BPO goals need work

Johannesburg, 07 May 2009

Government will not achieve its goal of turning SA into a leading business process outsourcing (BPO) hub if it fails to improve its incentive schemes and reduce telecommunications costs, says Frost & Sullivan.

“Leading BPO destinations, such as India and Philippines, attract foreign investors by offering tax breaks and relief. The South African BPO industry has no equal offering. Upfront tax breaks would attract more investors to the country,” says Birgitta Cederstrom, programme manager, ICT at Frost & Sullivan.

While government has introduced an incentive scheme - the BPO Investment Grant and the Training & Skills Grant - through the Department of Trade and Industry (DTI), it still has more work to do if it wants to achieve its BPO goals. Government has invested R2 billion in the expansion of existing BPO operations, skills development and other investment incentives since 2006.

The DTI has acknowledged the impact that digital fibre initiatives in East and West Africa will have on their BPO ambitions. The DTI notes these other regions will become competitive price-wise and competition would increase once tax incentives are in place.

Last year, Fusion SA was awarded a R28 million business process outsourcing and off-shoring (BPO&O) grant from the DTI, which it used to improve its infrastructure, field more work for UK customers and consider additional business opportunities. Earlier this year, the Mangaung Local Municipality announced its development of a R50 million international BPO&O hub. In March, the DTI also opened an investment call centre in Soweto aimed at attracting foreign investors.

“However, there are currently several barriers limiting growth in the local BPO industry. The new government should address these to assist the industry,” says Cederstrom.

Cost, cost, cost

Frost & Sullivan estimates the South African BPO market earned revenue of $885.2 million in 2007. The research house estimates there are currently 180 000 employees in the South African call centre industry and the country has several internationally recognised BPO outsourcing service providers.

“SA has a vibrant and positive off-shoring industry due to the fact that we offer good English language skills, cultural and product affinity with the US, UK and, to a certain extent, the Netherlands, and delivery quality across the call centre services line,” says Cederstrom.

Telecommunications costs still remain a barrier. A reduced tariff from Telkom was expected for the industry last year - but no new tariffs have been introduced. The DTI says Telkom has offered the BPO industry competitive tariffs, but there is still a lengthy legal process ahead. The industry has to make a submission to the Competition Commission, which will decide whether reduced tariffs can be introduced.

The DTI says it is still consulting with the industry.

Skills deficit

Cederstrom notes that the success of the government's BPO initiatives is closely linked with the availability of skills and educated resources.

”The new government should work on strengthening our current school system to push development across all levels and categories. Other BPO destinations publish annual statistics on the standard of their graduates and pride themselves on how good their school systems are. At the moment, it would be an embarrassment if SA published its results.”

“In SA, working in a call centre is associated with people with a low skill set - as opposed to India and Philippines where it is seen as a career path even for more highly educated people,” Cederstrom says.

“The governments of other leading destinations assist their BPO industries to promote the BPO industry as a career path for both low-end and high-end staff.”