US BPO&O giant TeleTech set up base in Cape Town last year, making the biggest foreign investment so far in the sector. TradeInvestSA spoke to Craig Reines, Managing Director of the African operation, to find out TeleTech's plans for the future.

Why did TeleTech choose to set up an office in South Africa?

There’s a population of 44m people, more than half of which speak English fluently, as a first or second language. You have first world infrastructure, although it’s a developing market economy so there’s the advantage of being able to tap into first world tools and infrastructure but at a lower cost.

The DTI was incredibly supportive but also as we started visiting each of the provincial governments, particularly the provincial government of the Western Cape, and the municipal government, the City of Cape Town, has been, and is, very impressive. To be honest that’s different than what we find in many other countries, so that’s a big thing.

What other factors do you think make SA an attractive destination for investors?

One of the things I immediately identified about South Africa when I first came out is that the market is much more aligned to North America than people give it credit for, but I was shocked at how little work is being done for North American companies in this market.

Also, when you get into the South African Tier 2 cities, like East London and Port Elizabeth, they are very similar infrastructure-wise, to what you would find in the US, Canada or UK. I think a lot of people that have never been here, don’t understand that. They think it’s an emerging market, so a Tier 2 or Tier 3 City must be like what you would find in Kenya or in the Philippines or Malaysia and that’s just not true.

Did the government’s incentive schemes – the BPO Investment Grant and the Training & Skills Grant – also play a part in the decision?

It was a big part of our decision making process. However I think that there are many better deals out there if you compare South Africa to other markets that are competing for our kind of investment. There are much more compelling investment incentive schemes.

There’s no corporate tax holiday, and that’s huge. They talked about doing a discounted corporate tax, but the problem is that time is running out. Once digital fibre comes into some of the East African countries, South Africa is just not going to be competitive price-wise. And these other countries have these tax incentives in place now.

There are many companies that have come here, in the same space and a similar size to Teletech, and they’ve walked away because it’s too much of a hassle. I think the DTI has done a tremendous job but I think there’s a lot of room to improve on the incentive scheme.

There’s no reason why South Africa’s BPO industry couldn’t be in the top 3 or 4 in the world. I think it’s very realistic, but the government has to get much more aggressive in attracting these jobs and the time is running out. There is a very limited window of opportunity to convince companies like us to come and establish in the market here.

Is TeleTech considering opening more branches in South Africa?

We’re currently looking at our second and third location options in South Africa right now. We’re very much focused on all the places that no-one has really looked at yet.

"We’re really interested in hearing from a municipality that thinks they have something unique."

We’re really interested in hearing from – and we’re working with the DTI on this – a municipality that thinks they have something unique. I would like to know about that because we’re in the process right now; we have ten cities that we’re going to be visiting in the next few months.

There are also tons of growth opportunities in the Western Cape. We will expand in the Western Cape as well. Our hiring targets are quite high. In order to support our business in the next three to five years, we’re going to have to build five or seven facilities.

Do you see the South African business as a gateway into the rest of the continent?

Yes, we look at South Africa as a springboard into the rest of Africa. It was one of the things that made South Africa attractive to us early on. We really felt that developing a strong presence and establishing our business model in this market, and being able to develop a professional staff that I can now deploy to new markets as we open up in the rest of Africa, was a huge part of our thought process.

We feel pretty confident that there are opportunities for probably 20,000 plus jobs in Africa that we can create in probably 5 or 6 countries. We’re in the process right now of starting to shortlist where we want to start looking in the next 12 to 18 months.

How easy has it been to fill your employment positions with the local workforce?

This was one of my frustrations when I first came out. You read about the skills shortage, and this is a complete fallacy within our industry. Certainly there’s a skills shortage of people that have very specialised industries such as engineering. That’s a very different issue.

I would say it hasn’t been easy but it actually did surprise me how quickly people have picked up some of these basic skills. We’ve been able to develop people much faster in this market than I’ve seen in other markets.

South African Africans score very high in our voice and grammar assessment. Actually, because we do these exact same assessments across the globe, on the grammar assessment, our South African applicants scored the highest of any of our locations anywhere in the world.

People in South Africa do learn very quickly, and they’re much more accepting of that learning. The attitude is just phenomenal, people want to be successful, they want to learn, they want to strive for more, and they’re very ambitious. As an American, I find it to be very similar to the North American mindset.

What has been your main challenge in doing business in South Africa?

I would say the number one issue is Telkom. This issue is going to go away in 12 to 18 months, no one debates that. The problem is the now.

Telkom is not the biggest component of our cost structure and we’ve never tried to suggest that it is, but if the cost of labour and the cost real estate, and all these cap-ex costs are about the same here as they are in Argentina, or Malaysia, or any of these other emerging markets, but the cost of telecommunications is 500% more, why would a client agree to do business with us in South Africa? This is a huge problem for us.

I think our industry in general is starting to get really, really perturbed that this problem has not been solved. It’s a known fact that Telkom is charging 500% more. In some cases maybe its 300% more, because they’re giving a volume discount, but it shouldn’t be this expensive.

I do think prices are going to come down, but let’s say prices come down, and they’re two to three times more expensive than other markets, it’s still too expensive. Government is going to have to fix this problem, or companies like ours are not going to deploy in this market.

What is your outlook for the BPO industry in South Africa?

The Telkom issue needs to get resolved; the incentive framework needs to be tweaked a little bit; we (Teletech) need to be successful; and the domestic environment needs to be successful. If all those factors happen, you’re going to see more and more global jobs coming to South Africa, there’s no question about that.