The last ten years have seen a global boom in the offshoring of call centres to emerging economies, as first world companies look to tighten their purse strings and take advantage of a cheaper labour force.

India and the Philippines have been the clear winners so far, running call centres for some of the biggest corporations in the US and Western Europe.

The tide is turning though, and South Africa has been waking up to the economic and employment opportunities the Business Process Outsourcing and Offshoring (BPO&O) industry has to offer.

In his 2006 State of the Nation address, President Thabo Mbeki identified the BPO sector as one of the key industries the government was targeting in an effort to boost economic growth and create further employment opportunities.

Government incentives

In order to facilitate that growth, Department of Trade & Industry (DTI) minister Mandisi Mpahlwa launched the Government Assistance and Support Programme (GAS) in 2007, with a swathe of incentives to attract foreign BPO investment into South Africa.

Government incentives play an important role in attracting new business, says Jason Drew, CEO of call centre outsourcing firm Dialogue Group. “The recognition by government that it’s a key sector is following on the best practice in India and Philippines. A close relationship with government levels the playing field.”

The government’s Training and Skills Support Grant helps subsidise the cost of company specific skills training at a cost of up to R12,000 per agent, while the BPO Investment Support Grant – which ranges between R37 000 to R60 000 per seat – is offered to all investors that create projects serving offshore clients.

“The incentives the government has launched are appropriate. The most appropriate being the training element, for two reasons,” adds Drew. “Firstly, training is one of the most expensive areas, and secondly, it leaves behind a skilled workforce.”

It is incentives like these that the government hopes will help it meet its target of becoming a Tier 2 player and creating 100,000 direct and indirect jobs by the end of 2010. If this target is met the government estimates the BPO sector will be contributing around R8bn in GDP.

Pumela Salela, director of BPO & ICT Enabled Services at the DTI, says the government should meet its target as current industry estimates suggest there are around 80,000 jobs in the sector nationally.

Language skills attract investors

In May 2008, oil multinational Shell also joined the ranks, opening a call centre in Cape Town, to cater for its customers in Belgium, the Netherlands and Luxembourg. The company is harnessing the Afrikaans language, training its agents to converse in Flemish and Dutch.

The more obvious linguistic skill that South Africa has in its favour, though, is that much of the population speaks English fluently.

“Many South Africans have already heard lots of English,” says Drew, “and are used to the different accents. Therefore they can understand more easily what is being said to them.”

This comes in contrast to many UK and US companies fielding growing resentment from their customers about call centres located in India.

In a survey by marketing services firm Ion Group, UK companies were asked to rate different call centre locations. The most preferred destination was South Africa, scoring 51.1%, while market leader India scored just 44.9%.

Cost, quality and cultural match

There are three key reasons why companies are choosing South Africa as a preferred destination, says Rod Jones, director of BPO and call centre research specialist C3Africa: “Cost, quality, and cultural match.”

The cheaper labour force in South Africa means call centres can run about 40% cheaper than in Western European countries, providing a huge cost saving. “Contact centres are also delivering a higher quality service than those in Western Europe,” says Jones.

While Indian call centers undercut their South African counterparts on cost by as much as half, attrition in India remains extremely high. “Turnover in India can be in excess of 100%,” says Jason Drew, although he notes that back-office work in India tends to retain workers longer than this.

Traditionally, call centres do have a very high attrition rate. In South Africa, however, it is generally agreed that attrition is somewhere between 15% and 25%, a low average relative to the industry.

“While there is turnover in South Africa, people view it as much more of a career. There is lots of career activity and growth in the industry. People can become managers or team leaders if they choose to,” says Drew.

Furthermore, says Drew, South Africa and first world countries are culturally very similar. “There is a pool of employees that can already identify with intricate details such as you would find in the UK, reducing the need for training.”

Birgit Thumecke, managing director of global telesales at Lufthansa, says the German airline chose South Africa for its call centre due to the availability of German speakers, labour, an educated workforce, good service attitude, affinity to European culture and time zone.

“I would mention cost as the last in the list. I don’t find the costs are extremely attractive. Costs are increasing here; prices seem to go up 10% a year automatically. South Africa needs to be careful it doesn’t price itself out of the market,” Thumecke cautions.

Opportunities lost

One of the big cost issues has been the monopoly Telkom held over the fixed-line telecoms industry, which critics say has already had a hugely negative effect on the industry, with the country missing out on many significant opportunities.

“Telkom has dropped its rates now. They are now on a par with international standards, but it’s too little too late. We’ve missed some very big opportunities over the last few years,” adds Rod Jones.

The DTI also reports that a number of studies have concluded South Africa’s telecoms costs to be “six to ten times higher than those of other countries prominent in the BPO space. “

“Lower telecoms pricing for the BPO sector is necessary, if we wish to attract major investments into the sector. Negotiations with the incumbent have taken place and concessions are being made,” says the DTI.

Jones agrees, suggesting that in the future, “we’ll see quite significant drops in tariffs.”

Looking ahead

The current call centre industry in South Africa shares many similarities with that of India in 1999, says Jason Drew. “It takes time to grow, as you also have to grow the infrastructure. The bigger you get, the easier it is. I think in the next 5 to 6 years we’ll see all the growth.”

With fiscal tightening currently occurring across the globe, Drew says there is a silver lining for emerging markets. “The current turmoil pinching markets like the UK and US tends to lead to more outsourcing. Companies will move operations from the UK in order to lower costs.”

The DTI agrees, with its own forecast estimating the BPO&O sector to grow at 50% per annum internationally for the next four to five years. In response it has already begun targeting key global companies in Europe, the US and current rival India.

Birgit Thumecke, however, cautions that if it’s just about numbers and quantity, it could backfire. “Sustainability is a critical issue, it’s not just about getting them in but also about growing the business, and providing secure jobs ultimately,” she said.

It seems the DTI is tackling this point too, with a BPO&O National Policy Conference planned for July, which it hopes will provide it with critical feedback about its current policies as well as targeting potential overseas investors.

If the growth forecasts for the industry are correct, and the DTI addresses any issues raised at its conference in July, South Africa could be set to secure an even larger piece of the BPO pie.