Is SA still a viable business process outsourcing (BPO) destination? The government certainly thinks so. In January this year, the Department of Trade and Industry (DTI) kicked off a new set of incentives aimed at boosting the number of BPO jobs in this country from its current number of 10 000 to 40 000 over the next five years.
Most industry specialists think the DTI's programme is an improvement over the old government Assistance and Support plan, which turned out to be more gas than anything else. Says Anthony Askew, MD of Globility: "I think the new government incentives are better. For a start, they are opex- versus capex-based and with the world changing, guys need to stay flexible. It's also per employee-based versus capital-based. It's going to help attract bigger players. The mechanism is based on number of jobs created. What's more, those jobs still have to be here in three years' time."
Wayne Kruger, VP of business development for Aegis, says the new scheme is much simpler. "There's significantly less red tape with the new system. It's addressed some of the issues we had with previous incentives, which were around grabbing capex upfront, building something and then leaving when the going got tough. So if you want to come into the country, you have to be here for the duration."
Craig Gibson, business development director at Merchants, says the scheme is positive overall.
"I think that overall, it is a fantastic scheme and it will, over time, if you get to high levels of utilisation and scale, allow our companies to start competing with some of the tier one and two locations around the world.
“It's providing some commercial differentiation for us, which has traditionally been lacking. There has been some call centre growth and the domestic market has certainly woken up to the power of sourcing business cases and we're starting to see a lot more traction and a lot more domestic market opportunity. That is very powerful if you can demonstrate ability to execute in your own backyard. That's very important when you want to attract international investors."
He does warn about a couple of downsides to it, though.
"There are one or two negatives to the programme. If you're looking at putting scale down into the African region, your business case falls off a cliff once the incentives dry up after the five years. The other thing the government must consider is job retention. As more and more globalisation happens, more and more organisations are coming into this country that have assets offshore, which provide potential sourcing opportunities for them. That is potentially a significant amount of job loss. So we need to think about retaining and developing jobs in the country using BPO."
Should SA go further and provide tax breaks to BPO companies? Spescom DataFusion MD Paul Fick says no.
"For the BPO industry to have longevity and be healthy, it must be able to survive without tax breaks in the long-term," he says.
"The purpose of tax breaks should be just to get it going. If you look at the cost equation, there are several variables at play: our cost of labour is not the cheapest, our cost of telecommunications is definitely not the cheapest and our cost of technology is probably on a par.
“Is SA a safe and wonderful place to work? I still think so, but the way to improve it long-term is to look at those cost drivers and the most important thing is to ask where we pitch our competitive value. That is, and always has been, that our English is very close to European English, and that the knowledge of our people is very close to European standards as well. But the Malaysians and the Indians have come a long way.
“I agree that you don't want a hit and run: people come in, capitalise, make some money and then leave again. Either there is a long-term tax break or government helps us be competitive in some other way. Tax breaks can only go so far. And there are many other sectors of the economy that are screaming for incentives."
Stable SA
There is another factor in our favour: political and social stability - at least when compared with countries such as Egypt and Bahrain. Can we take any market share from countries that have seen social upheaval? Askew says there was some interest earlier in the year.
"We had a client that was based in Cairo take up our services. It has weathered the storm. The company shifted some seats to India and some to SA, but in the longer term, it was still viable for them to stay in Cairo. So what they've done is moved seats back there now. It doesn't mean SA has lost its flavour, but Cairo is cheaper than SA. This client is in the data services industry and Egypt is cheap for bandwidth.”
Aegis's Kruger said he also got enquiries.
"We saw a number of enquiries just after the Egypt event, predominantly from UK companies that were in Egypt. Most of it was just looking at other alternatives, but what we also saw was some nervousness about SA as just another third world country."
One of our parastatals turns over 43% of its staff every month.
Karl Reed, Elingo
Merchant's Gibson says it was business as usual for his company.
"We have some business interests in Bahrain and we're in the process of embarking on some business in Egypt. Once it had settled, it was business as usual very quickly and we saw reinvestment before long. Socially and politically, Bahrain was even worse than Egypt and yet our operations there continued."
So it appears that not even a countrywide revolution will drive that many users towards SA in the long-term. How then can we compete with the rest of the world? Gary Hart, executive head of managed network services at Vodacom, says it will be about a year before our increased bandwidth translates into BPO competitiveness.
"There have been a huge amount of investments made in bandwidth, and more are coming. That has to come through as cost savings in the industry, both international and domestic. I think we're a year away from seeing the full cost benefit through to the end-users but, ultimately, it's being driven down strongly by competition and also by regulation."
Globility's Askew says there is growth and it's a mixture of both SME and large corporates.
"The big BPO players coming in give your country credence and a sense of the big picture. We definitely want them. But the growth in small numbers of seats - probably 25 seats and up - is where the growth is coming from."
Hart agrees wholeheartedly.
"We've seen massive growth in what we refer to as the mid-market, the segment from 30 to 100 seats. Certainly the drivers pushing that are the reduction in bandwidth and telco costs, and the fact that technology is being provided on a usage-based model."
Usage-based models are also increasingly more popular.
Says Kruger: "Increasingly, we're finding large corporations unwilling to invest in large capex upfront but rather look at a hosted model. As the bigger boys are looking more at outsourcing, so the smaller players are also considering it as an option for their businesses. And the barriers to entry are significantly lower when you adopt the hosted model."
Karl Reed, sales and marketing director at Elingo, has seen some interesting trends in hosted call centres.
"What we're noticing at the moment, especially with customers being global, is that a lot of them are using their South African bases as a sort of test ground to build their own cloud environments: they host their own centres to service their in-country environments.
The Johannesburg city council call centre is not a call centre because no one answers phones there.
Paul Fick, Spescom Data Fusion
“We have two projects on the go at the moment that are being watched by overseas groups and we've met with the US and UK parents. We're building two data centres in local telcos and they have moved all their services into these data centres and are paying a rental fee, usage fees and floor space. They then run multiple contact centres from there. They are also looking at what staff they want to own and what they don't. A lot of organisations outside SA are looking at us to build this and then they're going to build it somewhere else."
Reed says bandwidth is a problem, but more local charges than the international ones.
"Our biggest hindrance is the cost of bandwidth. Staff is one thing, but the bandwidth cost is hitting us hard, especially when you get a certain distance away from the data centre. So the data centres are located quite close to the customers' premises. One customer I have has 33 call centres in SA alone and the main data centre is located in Sandton and the backup one is in Pretoria. But to get to Cape Town and Durban comes at huge cost. Some customers have looked at Bloemfontein because of the combination of lower bandwidth charges and staff costs."
Hart has seen interest in hosted models from all sizes of customer.
"When we introduced cloud products to the higher end of the market, we didn't think we would get much activity or excitement, but they have been as excited about cloud services as SMEs," he says. "It gives them a lot of value because of the opex-based model but also in terms of disaster recovery and being able to have agents anywhere in the country.
Poaching problem
One thing that hasn't changed much about BPO and call centres generally is that they're high staff turnover environments. Elingo's Reed says it is a serious problem with governmental organisations.
"We find a lot of agents and even management in the public sector jumping between departments and sometimes from one parastatal to a different parastatal. One of the parastatals in Johannesburg released figures the other day that show it has 43% turnover in call centre staff a month. A month! They're in this constant employing process. They don't know what to do. So I'm in a discussion with an outsourcer to take over the entire infrastructure."
Spescom's Fick says we need to get back to basics.
"It's a funny thing about South Africans: from an IT perspective, we're always leading-edge. We debate cloud services and bandwidth but the real fundamentals of the call centre industry are far from ideal. People go and use fancy tools to do workforce planning, skills-based routing and capitalise on incentives but some of the fundamental things like the approach we have to customers is lacking and that's sad.
“For instance, the call centre that the Johannesburg City Council operates is not a call centre because nobody answers phones there. That's why people have to go and disrupt a funeral to get attention. We're still a country with two very different sides to it and there's a lot of work to be done."
Aegis's Kruger says the situation is the same internationally but eventually things will right themselves.
"If you look at our turnover and our staff, it's high but it's on a par with what's happening elsewhere in the world. If you look at India and the Philippines, we're probably a bit lower than India and on a par with the Philippines.
“Call centres are what they are in terms of prospects and job satisfaction and we have to expect a high level of turnover. And there will be poaching and movement between call centres. But as the industry grows and more players train staff, these things will sort themselves out."
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