South Africa’s outsourced contact centre industry has enjoyed sound growth and expects to see the number of outsourced seats reach about 60 000 in the next five to seven years.
However, the government’s aim to add 100 000 seats to the industry from offshore operations by 2009 seems improbable unless the country addresses its value proposition, Frost & Sullivan information and communication technology analyst Spiwe Chireka reports.
The two critical success factors for South Africa will be the availability of skills and its telecommunications infrastructure. To improve the growth rate for this sector, South African call centre stakeholders should consider investing in skills development and contain the attrition rate. All the initiatives to attract investment will be futile if the contact centres do not have the human resources to deliver.
Chireka says that stakeholders must tackle perceptions that are harmful to the growth of the industry. There is a belief in the market that South African telecommunications costs are among the highest in the world, and this is affecting South Africa’s cost competitiveness. This contention has, however, never been independently proven to be accurate, he says.
Chireka explains that in order to manage this negative perception, industry stake- holders need to appoint an independent body to verify whether this is indeed the case, and resolve it promptly if it is, either by reducing costs or by justifying them to potential investors.
Resolving these concerns could go a long way towards enabling South Africa to grow its domestic and offshore contact centres effectively, he adds.
In addition, the availability of skills will reduce the initial human resources training costs, which would be a major competitive advantage. Low attrition rates also translate into increased efficiency of the contact centres and less retraining costs.
However, South Africa‘s information technology (IT) and contact centre skills are limited, which is a hindrance to the country’s success as an alternative destination for investors. The skills shortage is not limited to the IT sector however. In-house and outsourced contact centres in South Africa have to deal with a lack of appropriate skills, particularly in middle management. Operators looking to set up operations in South Africa are subsequently likely to face increased overheads as they have to conduct extra training.
Chireka notes that expected growth in the industry seems likely. However, an analysis by Frost & Sullivan suggests that the planned growth in the industry is unlikely to be realised under the current circumstances.
Factors influencing growth are value propositions that are not all relevant, since South Africa is relying increasingly on factors such as good language capabilities, favourable time zones, its advanced financial services sector and strong government support, which investors are not necessarily looking for anymore.
Language and time zones have become irrelevant as most offshore destinations are operating 24-hour centres and have large English-speaking populations.
Nevertheless, the South African call centre Business Process Outsourcing (BPO) landscape seems to be develop- ing well. In 2005, the South African government earmarked the sector as a target for job creation and attracting foreign direct investment. With this increased interest, the number of call centres has grown significantly, from 450 call centres, in 2004, to over 1 300, in 2007. This number is expected to reach 2 000 in 2012.
Chireka says that although government has provided support, this support is regarded by some industry organisations as slow and bureaucratic. This has in some cases frustrated investors into setting up their operations elsewhere. Nevertheless, South Africa is also expecting growth in the offshore contact centre market, Chireka says.
The government, in partner- ship with call centre industry bodies, launched an aggressive campaign in 2007 to promote South Africa as a viable destination for offshore contact centre operations. This drive aims to create about 100 000 offshore seats and to attract foreign investment of between $90-million and $175-million.
The number of outsourced contact centres has grown from 130, in 2004, to 435, in 2007. The number of outsourced seats in the country is estimated to be between 24 000 and 25 000. The key factors driving this growth have been increased government support for the sector and the strong alignment with key offshore markets.
South Africa’s value proposition offers savings of between 30% and 40% on near-shore contact centre operations, an advanced telecommunications infrastructure, good language capabilities and world-class skills standards.
Other offerings include an advanced financial services and insurance sector and strong government support that creates an enabling environment for existing and potential investors in the industry.
However, South Africa does not compete favourably in terms of set-up and operating costs. Local labour costs, in particular, are considered too high in comparison with those of the country’s competitors. Although there is an increasing trend for a high price-quality ration in operations, outsourcing is still fundamentally driven by cost. This is a significant factor in restricting the growth of the outsourced contact centre industry.
Countries like Ghana, Nigeria and Kenya are also making headway into the offshore contact centre space. Kenya has made large investments into its telecommunications infrastructure and is looking to have a world-class telecoms network by 2015. Ghana and Nigeria have also undertaken aggressive BPO initiatives, although it is on a smaller scale.
“With this increasing com-petition, especially from Kenya, South Africa’s dominance as an offshore destination for contact centres in Africa may be under threat,” Chireka reports.
Meanwhile, contact centres and call centres are dependent on the country’s telecommunications infrastructure.
An unnamed analyst comments that ongoing competition between telecommunications operators Telkom and Neotel is still affecting the industry. He comments that, when companies need additional bandwidth or capacity, Neotel seems be the preferred provider.
The analyst notes that industry players are taking new business to Neotel, and that it will take some time before Telkom will be able to provide the same level of service. Nevertheless, Neotel has access to the submarine SAT-3 cable that will link South Africa to Europe and the West Coast. The company is still rolling out its network and Telkom is only likely to see the loss of big contracts in the next one to three years.
Meanwhile, international bandwidth has been significantly overpriced in South Africa, the analyst reports. Besides Neotel accessing the SAT-3 cable, the connection of other undersea cables such as the Eastern Africa Submarine Cable System (Eassy) and Seacom will benefit users and provide meaningful reduction in terms of bandwidth costs. The analyst predicts that the implementation of these cables in the industry will probably cut bandwidth costs by at least half.
Another trend in the industry is the growth of mobile telecommunications companies. Although there is a lot of double counting, which means that there is still a lot of growth in the mobile market, the market is still fairly well penetrated, the analyst reports. Mobile oper-ators are looking to companies that are rolling out their own fibre cables for future growth. Instead of leasing lines with Telkom to broaden their base, mobile operators will be leasing it themselves which will, more than generating revenue, save costs on the short term.
Finally, alternative network companies, such as Vox Telecoms, are buying wholesale capacities from incumbents and offer services directly to corporate companies. They are not rolling out their own networks and although they are making progress, it will be a slow and steady process before they will make a national impact on the market.