South African call centre outfit CCN Group was recently acquired by Indian giant Aegis in a deal that has put the spotlight firmly on South Africa’s business process outsourcing (BPO) industry.

India’s call centre industry, the largest in the world, has begun to look at ways to diversify away from its highly saturated market and has been identifying new markets that offer strategic alternatives to its high-volume services.

Aegis, part of Indian conglomerate Essar Group, announced that it was not only snapping up CCN Group but was also planning to invest R500 million over the next three years, with plans to create 5,000 jobs in South Africa.

“CCN is a strategic fit for Aegis. South Africa becomes an integral part of our growth strategy and offers an opportunity for Aegis to develop skills, create employment and bring in international experience to South Africa,” says Aparup Sengupta, Global CEO and Managing Director of Aegis.

That may be music to President Jacob Zuma’s ears, as he looks for ways to meet his monolithic target of 500,000 jobs by the end of 2009.

However, does the acquisition have a wider significance for South Africa’s BPO industry, by demonstrating the increasing importance of the sector on the global stage?

Is South Africa taking a bigger role on the global stage?

With more than 1,000 agents, CCN is a relatively large operation by South African standards, though it represents just a fraction of the 37,000 employees working for the company worldwide.

“Aegis - together with other Indian BPO’s - has made strategic acquisitions across the globe, which is part of an ongoing globalization process occurring in the industry,” says Wynand Schutte, General Manager, eTelecare South Africa.

“As the Indian outsourcer’s value proposition in India erodes, they will be looking at alternative markets to service an increasingly discerning UK and European buyer of outsourcing services,” Schutte continues.

In fact, the news followed Philippines-based eTelecare’s own acquisition earlier in the year of The Phone House, a BPO subsidiary of Talk Talk Group, the telecoms division of the UK's Carphone Warehouse.

Again the operation is small when compared with the size of the company – although eTelecare has since announced a merger with Stream Global Services in a deal that will create a 30,000-strong workforce with projected revenues of $1bn in 2010.

South Africa’s unique position

So why is South Africa now becoming seen as a strategic investment for global BPO groups? The answer lies in its unique positioning in the market.

As an emerging economy, South Africa of course offers cheaper operational costs, particularly in terms of labour, however perhaps even more importantly with English being the main business language it also offers a wealth of potential employees with good language skills.

Not only can South Africans speak English, but crucially, they do so in an accent that is easily understood by North Americans and Europeans.

While English is also widely spoken in India, some firms have come in for a barrage of criticism for outsourcing call centre operations as people complain they are unable to understand the accent or in turn be understood.

Such is the criticism that faces offshore call centre locations that some companies in the UK and US advertise their locally operated call centres as a reason for choosing to do business with them as opposed to rival firms.

This is one of the key opportunities for South Africa going forward, says Johann Kunz, Managing Director of Fusion SA, a BPO firm largely responsible for handling UK clients. South Africa is unlikely to compete with the high volume, large headcount operations seen in India he says.

“South Africa must focus on a specific strategy to carve out a niche for itself, for example the higher-end English speaking financial services sector,” Kunz adds.

What is holding South Africa back?

Historically, South Africa’s high telecoms costs have been cited as a reason for the country losing new BPO business. The laying of the Seacom cable, which launched in July, was supposed to help to remedy this situation.

Luke Mills, MD of TeleTech Cape Town, notes that while Seacom has made an impact on the wholesale price of international bandwidth, it is yet to address the telecoms price issue, as the two domestic operators, Telkom and Neotel, still have a stranglehold on the national trunking.

“The landed cost at the Seacom POP looks good but the ultimate cost to premises anywhere in SA still contains a national and local loop, and that is still expensive. It will take a few years yet before SA costs come into line with global norms,” says Mills.

Johann Kunz agrees, noting that the telecoms issue has been partially addressed but will only flow through to the market in the next 18 months. “Only once the current client agreements have come to an end will additional Seacom bandwidth be taken up and result in cost reductions.”

A lack of skills development is yet another issue currently facing the industry, despite it having been prioritised by the government with the announcement that between 5,000 to 10,000 grants would be made available.

So far only 1,000 grants have been made available, with none of these being made over the last 12 months. Luke Mills says the situation is very discouraging as the roll-out of meaningful funding for skills development and training has been extremely slow.

Similarly, Wynand Schutte notes that the BPO industry in South Africa is struggling to grow within its current fragmented state, adding that his primary concern is that the industry is lacking coordination.

“There is a lack of industry leadership which results in a hindrance to investment promotion and regions competing present a picture to foreign markets of an industry in disarray,” he says.

Schutte says the government’s current strategy of attempting to promote SME growth within the industry is unsustainable, as they will find it extremely difficult to survive as the BPO sector is entering a period of mass consolidation where only the largest players will remain.

Window of opportunity closing

Recent acquisitions by global BPO companies have demonstrated the increasing importance of having a footprint in South Africa; however it is important that this is not taken for granted as a trend.

South Africa’s BPO sector is currently in the unique position of offering the combination of excellent language skills and low labour costs that many international companies are looking for. But issues that beleaguer the industry should not be dismissed out of hand.

As Luke Mills suggests, “the window of opportunity for growth is closing and other countries continue to move faster and more aggressively.”

Foreign acquisitions have put the spotlight firmly on South Africa and its BPO potential, but the industry must agree on a coherent strategy across the country not just provincially, and the government must ensure funding for grants is easily accessible.

The potential is there for the taking, but if these issues aren’t faced then the spotlight may drift elsewhere.