Ethical considerations in outsourcing: navigating cost efficiency with social responsibility

What is the transformative potential of ethical outsourcing in fostering a sustainable global future?

Outsourcing, a prevalent business strategy in the global economy, offers significant cost advantages. However, it also presents ethical challenges, particularly in balancing cost savings with social responsibility – and companies that engage in outsourcing activities have been criticized for managing this balance inadequately.

Nevertheless, outsourcing – when ethically managed – can contribute positively to socioeconomic development, aligning cost efficiency with social responsibility.

The ethical landscape of outsourcing

Using outsourcing to delegate business processes to external providers, often in different countries, is generally driven by cost reduction. This strategy, however, raises several ethical considerations and concerns – each requiring unique mitigation strategies.[1]

Outsourcing and socio-economic development

Outsourcing to countries like South Africa, Ethiopia, and the Philippines can stimulate their developing economies by creating jobs, fostering skills development, and diversifying economic activities. However, concerns about long-term dependency and uneven development are valid.[2]

Ethical outsourcing should aim for a balance, contributing to sustainable growth in these economies, which can be achieved in the following ways:

• Job creation: Outsourcing can lead to significant job creation in developing countries, providing employment opportunities to local communities. This not reduces unemployment rates but also contributes to the overall economic stability of the region.[3]
• Sustainable income: Outsourcing can provide a steady and reliable source of income for individuals in developing countries. Additionally, companies bene fit from this arrangement by tapping into a motivated and increasingly skilled workforce, while saving costs on salaries. For example, in South Africa, the national minimum wage amounts to approximately €212.74 per month, with call center agents earning a monthly salary of approximately €385.57.[4]
• Skills development: Outsourcing often involves the transfer of knowledge and Worldskills, contributing to the upskilling of the workforce in these regions. This skill transfer can lead to the development of a more competent and competitive local workforce, capable of contributing to various sectors of the economy.[5]
• Economic diversification: By introducing new industries and business practices, outsourcing can diversify the economic base of the host countries. This diversification helps in reducing the dependency on a single economic sector, such as mineral extraction and agriculture, and thus promoting a more resilient economy.[6]

The impact of outsourcing on Eastern European development

While much of the outsourcing conversation focuses on Asia and Africa, Eastern Europe presents a unique opportunity for ethical outsourcing. Countries like Ukraine, Romania, Poland, and Bulgaria – with their growing IT and service sectors – offer a blend of skilled labor, cultural proximity to Western Europe, and cost advantages.

Engaging in ethical outsourcing can significantly stimulate socioeconomic development through technology and knowledge transfer. This, in turn, boosts local economies, creates high-value jobs, and leverages cultural and geographical proximity for smoother business practices.

Balancing cost and responsibility: best practices

Many regions, including Eastern Europe, offer attractive salary structures when considering outsourcing skilled labor, particularly in sectors like contact centers.

In Hungary, for example, the national minimum wage equates to €700.82 per month, with contact center agents earning an estimated €921 per month. Even more cost-effective is Albania, with the national minimum wage amounting to a monthly salary of €364, and agents earning approximately €478 per month.[7]

To maintain ethical integrity while outsourcing, businesses can adopt numerous strategies:[8]

• Fair labor practices: Ensuring living wages and safe working conditions is fundamental to ethical outsourcing.
• Community investment: Contributing to local infrastructure and community programs can offset the impacts of outsourcing.
• Long-term partnerships: Focusing on sustainable relationships rather than short-term gains fosters a more ethical approach.
• Adherence to international standards: Following global norms and obtaining relevant certifications can guide companies in maintaining ethical practices.

Case studies

Several companies have successfully balanced cost efficiency with social responsibility in outsourcing.

A strong example of this is Digital Divide Data (DDD), which is a social enterprise that offers outsourcing services like data entry and digitization. DDD hires individuals from disadvantaged backgrounds, providing them with training and employment opportunities in Cambodia, Laos, and Kenya.

In Kibera, one of the largest slums in Nairobi, poverty affects around 170,000 residents, who experience limited opportunities and high unemployment rates, especially for women. In 2017, DDD collaborated with Amazon Web Services and Intel to establish the Cloud Center of Excellence in Nairobi, aiming to impart technology skills to young individuals from Kibera and other underserved areas of the city. Over one-third of the initial class comprised women, with the majority having no prior computer experience.[9]

This example presents a model that can be effectively applied to Poland and other Eastern European countries, where there is significant opportunity for similar initiatives. Like in Nairobi, parts of Eastern Europe, despite being more developed, still face challenges like unemployment and skill gaps. Adopting DDD’s approach of providing training and employment opportunities in fields like data entry and digitization could empower local communities in these regions, fostering socioeconomic growth and bridging the digital divide.

Ending on responsibility: ethical outsourcing triumphs

Outsourcing can be both cost-effective and socially responsible. By adopting ethical practices, companies can contribute to global socio-economic growth, driving positive change in developing countries. The key lies in embracing long-term partnerships, transparent communication, and a commitment to international norms.

Businesses are encouraged to adopt these practices to ensure a more equitable and sustainable future. As businesses navigate the delicate balance between cost and responsibility, they have the opportunity to not only enhance their bottom line but also be catalysts for positive change on a global scale.

For businesses committed to ethical outsourcing, GBS.World provides an essential resource: a database of vetted and reputable outsourcing providers with delivery sites in developing locations. Utilizing GBS.World enables companies to confidently partner with organizations that uphold their values of social responsibility and sustainable development.

Author: Mark Angus, CEO of market research consultancy, Genesis Global Business Services and Founding Partner of The World Source Marketplace for Global Business Services (GBS.World)

^{[1] Addressing Ethical Concerns in BPO: Ensuring Fair Treatment of Workers}

^{[2] SageJournals: Outsourcing and the Risks of Dependent Autonomyonly}

^{[3] How Does Outsourcing Help Developing Countries?}

^{[4] Genesis GBS | GBS.World}

^{[5] Outsourcing Offshore: Changing Lives in Developing Countries}

^{[6] Benefits Of Outsourcing to Host Country}

^{[7] Genesis GBS | GBS.World}

^{[8] Ethical Outsourcing: The Key to Sustainable Business Growth}

^{[9] Digital Divide Data: Our mission is to transform lives}

This article comes from magazine:
FOCUS ON Business #15 March-April (2/2024)