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A few years ago, there was a Freakonomics post about how people reason about economic situations and phenomena. The phenomenon in question was shrimp consumption: the amount of shrimp people eat in the US per capita tripled between 1982 and 2007. When asked to explain this rise, non-economists mainly give demand reasons (changes in preferences), while economists are more likely to also give supply reasons (improved fishing efficiency, rise of aquaculture etc.).
The primary benefit of BPOs is not that of labor cost arbitrage. Thats typically the motive/benefit for offshore staff augmentation firms – but BPOs are business process outsourcers. BPO is ADP [Automated Data Processing] that outsources your payroll or a business that outsource your HR process etc… We often tend to think of BPOs as an offshore firm that does a little bit of everything having as sole pivot point its lower cost of labor – thats true, but its an abuse of the term and I would agree there that the particular type of business is going to be affected in the years to come from online labor.
This part is basically my substitutes story—now the complements part:
However, the more interesting effect would be the effect of online labor to the real BPOs..There BPOs will not be negatively affected – the opposite. The availability of online labor would allow BPOs to become more flexible lower their overall fixed costs force them to become more automated and streamline (their virtual nature will require that), allowing them to lower even the cost per customer, allowing them to focus on smaller projects, smaller customers allowing to address smaller/different market segments. They will become less relying on an enterprise sales force customer acquisition model which is dramatically affecting their cost structure.We are seing examples of what the new BPOs will become in companies that outsource the process of testing (uTest) of seo writing (Mediapiston) etc.
He’s of course exactly right—and he’s a CS PhD, not an economist, so shame on me :). If you think of true BPOs in the sense that Odysseas is talking about, then the complementarity story becomes more important. These true BPOs would be big buyers in the inputs market and would benefit greatly from a liquid, efficient market for labor.