Building a Caribbean Tiger Economy through Outsourcing
Business December 10, 2004
Stabroek News
December 10, 2004
Taking the side of innovation and expanding our economic base is key to developing the success of Guyana's young people and our private sector. In previous columns, different ideas were explored that could help make the slogan - Guyana - Open for Business, a reality. Today we explore the possibility of building a "Tiger" economy for Guyana. This term has been used to great effect to describe certain Asian and Eastern European economies and the explosive growth those nations enjoyed because of certain policies, natural advantages, and development strategies.
"Tiger economies" have included Singapore, Taiwan, South Korea, and Hong Kong in Asia and the Czech Republic, Slovakia, and Ireland in Europe. Characterized by a prior lack of development and subsequent rapid and significant growth, "tiger" economies have been a great source of both confusion and pride to differing economic schools of thought.
As always, this column will look at important business developments in Guyana and our region and address the question: How do we go about revitalizing our business climate? Today we're specifically focused on Building a Caribbean Tiger Economy through Outsourcing.
Consider these
comments:
* Second poorest country in the region
* Educated work force
* High rate of skilled workers leaving the country
* Unable to afford proper public sector programmes
* Large debt burden
* High unemployment
* High inflation
* Heavy tax burden on businesses and individuals
* Large recipient of international funds with little to show for it
Much of these comments could apply to Guyana, yet they were actually said about the "Celtic Tiger" - Ireland, in 1988 (Economist Survey, 1988). Yet only nine years later in 1997, the Economist now claimed that Ireland was "Europe's shining light" with growth exceeding 10% in some years (Economist.com).
How did a similar setting turn into such a success story in so little time? While the economic lessons are much more complex that can be addressed here, several lessons can be applied to Guyana.
First, the case of Ireland and Guyana share some natural advantages such as common language to prominent markets, proximity to growing markets, a low wage economy and an educated workforce. Releasing these advantages through tax reductions, encouraging foreign direct investment, and targeted infrastructure development can unleash the long-contained dynamism of the Guyanese economy.
Second, the positioning of Ireland as an "entry" market for many foreign corporations into Europe enabled Ireland to profit from the global outsourcing boom as well as become a strong hub for European operations. Similar positioning can be achievable for Guyana - enabling focused growth in technology and business process outsourcing. Guyana's ability to link the Caribbean to the Americas is well-known as potential but with the right positioning and macroeconomic stability this can become a reality sooner than we might first think.
So what about outsourcing? What specifically are we talking about? Given Guyana's size and limited (albeit educated) labor force, what can be done to allow the nation to participate in this global boom?
Forrester Research estimates that as many as 3.5 million US jobs will be sent offshore and IDC estimates that more than 1.2 million European jobs will go offshore as well by 2010. These are not all programming jobs, nor are they limited to information technology but they do include a variety of "back-office" or operational jobs such as human resources, finance, administration, and order processing. While IT offshoring is expected to produce a US $1 trillion market by 2007, the "back office" or Business Process Outsourcing (BPO) market is only expected to grow to only $27 billion (Gartner, 2004). The BPO marketplace is currently dominated by India, which faces a labor shortage in these areas and a declining market share (estimated to drop from 80% in 2002 to less than 45% by 2007-Gartner, 2004). Gartner also notes that Indian companies setting up operations in other countries will likely fuel the growth of BPO operations in other countries.
What then is BPO? Forrester Research (2004) notes that common service areas include:
* Simple bulk transactions: such as credit card and stock transaction processing will continue to be the largest and best-served of BPO segments, growing to $57 billion of the annual BPO market by 2008.
* Broad Shared Services Outsourcing: An only slightly smaller market at $56 billion, though requiring greater skills/understanding from vendor employees, was broad shared services outsourcing. Including finance, administration, HR and indirect procurement, the segment was expected to see further fragmentation, with major technology systems integrators dominating finance and accounting, while specialty players would concentrate on human resources outsourcing.
* High Volume Vertical Processes: Policy administration, claims, loan applications and other high volume vertical processes were projected to become a $6 billion sector by 2008, with major US consulting firms fighting to hold market share against offshore outsource vendors, Forrester said.
* Specialized Vertical Applications: More complex and specialized vertical applications such as monitoring chemical control processes and environmental data reporting were targeted to reach only $5 billion by 2006, but increasing confidence was expected to drive exponential growth, with Forrester projecting a vertical app BPO market of $24 billion by 2008.
Guyana's smaller labor pool will not allow a large market share of these grwth sectors, yet a combined marketed effort between industry and government could allow Guyana to serve as a significant player in the global outsourcing marketplace. Joining together to provide services to global players from US companies to Indian market leaders in BPO services, Guyana can position itself to become the first Caribbean "Tiger" economy.
Recently the Minister of Education noted the need for technology skills and the initiatives underway in this area. This should be accelerated and be a co-operative effort with the private sector. Preparing our labor force for the coming boom will ensure our prosperity and rebuild our international competitiveness.