Location Risk Monitoring

How Viable is a Colossal Workforce for the Outsourcing Sector in the Long Run?

Written by Sudeep Chakraborty

The outsourcing industry has always thrived on the availability of a low-cost workforce and the numbers in terms of adequate workforce have always played a vital role in making any country or location an attractive outsourcing destination. The outsourcing giants, China and India, have long been benefited with the presence of their enormous IT-BPO labor pool of more than 8 million and 5 million respectively. Many other outsourcing destinations such as Brazil and Philippines are also utilizing the advantage of large labor pools that they possess. Also, the risk of scalability associated with any location for outsourcing goes down with the increasing labor pool as it gives the clients a relief that there wouldn’t be any shortage of employees for the processes or services which are outsourced to that particular location. Additionally, higher availability of a workforce also ensures the continuance of low labor cost as in many locations higher labor costs are primarily driven by the shortage of adequate workforce.

Artificial Intelligence is Reshaping the Outsourcing Industry

Today, with disruptive innovation and technology across all industries, the outsourcing industry has also shifted towards new ways and tools to cut costs. One such broadly accepted tool is ‘automation’, which not only cuts costs but also improves efficiency. With respect to the IT-BPO sector, automation is a way to streamline a process. It uses technology based on the concept of software robots and artificial intelligence (AI) and is commonly known as robotic process automation (or RPA). It promises unmatched levels of competence and quality above conventional performance. Various rule-based tasks in the fields of information technology and customer service could be carried out by the robotic software agents. Data entry, software testing, and answering to emails and phone calls are some examples where RPA is being used. Numerous repetitive tasks which are now consigned to business process outsourcing are getting competition from RPA. The demand for accuracy and efficiency with cost savings has led to increasing adoption and application of RPA.

The clients can no longer rely only on the labor cost advantage and they demand for more and more automation, whether it’s IT services or BPO. In 2013, it was reported that IPsoft’s Eliza, a “virtual service-desk employee”, has replaced Tata Consulting Services Ltd. for one of the IPsoft’s customers in the media industry. Today, IPsoft has ‘Amelia’, a comprehensive AI platform that provides a dialog-driven interface that is meant to figure out the intent of the person she is interacting with, and then help the person achieve their desired goal. This shows the threat is real – low cost labor in the outsourcing industry is being challenged by the automation. Watson Engagement Advisor (WEA) by IBM and KAI by Kasisto are few other examples.

How AI Could Impact a Country’s Economy

As already pointed out in one of our previous blogs “Artificial Intelligence – Will it Affect or Improve Jobs?”, automation and AI don’t guarantee that they will create more jobs as compared to the number of jobs they will replace; even these newly created jobs will require better education and re-skilling. A recent report by HfS Research stated that India may lose around 750,000 low-skilled jobs in the next five years, with the IT-BPO sector stirring towards delivering “more for less” by using automation and artificial intelligence. However, it also says that automation will create about 300,000 mid-to-high skill jobs by 2022, but overall the loss is more. Likewise, a report by Forrester Research stated that 16% of US jobs will be replaced by AI, machine learning, and automation, while the equivalent of 9% jobs will be created – again a net loss of 7% by 2025.

If major outsourcing destinations which boast of their low cost mammoth workforce start losing their advantage due to automation and artificial intelligence and are forced with large scale layoffs, it would become a serious cause of concern. The enormous workforce which was once a factor attributing to the low risk of a country may become a fear factor, as rising layoffs and unemployment would affect the overall economy and investor confidence, and in turn reduce the attractiveness of the country as an outsourcing destination. To address the situation, immense dependence on people, especially for low-skilled jobs, should be reduced gradually so that the elimination of jobs due to AI and other automation technologies would also be less and the overall impact can be balanced. Else, few years from now, these large workforces would prove to be a high risk factor rather than a positive aspect.

That being said, in order to minimize the risk associated with people scalability, it becomes very important to closely monitor how automation and artificial intelligence are influencing the outsourcing industry and how the top outsourcing destinations and suppliers are responding to it.

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