South Africa has arguably proven itself as a low-cost, high-quality call centre outsourcing destination. Government wants to tackle the business process outsourcing (BPO) market, however, which is a different kettle of fish entirely. And while call centres do fall under the ambit of BPO, full-scale BPO is a definite step up the value chain from where the country is currently positioned.
US-based BPO analyst firm NelsonHall defines BPO as: "The outsourcing of business functions or processes, such as procurement, to a third party. In these contracts, the provider is responsible for performing and managing the outsourced function or process on behalf of the customer. In order to qualify under this definition, BPO contracts must involve the provider taking overall responsibility for the business process and not just supplying IT applications or services to facilitate the process. Thus applications hosting and standalone IT outsourcing are not regarded as forms of BPO."
As such, IBM`s Integrated Delivery Centre (IDC) in Johannesburg, which handles call centre and back-office processing for IBM customers across the world, is a prime example of the type of facility and service the government is aiming for. Whether SA has the capacity and capability to expand the local market to the levels government is dreaming of is a matter of much debate. In fact, it would probably be fair to say that as far as the local market is concerned, nobody can agree on anything.
Cost centres
High telecoms costs have frequently been quoted as a deterrent to foreign investors looking to offshore their operations in SA. Spescom Datafusion Cape regional manager Karel Botha, who served on the Calling the Cape board, says for outsourcers whose business model relies on high call volumes, SA`s high telecoms costs are a deterrent.
"A lot of the discussions I was involved with related to high telecoms costs, and so the business went to India and the Philippines."
Johann Kunz, MD of Fusion Outsourcing Services, which handles rental car company Budget`s call centres, concurs: "Telecoms costs here are 10 times higher than costs in parts of the UK and other places."
Says Dave Paulding, regional sales manager for the UK and Africa at Interactive Intelligence: "The main barrier to SA becoming the BPO destination of choice is access to cost-effective telecommunications infrastructure. While government has taken some steps to end the virtual monopoly that Telkom has enjoyed, with the advent of [Neotel] and other legislative changes, in real terms, costs and rates are still too high. If SA does not give immediate attention to improving this situation, the call centre industry will never grow or attract the big players.
"In addition, the growth of near-shore markets will be a major threat to the country. New locations of note include recent EU entrants in Eastern Europe, Kenya, Brazil and Chile. They have a real chance of overtaking SA in the next two to three years as they are able to offer cost-effectiveness, agent quality and cheap telecoms costs."
On the other hand, says Jonathan Hackner, director of Call Centre Nucleus (CCN), which runs centres for Virgin Mobile UK and Samsung Europe, among others, the telecoms cost issue has almost disappeared.
"Infrastructure/telecoms accounts for 10% of the total cost package. While it can get better and more cost-effective, it`s no longer the biggest issue; the biggest issue is the reliability of these lines. There isn`t any redundancy, so companies need to put in multiple 10Mb circuits, and so the costs increase. We also need to get telecoms uptime to 99.9%. Don`t even worry about the costs; just get it to stay up," he says.
"Further," he notes, "we don`t have to be as cheap as India. We just have to be cheaper than the in-house operations of companies in countries looking to outsource. If we can achieve 30% reduction on their current costs, then we are in the game. A 500-seat centre in the UK costs around R200 million annually. If we can take 30% off that, it`s a R60 million per year saving. This is what SA needs to be aiming for to be considered."
Choose a position
"If you look at the local market, we believe there are some opportunities," says Fusion Outsourcing`s Kunz.
"The big thing is: how do we position those opportunities? If we try to go head-on with India, Egypt or the Philippines, it will become a competitive war around incentives and constant cost reductions. This is not a space we want to be in. We should look at a niche, somewhere where we`ve had a lot of success, and not at the lower level, but a higher level like insurance or financial services."
Says CCN`s Hackner: "South Africa does not compete with India for off-shoring, never has and never will. They created this space and own it. That game is over."
The main barrier is access to cost-effective telecommunications infrastructure.
Dave Paulding, regional sales manager for the UK and Africa, Interactive Intelligence
Imminent telecoms changes notwithstanding, SA has neither the number of skilled resources nor the number of willing bodies to compete with India, which pays highly skilled people very little for lengthy shifts. This means we will never be able to compete with the true low-cost destinations on a cost basis.
Jason Drew, CEO of the Dialogue Group, which runs local call centres and has outsourced to India and the Philippines, says few people have a clear idea of what BPO is all about.
"If you`re talking back-office data capture, then SA is not very well placed. If you`re talking skilled activities, then yes. South Africans are very understandable, have cultural proximity in that they have similar lifestyles, regulatory structures, financial services, stock markets, pension and insurance markets. This is not the case in India. On a more mundane level, for example, if you want to renew the insurance on a VW Citi Golf, everyone here knows what it is. This is not so in India; there you would need to train people."
Simply put, SA needs to evaluate what services it can reasonably and competitively offer, and develop its skills and resources in that direction. While there is indeed an ICT skills shortage and a shortage of managerial skills in the call centre market, there is no shortage of skills to fill agent positions.
As Interactive Intelligence`s Paulding notes: "The existing call centre/BPO workforce is typically already highly skilled. The standard of education in SA is very good and many of the call centre/BPO providers have invested in training to ensure they can provide an excellent level of service and customer satisfaction. When comparing the workforce in SA to the typical workforce in India or the Philippines, it is clear that SA has a distinct advantage with the language skills available. South African English is typically more readily accepted by people in the UK or the US and, in addition, local agents have a unique ability to quickly pick up Dutch or German to a high standard. South Africa must market these skills harder to become known worldwide as specialists in this area," he says.
And therein lies the rub. Lynda Bomyer, operations, capability and development manager at Merchants, which runs the Asda call centre, among others, says SA needs to position itself correctly.
"We need to ensure our value proposition has specific relevance to potential international companies and court them directly. A shotgun approach to attending every contact centre event or exhibition is not necessarily the answer. It is mapping SA`s value proposition to specific international companies in industry sectors in specific geographies and proactively putting together a solution for them. It is at this point that incentives can assist, but they won`t be the sole reason for an international company to offshore to SA."
Notes CCN`s Hackner: "The market has changed significantly over the past five years. A significant amount of potential offshore work has already moved offshore. Yes, SA has missed that first wave and that window of opportunity has closed, but due to the size of the opportunity (over two million offshore jobs are required), this has again created an opportunity for SA.
"[The reason is that] multinational companies now have over 70% of their offshore work done in India and this perceived global risk has made them nervous to continue to have all their eggs in the Indian basket.
"Plus, as the global economy has grown significantly over the past three years, this has put enormous strain on India`s ability to scale their operations while delivering the required quality of service. The Philippines has been the second biggest beneficiary of the offshore opportunity, but the small population means the country is already maxed out [in terms of] capacity and cannot scale.
"So, where does the world look for a politically stable, English-speaking location with reliable telecoms and a large, low-cost labour pool that can take some of the pressure off India and provide new capacity at a cost-effective rate? Fortunately, there are not many, and when compared to other second-tier locations, SA looks very attractive," he states.
United front
Grant Allan, business manager for Contact Centre on Demand at Intelleca, says research firm Datamonitor has noted that SA is set for sustained growth of its contact centre/BPO status.
"[Datamonitor] has predicted robust progress in attractiveness in the number of agent positions, from 38 400 positions in 2003 to 69 600 next year. It also predicts a quadrupling of offshore agent positions, from 1 400 in 2003 to 6 200 in 2008, and the number of call centres from 494 in 2003 to 939 in 2008."
The big thing is: how do we position those opportunities?
Johann Kunz, MD, Fusion Outsourcing Services
This is a far cry from the 25 000 call centre jobs that the Department of Trade and Industry (DTI) hoped to create by 2009. Two issues that urgently need to be resolved are skills and impetus. On the skills side, SA will not be able to move up the value chain or even sustain its success on the call centre front if it doesn`t urgently resolve its skills challenges, specifically around operational and middle management.
Graham McLeod, contact centre focus group manager of Siemens Enterprise Communications, which is involved in approximately 130 centres in SA, says many companies use the call centre as a dumping ground.
"If individuals are not performing, dump them there and they`ll soon leave. Agents are not properly trained, there is no career path and call centre agents do not feel part of the company."
Further up the chain, says Merchants` Bomyer, the NQF does not cater for what centres require.
"There are no NQF standards for training team leaders and management, so companies can`t claim back. You can claim some of it, but not enough."
South Africa does not compete with India for off-shoring, never has and never will. They created this space and own it. That game is over.
Jonathan Hackner, director, CCN
While the bulk of the centres and operations companies invest heavily in training both agents and management, if government hopes to scale, it needs to come to the party with skills levies.
The second major challenge is impetus. There is not a single body facilitating between, for example, offshore investors and the companies they need to deal with here to get operations established. That SA has call centre bodies in almost every region, vying for business for their provinces, has merely exacerbated the situation.
Keryn House, CEO of ContactinGauteng, the province`s call centre body, says bodies and co-ordination is an honest challenge.
"We`ve not had a co-ordinated, structured industry body. This is a growing sector; it`s not a mature sector at all. Individual provinces - like provincial government departments - compete for investment. What we`ve done now is created a national body, which used to be Saccom, for policy development and to be the voice of industry. We`ve seen a shift towards greater co-operation across the provinces in the last year."
On a broader level, one body in government needs to be driving the development of the sector, working with the industry to solve challenges like the skills problem, ensuring that potential investors are aided and assisted, and treated like gold, and ensuring that there`s a single plan to market SA in a focused and strategic fashion.
It took India a lot of dedicated, coordinated effort and at least six years before its market took off. SA needs to learn the same lessons. Only with a focused and strategic plan that involves all stakeholders and is driven by one body, will government have a hope of fulfilling its BPO dreams in the timeframes it has outlined.
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