South Africa: An outsourcing destination of choice

The effects of globalisation are such that doing business is no longer limited by borders or by geographical separation. This is a particularly apparent in the contact centre and business process outsourcing industry, where the availability of effective telecommunications and data networks allows countries like South Africa to provide high quality, lower-cost support services to companies and their customers which may be located anywhere in the world.

Contact centres are used by a large proportion of companies to maintain relationships with their customers. The activities which are conducted through the contact centre are varied and can include incoming and outgoing functions. Incoming functions deal with, for example, product support or information inquiries from consumers, while outgoing calls can handle business processes such as telemarketing, quality assurance and debt collection.

The contact centre is a hotbed of information and communication technologies, which are designed to provide the contact centre agents with the tools and information they need to effectively handle customer queries or requests. The contact centre can be independently operated or networked with additional centres; they are often linked to corporate networks and the data contained therein.

Contact centres are an example of the concept of business process outsourcing. BPO is the contracting of a specific task to a third party service provider; other examples include human resources, accounting and payroll outsourcing. Contact centres lend themselves to global outsourcing since the skills and supporting technology tend not to be location-specific.

While South Africa faces several challenges in the global contact centre market, which has countries such as India, Egypt, China, Canada, Latin America and several eastern European nations competing for a share of the industry, it has performed very well. In spite of relatively high telecommunications costs and the shortage of skilled managers, South Africa is proving to be a popular choice, with international businesses favouring the South African accent. Located in the same time zone as most European countries, South Africa also offers the benefit of synchronisation with the business clock of these locations.

As a result, many globally recognised companies depend on South African suppliers for their contact centre requirements. Businesses like AOL, Samsung, Virgin Mobile UK, British retailer Asda, SABMiller and many more are supported out of this country. With its support supplied by Merchants, the contact centre of Dimension Data, Asda' head of all external and internal contact centres Matt Baron, is quoted in business news portal ITWeb as saying: "We chose SA because of the people. SA is not the cheapest destination, but from an overall quality of service perspective, we estimated that it offered better value. For a reasonable price, we'd get what we thought was a very good service equal to or better than the UK."

The contact centre industry is highly competitive with a number of businesses, both 'home grown' and international companies boasting established centres from which they operate. In itself, outsourcing has attracted considerable global interest: companies like IBM, T-Systems, CSC and HP all offer diverse information technology outsourcing services, joining local companies such as Business Connexion, Dimension Data, Arivia.kom, Integr8IT and EOH Holdings. Competition is fierce, with local companies proving that they are quite capable of offering services of similar or better quality than their global counterparts.

Professional services organisation AT Kearney indicates the extent of the competition which is faced when competing in a globalised marketplace. Its 2007 Global Services Location Index shows that contrary to the perceived challenges in the Middle East and Africa, countries in these locations are increasing their visibility as remote services destinations. The report notes: 'The rise of Mauritius, Tunisia, Morocco and Senegal reflects growing interest in locations with the ability to serve francophone markets. Stronger business environments in Mauritius and Tunisia contend with lower costs and larger populations in Morocco and Senegal. Ghana maintains its position as a low-cost English language location in Africa.'

Coming to South Africa, the report says the country, along with Israel and Turkey, has improved its ranking largely as a result of improvements in the policy environment and infrastructure quality.

However, AT Kearney does note that India and China continue to dominate the Index. 'India maintains a wide, albeit slightly shrinking, lead over China, confirming what industry surveys and visiting executives repeatedly find - for all the concern about overheating, wage inflation and service levels, India still offers an unbeatable mix of low costs, deep technical and language skills, mature vendors and supportive government policies. In both countries, double-digit growth rates have fuelled wage inflation, with average compensation costs for sample functions rising by around 30% in China and around 20% in India. But these cost escalations have been matched by corresponding increases in skill supply and quality indicators.'

As the concept of outsourcing non-core business functions matures in the South African market, companies are seeking more flexibility and a higher level of value from their service providers.

According to Victor Antezana, general manager: sales at Business Connexion, this is effectively ushering in the second generation of outsourcing, which is characterised by utility models for hardware, software and services.

"Companies that have been dealing with a managed services provider over the last five or six years are comfortable with the value and reliability of outsourcing. They are now looking to extend the benefits further up the value chain to managed services that include software as a service, hosted infrastructure and applications," Antezana explains.

He says the cautious approach of some years ago was driven out of a natural scepticism for an emergent business model. "With the successful achievement of the basics, as well as the proven ability of managed services providers to take over staff, many of the perceived risks regarding people, assets and data have been assuaged. Satisfied with outsourcing, businesses are now asking for utility models and on-demand service availability."

Notably, Antezana says clients are no longer concerned with how their services are delivered. Their concern is rather focused on availability and the ability for the service provider to deliver according to fluctuating business needs.

"In the pay-per-usage and on demand world, clients want more than a fixed-charge service level agreement. The service-based fee is calculated differently. Instead of buying support for a desktop or MIPS [processing power], clients want to pay per e-mail or per use of an application. How that application is managed, how it is delivered and how it is hosted is not important to clients as long as they are sure it is secure and reliable. All of this becomes the responsibility of the service provider," he explains.

The ability to deliver second-generation outsourcing requires considerable investments from the service provider. "In this environment, the landscape of competition has changed dramatically. It is a global market and services can, theoretically, be delivered from anywhere on the planet," says Antezana.

Furthermore, the on-demand concept dictates that if a client has a spike in usage, the service provider has to have capacity available to meet the demand. "This puts considerable pressure on the service provider. If it is unable to meet fluctuating demand, the business model is compromised," he notes.

Successful service providers in the second generation outsourcing market will be those that have the pedigree and proven ability to deliver reliable managed services to market. "Investments in capacity, the scale to meet market requirements and the expertise to rapidly implement emerging trends to the benefit of clients are critical factors in this competitive market," says Antezana. "Technology is becoming a consumer-oriented service and, as such, users want the availability, reliability and low cost that they associate with any other commodity."