BPO: Keeping SA's foot in the door

In 2004, when the global BPO industry was forecast to grow at around 50% for the next five years, South Africa set some ambitious targets: 100 000 new jobs of which 25 000 were to be direct; a R16 billion contribution to GDP; and R1.75 billion in direct foreign investment.

Six years and a nasty global recession later, things could be a lot worse. A report by the Business Trust, which partnered with the DTI to implement a sector support programme, pegs the total number of jobs created at 87 000 and investment at R1.5 billion. Given the global economic context, this could cautiously be described as a success. Smaller operators that relied heavily on telesales work for UK financial services companies suffered badly, but the rest of the sector appears to have weathered the storm more or less intact.

Skills development was a less ambiguous success, with the country meeting its target of training 35 000 entry-level and supervisory workers.

In the process, South Africa has cemented its global position as a prime destination for high-quality inbound voice work such as customer service.

“Most of the foreign BPO investments that have come in have been inbound,” says Bulelwa Koyana, interim CEO of the industry body Business Process enabling South Africa (BPeSA). “Voice is our strength; for example, we don't need to do extensive accent neutralisation.”

Indeed, the three large companies that account for more than half the BPO investment into SA (Aegis, TeleTech and Teleperformance) have all set up contact centres handling inbound voice calls for international clients.

However, there's another side to this good-news coin that has some local companies worried: the incomers are seeking local as well as international clients. SABMiller, for example, has recently outsourced a chunk of its financial back-office to Genpact, offering the Indian BPO giant its first toehold in the South African market.

“India is very established as a BPO destination and has lots of tried and tested operational procedures,” says Dave Paulding, regional sales manager for UK and Africa at Interactive Intelligence. “Their leading operators are now large global organisations looking for new markets, and they can offer attractive pricing into South Africa, which is a relatively mature economy.”

“A lot of people are looking at the South African market,” agrees Accenture senior executive for BPO Donovan Muller. “We're one of the world's top 25 economies with a lot of large and sophisticated organisations, where there is an opportunity for global players to bring in best practices from elsewhere. India is still our biggest competitor internationally, but we're seeing significant competition from the Philippines, from emerging African destinations like Ghana and Kenya and even from South American nations like Argentina.”

“Locals are definitely losing business to Indian outsourcers,” says Bytes Outsource Services GM West McMullin. “In general, South African providers are immature when it comes to crafting true BPO solutions.”

All of which may go to support Koyana's assertion that South Africa needs to play to its strength in the voice market, rather than heavily promote a back-office capacity that isn't yet up to global standards.

Voice is South Africa's greatest strength and international differentiator.

Bulelwa Koyana, interim CEO, BpeSA

“We can't divert attention to something that has not been a key strength so far. Yes, our back-office capacity is growing, but it's not a substitute for voice.”

Also, she points out: “Our primary intention is job creation, and FDI is definitely creating new jobs. So on balance we welcome it when the larger outsourcers come in.”

Local operators will continue to turn a hungry eye on the market for outsourced back-office processes, though, largely because the margins are much higher.

“In voice outsourcing, the margins are 15% to 25%,” says Singh. “With proper BPO, the margins are 25% to 40%, while still saving money for the client because you can streamline, automate and implement best practices.”

It will be a tough journey, though.

“South Africa has less of a natural advantage in terms of pure labour cost,” points out Paulding. “It will always be cheaper in India or the Philippines. In terms of automation, though, some of the South African operators have the advantage of established and mature infrastructure. They need to go for the higher-value work that needs a higher degree of skill.”

This is exactly what has happened in the niche areas where South Africa has succeeded in establishing itself as an outsource destination.

“There are definitely areas where we are beginning to assert ourselves,” says Fagri Semaar, interim CEO of BPeSA Western Cape. “Notable examples are legal process outsourcing, the creative industries and financial services such as investigations and debt collection.”

But, as Semaar concedes: “Others are also rising. We are under a lot of pressure to market South Africa more aggressively, as well as to plug the competitive gaps that remain.”

The most important of these gaps, everyone agrees, are telecoms costs and skills shortages. The good news is that we've made enormous progress in bridging both.

Telecoms costs have been the biggest success story by far. In 2004, the Business Trust's aim was to halve the cost of a 2MB fixed-line from South Africa to the UK by 2009, from R146 000 to R70 000. It's now sitting at R45 000, according to the organisation's report.

“The ability for us to connect to the rest of the world is improving every day,” says Bytes' McMullin. “We are getting a lot more for the same price. Telecoms used to blow us out on grounds of reliability as well as pricing, but things have improved. A competitive telecommunications offering is what enables us to compete in the same game.”

Never mind level playing fields, McMullin suggests - we need to get onto the field in the first place. And while there is still room for prices to come down, telecoms is not nearly the obstacle it was five years ago.

Neither, it seems, is a lack of skills. Not a single person interviewed for this article mentioned skills as a serious constraint on growth. “Our labour has got quite expensive compared to the rest of the world,” acknowledges McMullin, “but we're seeing call centre agents come in much better educated and qualified than before. The competition is much stronger.”

“South Africa actually has pretty good skills, despite what people think,” agrees Paulding, who is based in the UK. “Compared to, for example, India or the Philippines, the level of education is pretty good and South Africans have skills that are attractive to overseas organisations.”

The aggressive investment in skills development over the past five years may be paying off. The Business Trust calculates that, taking into account all forms of publicly supported training made available since 2004, a total of 35 436 skilled people have become available to the BPO market.

There is more to come: The Monyetla Project, a partnership between the government, Business Trust and BPeSA, sees employers, training providers and recruitment agencies co-operate to identify, train and place learners. Just over 1 300 were trained during its pilot phase, following which a second phase has been approved that will see 3 000 additional learners trained by May 2011.

Significantly, given often-repeated worries about the quality of middle management available, the Monyetla Project trains one supervisor for every six entry-level workers. “The ratio is quite aggressive in relation to the job context,” notes BPeSA's Koyana, “because we want to accelerate supervisor development.”

There is room to do even more, says Semaar: “One of the remnants of our legacy is we don't have enough progression through the ranks, in call centres in particular. So we need not only to invest in training, but also to make BPO attractive to graduates and lobby training institutions to make it a stream in commerce faculties. That process is quite slow, but there is clear progress.”

Apart from funded learnerships, companies can also access substantial tax relief of up to R50 000 per person for new employment.

More creative incentives are being considered as well. Staff transport, for example, can be a significant cost of doing business, especially for those doing business across time zones.

“The current incentives are capex-oriented,” notes Koyana. “We want to move towards more opex-based incentives to offset some of those costs.”

So, what does the future hold? BPeSA, the Business Trust and the government are in the process of developing an updated sector strategy, which is promised for early October this year. While the information was still confidential at the time of writing, it's a fairly safe bet that skills development will continue to be a major focus, and that revised, more user-friendly incentives are on the cards.

Regardless of whatever strategy the official bodies come up with, the mood in the sector appears to be largely upbeat.

Avesh Singh, MD of Digital Solutions Group, for example, is excited by the opportunities for bringing South Africa's mobile expertise to the BPO environment.

“We have a massive knowledge base around mobile application development and we can add real value for companies who want to start integrating mobile customer engagement into their contact centres.”

In addition, says Singh: “Mobile could work in the back-office too. If people are starting to do transactions using their phones - whether it's buying airtime or paying a store account - there's a lot of back-office work involved in that. It's all technology-based and largely automated. South Africa has the ability to do the kind of technical application development and database management that's required.”

Other niche markets for back-office processing work are receiving careful attention as well.

Our skill in mobile media is the best in the world. There's a huge opportunity for South Africa to deliver mobile customer interaction.

Avesh Singh, MD, Digital Solutions Group

Accenture's Donovan Muller suggests finance, procurement, human resources and learning as four of the most promising areas. Learning is one of the most exciting areas of opportunity, he says. “How do you outsource developing your internal capabilities? In a purely consultancy capacity you can help to identify training opportunities, define a learning strategy, or help with training - but those are short-term interventions. More interesting is to outsource the entire administration of an organisation's learning, put the curriculum in place, then actually implement and monitor it.”

Muller also highlights the need, before South African BPO suppliers can look for offshore clients, to develop a stronger local client base.

“South Africa's larger corporates have been notoriously resistant to outsourcing, but the picture is shifting. Partly, there is pressure to cut costs, especially where they have an ageing workforce whose salaries are now out of line with the market after many years of routine inflation increases. There's also the problem that their own top people are very vulnerable to headhunting - it's nice to outsource that problem too. Finally, they are recognising that outsourcing creates an opportunity to improve their own processes and practices. You get much greater transparency in a process when it's outsourced.”

But while the back-office market is beckoning, the focus on inbound voice work is still strong, especially as the global emphasis shifts back to customer satisfaction and customer retention.

“There's a big increase in proactive customer contact activity,” says Paulding of Interactive Intelligence. Customer service makes all the difference in a tight economy.”

A greater shift to outsourcing by local corporates is important here, too. “South Africa has more captive than outsourced contact centres - it's not like that in the rest of the world,” says Ian Gordon-Cumming, head of call centre services for M-IT. “We can't be the only ones marching in step. So there's a growing awareness that it makes sense to outsource. With that, we are finally going to develop the critical mass as an industry that can make us internationally competitive.”