Tag: outsourcing

There is a bourgeoning trade in outsourcing, with many businesses built around it. But there are fears that this otherwise booming industry is shockingly harmful to Nigeria’s fragile economy, reports Ibrahim Apekhade Yusuf

LIKE most new concepts, the term ‘outsourcing’ literally crept into our lexicon recently and has since become a new fad, or if you may, a corporate culture of some sort.

Outsourcing demystified

Outsourcing is the process by which companies and organisations contract out all or some aspects of their services to third parties.

Several related terms have emerged to refer to various aspects of the complex relationship between economic organisations or networks, such as nearshoring, crowdsourcing, multisourcing and strategic outsourcing.

Shedding more light, Mr. Ade Awonaike, an executive member of the Outsourcing Professionals Association of Nigeria (AOPN), which is the umbrella body of outsourcing practitioners, said contracting is a totally deferent phenomenon from management practice of outsourcing.

A strong proponent of outsourcing, Awonaike said: “In outsourcing, your engagement with an organisation is not fixed, even though the outsourcing company engages you fully as their staff, they will attach you to a client and when you are with a client and the client needs to downsize, you will not lose your job, the client will only have to send you back to your outsourcing company, who is your employer and with whom as an outsourcing staff, you enjoy all the benefits that the staff enjoy.”

Outsourcing Professionals Association of Nigeria was registered in 2009 and is the only duly recognised association of outsourcers in Nigeria and is affiliated to the International Association of Outsourcing Professionals (IAOP), which is a US-based organisation.

Reasons for outsourcing

Companies outsource to avoid certain types of costs. They outsource the non-core activities. Among the reasons companies elect to outsource include the avoidance of regulations, high taxes, high energy costs, and costs associated with defined benefits in labour-union contracts and taxes for government-mandated benefits.

Perceived or actual gross margin in the short-run incentivises a company to outsource. With reduced short-run costs, executive management sees the opportunity for short-run profits, while the income growth of the consumer base is strained. This motivates companies to outsource for lower labour costs. However, the company may or may not incur unexpected costs to train these overseas workers. Lower regulatory costs are an addition to companies saving money when outsourcing.

Businesses increasingly outsourced to suppliers outside their own country are sometimes referred to as offshoring or offshore outsourcing.

Experience abroad

On comparative costs, a U.S. employer typically incurs higher defined benefit costs associated with taxes to account for social security, medicare, safety protection (OSHA regulations) and FICA taxes etc. than in other countries.

Benefits of outsourcing

Outsourcing can offer greater budget flexibility and control. Outsourcing lets organisations pay for only the services they need, when they need them. It also reduces the need to hire and train specialised staff, brings in fresh engineering expertise, and reduces capital and operating expenses.

According to Wikipedia, outsourcing became a globalised phenomenon following the growth of groups of people using online technologies to use outsourcing as a way to build a viable service delivery business that can be run from virtually anywhere in the world.

Expatiating, Wikipedia noted that; “The preferential contract rates that can be obtained by temporarily employing experts in specific areas to deliver elements of a project purely online means that there is a growing number of small businesses that operate entirely online using offshore contractors to deliver the work before repackaging it to deliver to the end user.”

One common area where this business model thrives is in providing website creation, analysis and marketing services. All elements can be done remotely and delivered digitally, and service providers can leverage the scale and economy of outsourcing to deliver high-value services at reduced end-customer prices.

Awonaike also shares the same sentiments. According to him, there are enormous benefits to be derived from outsourcing, whether in terms of saving running costs, downtime, among others.

Mr. David Onu, an ICT expert, is on the same page with Awonaike.

To him, outsourcing has the potential to generate over 500,000 jobs in Nigeria within a very short time if fully embraced by public and private companies.

Outsourcing, Onu recalled, “Generated over 20milllion jobs in India in just a few years and could also solve the problem of unemployment in Nigeria if the country bought into it.”

Expatiating, he said: “outsourcing has been discovered as the fastest way to create demand-driven jobs in the emerging economies all over the world.”

He said most Nigerian public and private companies would have their annual revenues increased if they contract out some of their non-core functions, like complaint centre, to outsourcing companies.

Onu, who is the CEO of an Abuja based IT/outsourcing company, Interranetworks, said most companies do not maintain a point of interaction with their customers, adding that this often makes them not to retain their customers for a long time.

He said his company which was set up just two years ago, already had a staff strength of over 200, adding that many are likely to join before the end of the year.

“Outsourcing industry has been discovered as the fastest way to create jobs in the world, especially where unemployment is the problem. In India alone this industry generated over 20million jobs in just few years. In Nigeria, conservatively, it could generate over 500,000 jobs within a very short time if fully embraced by all—the government and the private sector.

“Everyday, consumers complain about one thing or the other from their service providers without getting appropriate redress. This often makes many consumers to either sue or leave their service providers in protest. This is because most companies do not bother to set up a point of interaction between them and their customers. But what they don’t know is that instead of losing customers they can simply outsource this non-core duty to an outside company and the relationship between them and their customers would be maintained through this call centre interaction,” the Interranetworks CEO said.

Adverse effect on the economy

According to analysts, outsourcing which is more a global phenomenon is manifesting all its ugliness in Nigeria, and is worsening the already precarious unemployment challenge in the country.

In the view of Mr. Stanley Okeke, a legal practitioner, “When companies offshore products and services, those jobs may leave the home country for foreign countries at the expense of the wealth-producing sectors, just as outsourcing may increase the risk of leakage and reduce confidentiality, as well as introduce additional privacy and security concerns.”

Besides, he said, companies may make short-run profits from cheaper overseas labour and currency mainly in wealth-consuming sectors at the long-run expense of an economy’s wealth-producing sectors, thus straining the home country’s tax base, income growth, and increasing the debt burden.

Investigation by The Nation revealed that not much was known about how Nigerian workers in the employ of outsourcing firms were treated until the recent unprovoked controversial sacking of 3000 workers in the Call Centre Service of Airtel Nigeria recently.

The Nation findings showed that the arbitrary termination of employment of workers recruited to man the Call Centres by Spanco Channel BPO and Tech Mahindra, two Indian firms, gave useful insight on the quality of existing labour relations in many organisations in the country.

That most of these companies engage in sharp labour practices that they dare not contemplate in their home countries, brings to the fore their disdain for Nigeria.

It was learnt that Airtel initially disowned the disengaged workers, claiming that they were ‘agency employees’ with expired contracts.

This, according to analysts, goes a long way to demonstrate how poorly workers recruited under such an arrangement, who labour daily to offer services to the establishment, are treated.

Media reports are awash with harrowing tales of other telecoms operators, and several international organisations also make use of such firms and their conditions of services are equally deplorable.

“The rate at which blue chip companies are outsourcing some critical parts of their services to agencies who subject their workforce to harrowing experiences all in the pretext that there is high unemployment calls for serious investigations,” stressed Okereke.

Many of these outsourcing firms, he emphasised, “In the name of cutting corners to make huge profits, employ several backhand means, turning Nigeria into labour camps. These companies are posting high turn-over annually, and thus have now developed preference for casual workforce.”

Reports abound of how job recruitment firms hire qualified Nigerians on behalf of multi-national firms operating in the country and outsource them to agencies working for these multi-nationals under manipulative contracts that neither guarantee the prospective employee job security nor the promised lucrative pay-package.

Unregulated industry

According to available information, there is no statistics about the actual population of firms involved in outsourcing.

For instance, the issuance of licences to 298 outsourcing firms in the last one year alone, there is a need for greater scrutiny of these firms’ activities.

Curiously, the federal government has maintained a studied silence over the issue of irregularity involving these outsourcing firms.

The Minister of Labour and Productivity, Chief Emeka Nwogu, had reportedly said that the government is determined to ensure that the rights of the Nigerian workers are protected but it is not clear how he wants this to be achieved, thus fuelling fears that the government is at a quandary as to how to resolve the situation.

According to a recent report by the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), for every full-time oil worker in Nigeria there are four casual workers. This should be unacceptable to any nation. Similar development is also unfolding in other sectors of the economy.

For example, almost all the banks today make use of poorly paid contract staff in most of their operations. Just recently, Shell Petroleum Development Corporation (SPDC) divested, selling off its oil blocs, flow stations, well heads as well as assets to other oil companies without regard to the workers that man these equipment.

Saddening too are reports of accidents in factories owned by the Chinese and Indians in Nigeria, where workers disfigured by machines are simply fired with no benefits.

While we appreciate the role played by the organised labour and the National Assembly, as well as Lagos State lawmakers in facilitating the reinstatement of the Airtel Call Centre workers, we believe that the entire practice of outsourcing should be properly looked into to ensure that workers engaged through the process do not lose value or suffer arbitrarily.

Equally welcomed is the promise by the Ministry of Labour and Productivity that a Technical Committee would be set up on the regulation of outsourcing and their labour-related issues in the telecommunications sector.

Also, there is need for the National Assembly to enact employment legislation that would protect employees’ rights at such work places. There is a growing understanding that the current labour laws do not significantly protect employees from abuse by their employers in Nigeria, and foreign firms have exploited the loopholes to ‘maltreat’ Nigerian labourers. A situation where workers are easily dispensed of at the flimsiest of excuses dampens productivity with its attendant reduction of potential national output.

That Nigerian workers who offer same services or shoulder even more responsibilities in most foreign firms in the country receive lower wages than their expatriate colleagues is antithetical to national development.

Besides, government should match words with action and implement the local content law across all sectors of the economy to ensure that Nigerian job-seekers are not displaced by foreign expatriates, who often are not better skilled.

Even as we support the ongoing efforts of the federal government to provide jobs for the teeming Nigerian youths, we believe that the efforts, which include attracting foreign investors into the country, would not yield the expected fruits if the citizens are short changed through unfair labour practices.

Thus, we call for an urgent review of relevant laws relating to expatriate quota, hiring and firing, workers’ welfare, remuneration and working conditions.

Above all, foreign firms operating in Nigeria should be compelled to avoid labour practices that cannot be permitted in their home countries. International best practices should equally be extended to Nigeria’s labour sector.

Differing views

Opinions are divided as to whether outsourcing is risky or not.

A cross-section of experts, including human resource managers who spoke on the vexed issue of identity crisis involving outsourcing, noted that there is no reason why people should panic or express any worry over outsourcing because it delivers more benefits than expected.

Firing the first salvo, Mr. Lawal Mobolaji, a member of the Institute of Personnel Management of Nigeria, argued matter-of-factly: “I will not agree with that because outsourcing really is meant for non-core staff of an organisation. Ask people that work in the HR department about the categories of workers outsourced. They are factory workers, drivers, cleaners etc. those are the people that are non-core to you. And mainly in Nigeria these categories of people are usually hired on contract basis but we are promoting it as a management practice.”

Continuing, he said: “We have quite a large number of staff in the bank today who are bank tellers. So you see a bank teller that is a graduate, you see a bank teller that has a master degree doing bank tellering and by the way what is bank tellering? It is something an OND or a school certificate holder can do if well trained. So we are telling you that you don’t need to employ graduates to handle those kinds of jobs, graduates should be more challenged with other things. Most banks are realising this right now and they are outsourcing their tellering functions.”