IT BPO revenues seen to reach USD 25 billion by 2016. The Philippines Star. October 27, 2010. Available at: http://www.philstar.com/Article.aspx?articleId=624452&publicationSubCategoryId=66. Accessed November, 11, 2010. 8 Before the 2008 recession, the BPO industry in the Philippines grew at an annual rate of 40 percent, the one in South Africas grew at 33 percent, and the one in Mexico grew 25 percent, notes the article Philippines catches recovery wave, written by Jennee Grace U Rubrico and published March 9, 2010 in the Asia Times. Available at: http://www. atimes.com/atimes/Southeast_Asia/LC09Ae01 .html. Accessed November 19, 2010. Everest Research Institute. Ready to Compete - South Africa's BPO Capabilities in the Financial Services Sector. December 2008. Available at: http://www.everestresearchinstitute.com/Product/10531. Accessed April 18, 2011. Study by A T Kearny cited in the article BPO market expands written by Matthew Malinowski and published May 22, 2009 at www.bnsamericas.com. Available at: http://www.bnamericas.com/news/ technology/BPO_market_expands_25*_in_ 2008. Accessed November 19, 2010. 9 The BPO Partnership. Developing the BPO Sector: Report to Stakeholders. November 2009. Available at: http://www. btrust.org.za/index.php?id=157. Accessed November 24, 2010. 10 Kenya ICT Board and McKinsey & Company. Seizing the Prize Driving BPO Sector Growth in Kenya. March 2009. 11 Government of South Africa. Ready to Work: South Africas Monyetla Work Readiness Programme for Business Process Outsourcing. 2009 12 Republic of Kenya. Vision 2030A Globally Competitive and Prosperous Kenya. October 2007. Available at: www.safaricomfoundation.org/fileadmin/template/main/downloads/ Kenya_VISION_2010-final_report-October_ 2007.pdf. Accessed November 23, 2010. 13 Monitor analysis and interviews.
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14 For instance, DDD tracks multiple other indicators of impact beyond just income increases, including self-confidence and family income. 15 The National Rural Employment Guarantee Act (NREGA) was introduced in India in 2006 and stipulates that every poor, rural household has a right to 100 days of paid employment per fiscal year, if the adult members of the household volunteer to do unskilled, manual labor. Information available at: http://india.gov.in/sectors/rural/national_rural. php. Accessed November 18, 2010. 16 Note that this is not a map of buyers and clients for the services, who will have requirements that break down along different lines (e.g., by voice versus data or by other various buyer purchase criteria). 17 The World Bank divided economies based on gross national income (GNI) per capita data and identified the following groups: lowincome countries with a GNI per capita of $995 or less; lower-middle-income countries with a GNI per capita of $996 to $3,945; upper-middle income-countries with a GNI per capita of $3,946 to $12,195; and highincome countries that have a GNI per capita of $12,196 and higher. Available at: http://data.worldbank.org/about/countryclassifications. Accessed November 17, 2010.
23 Cayuse Technology website. Available at: www.cayusetechnologies.com. Accessed November 14, 2010. 24 Klasen S. Surviving Unemployment Without State Support: Unemployment and Household Formation in South Africa. Journal of African Economies. May 14, 2008. Available at: http://jae.oxfordjournals.org/content/18/1/1. full.pdf+html. Accessed April 18, 2011. 25 Monitor interviews and Genpact website. Available at: www.genpact.com/home/ aboutgenpact/our-history.aspx. Accesssed November 17, 2010. 26 Per Table 19 in the ILO report found at http://www.ilo.org/wcmsp5/groups/public/--asia/---ro-bangkok/---sro-new_delhi/documents/publication/wcms_123408.pdf, this figure is 54.7 percent for female youth graduates in rural areas. 27 Per the New York Times article at http://www. nytimes.com/2009/11/13/world/asia/13india. html, Bagapallis population is about 170,000 and it is situated 100 kilometers north of Bangalore. 28 This comes from 2009 data from the CIA World Factbook. 29 The current market estimate is heavily skewed by China, which accounts for almost $900 million and about 50 percent of the market in segment C with its program to employ high school graduates in BPO jobs. 30 Note that this forecast is based on an assumption that the market will evolve in this direction in the base case, with only moderate involvement and priming from government, philanthropic players and others. 31 All of the IS market sizing data are based on the Monitor market sizing model. In terms of job creation expectations, as a comparative perspective, it is worth noting that the average level of employment in a Kenya Stock Exchange listed company is about 1,800 to 2,000 people. The average level of employment of a Forbes 40 Indian company in 2007 was about 25,000. Once-state-owned firms are excluded. These figures come from Monitor analysis.
18 We take this view of alternative approaches because it is always a question of impact versus what alternative? and in some cases the alternative is subsistence farming in rural areas. In others, however, the alternative is another BPO job if in the setting is an established BPO country in an area where this is supported. 19 This is based on the size of the BPO industry. 20 Monitor market sizing analysis. Available at: www.ft.com/cms/s/0/1831a65c-c5a811df-ab48-00144feab49a.html. Accessed November 22, 2010. 21 The segmentation frame and individual segments were based on Monitor market analysis. 22 2010, ICAI
38
32 Note that Segment C in 2010 is skewed by China, which accounts for $900 million of the segment. Potential IS refers to the addressable IS market. 33 This assumes a 2Mbps radio connection on Airtel and Reliance. The relative cost is higher for IS in rural areas due to small center sizes. 34 Lower training costs are driven by lower trainer salaries and lower rent, but roughly equivalent levels of employee and trainee education, given the current educational profile of most rural BPO employees in India. 35 Further interviews to validate and test this initial finding will be conducted in the next phase of work. 36 Accenture Development Partners. BPO Tutorial and Global BPO Findings and Strategies. March 2010. 37 According to Monitor market sizing analysis, this increase is explained by two factors. First, the voice component is currently still very low, thus representing an untapped market for IS. Second, many African countries have language capabilities that suit the European market, which they can leverage to provide cheap voice services to Europe. 38 This vertical split is based on Indian BPO export numbers; *BFSI = Banking Financial Services Insurance; ** T&T Transport & Travel; MPE Media Publishing & Entertainment; Source: IDC, NASSCOM IT BPO Strategy Review. 39 This is based on Monitor analysis of the NASSCOM Strategic Review. 40 Anju M et al. Digital Divide Data. MIT Sloan School of Management. September 2009. Note that websites consulted here, on November 18, 2010, include info on Samasource (http://www.samasource.org/ and http://memeburn.com/2010/08/ samasource-ceo-on-bridging-the-digitaldivide-and-creating-a-global-meritocracy); RuralShores (http://ruralshores.com); eGramIT (http://www.egramit.com); and txteagle (http://www.txteagle.com).
41 Monitor analysis in collaboration with txteagle. Employee research was not undertaken with txteagle hence no employee profile 42 Monitor analysis here was done in collaboration with Samasource and its service providers. 43 As of November 2010, these countries include Kenya, India, Pakistan, Haiti and Uganda. 44 According to interviews, service provider employees earn an average of $180 per month and would otherwise earn about $124 per month. 45 Monitor analysis in collaboration with RuralShores. 46 Monitor analysis in collaboration with eGramIT. 47 Monitor analysis in collaboration with DDD. 48 All models including graphics are the result of Monitor analysis in collaboration with the service providers DDD, eGramIT, RuralShores, Samasource, and txteagle. 49 This customer grievance service was specifically done for Indias National Rural Employment Guarantee (NREGA) Program. 50 An example of this is found in Kenya, where large government digitization contracts have gone to large Indian BPO firms. The recent structural changes to government in Kenya may provide an opportunity to change this situation. 51 This would be analogous to the current use of fair trade labeling for certain food and clothing products, which indicate that the commodity in question, such as coffee, was produced in ways that were not exploitative and that provided good incomes for participating workers and growers. 52 Lison J. US Senate details anti-offshoring Bill. Allbusiness.com. September 30, 2010. Available at: http://www.allbusiness.com/ government/government-bodies-officeslegislative/15142309-1.html. Accessed November 8, 2010.
39
53 For instance, DDD tracks multiple other indicators of impact beyond just income increases, including self-confidence and family income. 54 Monitor interview research. 55 Note that the field of training less-qualified individuals for IS tasks is only beginning to be explored. These cost figures are therefore only rough indications based on training an individual for basic IS tasks. Also note that the category of tertiary education includes about 25 percent of high school graduates and 75 percent of university and college graduates. 56 Monitor interview research. 57 Monitor interviews and research. As a point of comparison, the Monyetla program in South Africa funds the training of disadvantaged high school graduates over a period of four months at various BPO providers. The associated costs here are roughly $2,100 per employee. These figures come from the South Africa government paper Ready to Work: South Africas Monyetla Work Readiness Programme for Business Process Outsourcing, which was published in 2009. 58 Interview with ICT Board in Kenya, September 2010.
60 G20 countries pledged $528 million at the recent summit in Seoul, South Korea to create an SME Finance Innovations Fund to address the missing middle financing challenge. The fund will initially support winners of the G20 SME Finance Challenge funded by the Rockefeller Foundation, but will also support other successful innovative SME models. Information available at: http:// socialfinance.ca/blog/post/a-close-look-atwho-won-the-g20-ashoka-changemakerssme-finance-challenge. Accessed November 18, 2010. 61 According to the Global Impact Investing Network (GIIN), only four of its current members focused on Africa will typically consider deal sizes below $5 million each.
59 The Digital Villages project is a government and private-sector initiative, designed to connect both rural and urban areas in Kenya to accelerate the growth of ICT. Every constituency represented in Parliament will get a minimum of eight work stations, either personal computers or monitors hooked up to personal computers, grouped within a 15kilometer radius. The first Digital Villages are expected to go online by the end of June 2011. The Ministry of Youth Affairs' Youth Enterprise Fund (YEF) is financing this project.
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For more information, please contact: Mike Kubzansky Partner Monitor Group mkubzansky@monitor.com James Nyoro Managing Director The Rockefeller Foundation impactsourcing@rockfound.org
www.mim.monitor.com www.monitor.com
www.rockefellerfoundation.org
Job Creation Through Building the Field of Impact Sourcing. Copyright 2011 Monitor Company Group, L.P.

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Rockefeller Monitor Impact Sourcing

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Job Creation Through Building the Field of Impact Sourcing

WORKING PAPER JUNE 2011

1. Foreword from The Rockefeller Foundation 2. Framing

3. Industry Context 4. Defining, Sizing and Mapping Impact Sourcing

5. Case Studies and Impact Sourcing Models

6. Key Challenges for the Field

7. The Action Agenda

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

USA India Canada Philippines China

47.60 18.40 15.00 9.40 6.30

1,190,000 768,000 375,000 500,000 158,000

-2% 15% 3.5% 20% 20%

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

n The increasing reach and decreasing cost of

n There is continuing pressure on corporations

n There is increasing demand for the digitization

4. Defining, Sizing and Mapping Impact Sourcing

n Country income levels, based on the World

Mapping the IS Field

n For high- and upper-middle-income countries,

Exhibit 2: IS Supply Segmentation

Established BPO Industry Low/Lower/Middle Income County

n For low- and lower-middle-income countries,

n For low- and lower-middle-income countries,

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

Low/ Lower/ Middle Income County

Source: Monitor analysis

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry

Low/ Lower/ Middle Income County

Source: Monitor analysis

Low/ Lower/ Middle Income County

Source: Monitor analysis

Low/ Lower/ Middle Income County

Source: Monitor analysis

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

Low/ Lower/ Middle Income County

Source: Monitor analysis

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

Upper-Middle-Income Country Established BPO Industry Emerging BPO Industry

Low/ Lower/ Middle Income County

Source: Monitor analysis

Sizing the IS Field

The Business Case for IS

Global IS Sizing Assumptions

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

Exhibit 3: 2010 IS Market Size by Segment and Percent of IS Market Size32

University/ College Graduate

Direct Jobs: ~32,300 Percent of Total BPO: 1.1%

B$0.9B, 21% C$2B, 44% E$0.2B, 6%

Low/ Lower/ Middle Income County

Established BPO Industry

Source: Monitor market sizing model

Exhibit 4: 2015 IS Market Size by Segment and Percent of IS Market Size

JOB CREATION THROUGH BUILDING THE FIELD OF IMPACT SOURCING

Direct Jobs: ~32,600 Percent of Total BPO: 0.8%

Low/ Lower/ Middle Income County

Established BPO Industry