A Post-Pandemic Boost to Nearshore Opportunity
Economists and academics are already looking at a post-pandemic world, predicting that many of the structural shifts brought on by the Covid-19 pandemic will become permanent. Some are anticipating a watershed effect, wherein support for remote work in the United States could result in a more favorable view of Nearshore outsourcing.
The issue was brought to light recently in an interview with Richard Baldwin, professor of international economics at the Graduate Institute of International and Development Studies in Geneva. In the interview, which was published in BRINK – the digital news service of Marsh & McLennan Insights – Baldwin highlighted a recent paper by Jonathan Dingel and Brent Neiman at the University of Chicago Booth School of Business, which estimates that up to 37% of all jobs in the United States could be conducted remotely.
“Using the synonymous phrase ‘remote work’ makes it clear, that yes, jobs that can be done from home can potentially be done overseas,” says Dingel. “If many jobs go fully remote, then the reorganization of businesses and jobs has the potential to bring both large economic gains and substantial disruption.”
The Post-Covid Economy
The paper by Dingel and Neiman, which Baldwin says is already becoming “famous” for its detailed assessment of the size of the shift to remote work, assessed the ability to work-from-home (WFH) based on the United States’ Standard Occupational Classification (SOC) System.
“In principle, you could be a couple of time zones away while writing software, giving a presentation, or pitching a client for a US business,” says Dingel.
“Our research used 2018 SOC codes – the previous editions were promulgated in 2010 and 2000,” says Dingel. “The SOC codes are updated somewhat regularly, and I believe that we’re a few years away from the next intended revision.”
This emphasis potentially limits visibility into new jobs that might be created as a result of digital transformation, and the fact that the post-pandemic economy may accelerate the move to automation. Automation itself can make it easier to trade services, while maintaining a personal touch.
“In principle, you could be a couple of time zones away while writing software, giving a presentation, or pitching a client for a US business,” says Dingel. “In practice, I expect many businesses hope to implement a flexible approach.”
That flexible approach will result in many companies testing the waters, looking for new ways to gain competitive advantage. There may be a redefinition of specialized tasks in highly-regulated sectors like health, financial and legal services. But to keep up – or even to stay in the game – Nearshore providers will be challenged as never before.
Jonathan Dingel, Associate Professor of Economics at the University of Chicago Booth School of Business
Brent Neiman, Professor of Economics at The University of Chicago Booth School of Business
The Weakest Link – Internet Infrastructure
In their study, Dingel and Neiman determined that fewer than 25 percent of jobs in Mexico could be performed at home. Given that the World Bank assesses Mexico’s labor force at over 58 million (June, 2020), Dingel and Neiman’s calculations would suggest that up to 14.5 million people in Mexico could work remotely.
However, there’s an important caveat.
“Our measure asks how many jobs could be done from home based on job characteristics,” says co-author Neiman. “It assumes those workers have internet access.”
In Mexico, as in other Nearshore environments, for workers to have internet access means that they likely live in a metropolitan area, and that they have the economic means to access broadband. Given these other considerations, the available labor force may be lower.
In the pre-pandemic world, clients of Nearshore providers assumed that Internet infrastructure was a “given,” with local entrepreneurs and real estate developers making impressive investments in turnkey operations. Whether on a Caribbean island, or in a city in Central and South America, modern, fully-equipped facilities with redundant power supplies, security systems – and of course reliable, high-speed internet – are now the norm.
However, the same can’t be said for the distribution of a reliable grid in the communities surrounding these facilities. If the viability and popularity of remote work in the United States results in an increased opportunity for WFH agents or developers in Nearshore environments, then the playing field is not so level. In this new world, the advantage goes to those societies that have made investments in reliable, affordable Internet access to the general population.
A Deflationary Trend?
In his interview with BRINK, Baldwin observed that the global services economy could follow on the heels of manufacturing. In manufacturing, free trade had a deflationary effect. Now, with the expansion of the outsourcing of higher-value services to Nearshore environments, the same could occur in the global services economy.
“In my profession — economics — they often have PhDs from exactly the same background that I have,” Baldwin said in the BRINK interview. “But they’re working for one-20th of the wage.”
In the past, the reluctance to embrace outsourcing in high-value industries has been due, in part, to the fact that these services are highly regulated, and that the quality of the service was dependant on the ability of the individual worker. Trust is a major factor, with companies often easing into the relationship. Baldwin himself has noted that he knows of a law firm in London, England, that outsources 20% of its legal work to “high education/low-wage countries.”
Clearly, if companies learn to rely on remote work within the United States, it is a short, “virtual” step to extend that relationship beyond physical borders. Given that the free trade in services requires limited investment (no ports and supply chains are involved, as with manufacturing), the post-pandemic transition could be coming sooner than many think.