South Africa stands poised to take its place at the business process outsourcing (BPO) banquet table - and the table is groaning with riches, according to industry observers.
Everest Research estimates the global market to be worth $30 billion and growing ultimately to $280 billion. That is spectacular growth, and a number of countries will lead the charge to take a slice of this market.
Number one is India, and will remain so for the long-term, with an estimated 37% of the market. Next is Canada with 27%, Philippines with 15% and Ireland and Mexico with 5% each. South Africa has less than 1% of the market, in line with its typical global market percentage.
But India's 37% and Canada's 27% do not reflect their traditional share of global markets, which begs the question: “Why do these countries do so well as international BPO destinations, and South Africa not?”
History lesson
To understand what South Africa should do, it is necessary to go all the way back to 1776 (the year of the American Revolution), when Adam Smith, viewed by many as the father of capitalism, wrote his book: “The Wealth of Nations”, in which he put forward the theory of “competitive advantage”. Smith postulated that specialising in a particular task was key to productive exchange among economic agents. The example he used was that of the manufacture of pins, where he showed that dividing labour in such manufacture would lead to vastly greater output and quality and reduced costs.
South Africa has it all, and in abundance.
Andrew Holden is MD of Bytes Connect.
Smith was proven right, his principles being fulfilled with Henry Ford's creation of the assembly line for the Model T. Moving ahead many decades, General Electric CEO Jack Welch said the company should be number one or two in a particular field or exit it. Focusing on core competencies has become a mantra, and created the world of outsourcing as it has come to be known.
There are people and companies active in spheres of commerce who simply fulfil tasks and processes far better than other entities, and it's typically because they have specialised in those areas. South Africa has many of these entities, and as such it is well placed to offer highly specialised and equally qualified offshoring services.
Sneaking suspicion
Why, then, does South Africa not have the disproportionate share of the market that India has? A clue lies back in 1994, when India deregulated its telecommunications environment. Prior to this, India was tightly regulated, with one service provider (sound familiar?).
The passing of the New Telecom Policy in 1999 paved the way for the introduction of IP telephony and terminated state control of international calling facilities. The result: the world's greatest boom of offshoring services, in particular call centre and telemarketing services and data centres. And India owning 37% of the world's offshoring market, worth more than $11 billion today and growing to $100 billion in time.
All indications are that companies are seeking destinations other than India, as demand has pushed up prices and reduced availability of services. Predictions are that China, Brazil, Egypt and the Middle East will make inroads into global markets.
The market is growing, which means more entrants can take market share. With a minuscule share of the global market, South African companies need to group themselves into two distinct groups: customers which require services and should look to local service providers rather than going offshore; and local outsourcers which should be geared to marketing their services aggressively, locally and internationally, where they can in particular take advantage of SA's favourable exchange rate to attract business.
South Africa has it all, and in abundance: competitive pricing, service and skills delivery, a work ethic, time zone, a high degree of competency in the universal language, English, and technological infrastructure.
There really is nothing in the way of South Africa assuming its rightful position at the BPO table. It's time for the country to move from under 1% to something approximating India's global share.