The Trade and Industry Department is expected to approve a growth strategy for the country’s Business Process Outsourcing and Offshoring (BPO&O) market by September that could create 100Â 000 jobs and cumulative foreign direct investment of about R1,4-billion by 2008.
President Thabo Mbeki has thrown his weight behind the plan, which topped the agenda at his big business working group meeting in April.
Next Tuesday the department’s executive board will meet to discuss the sector strategy document. On July 19 the document will be presented at a Cabinet lekgotla.
By 2008 this market is expected to grow from about $10-billion today to about $55-billion and create three million jobs worldwide. Between 40% and 50% of this opportunity will be in the financial services and insurance industries, South Africa’s two strongest growth points.
If the sector strategy is approved, and succeeds in its targets, the country’s share of this market is predicted to reach $0,8-billion.
A seminal study commissioned in September last year by the City of Johannesburg in partnership with ComMark Trust and the South Africa Foundation, and executed by McKinsey & Company, a global management consulting firm, forms the basis of the sector strategy. The objectives of the study were to investigate the potential for South Africa to create employment and economic wealth through building a BPO&O industry.
The “second phase”, the development of the sector strategy based on the study’s proposals, is being driven by a partnership between the government, the South Africa Contact Centre Community (Sacccom) and the Business Trust. Sacccom, the professional body for the call centre and business process outsourcing industry in South Africa, was established in July last year.
The sector strategy document is premised on five conditions that need to materialise for the South African market to attract offshoring activity.
These are sharpening the country’s marketing strategy to attract the relevant multinational corporations; train 40 000 to 60 000 personnel a year, particularly at a managerial level; develop quality assurance standards to avoid a “gold-rush” mentality; establish an industry body; and lower the cost of operation by 20% to 30%.
Currently South Africa lacks adequate cost competitiveness because it is about $7 to $8 an hour costlier per seat for full-time employers than India and the Philippines.
The reports notes that to gain a competitive advantage the country needs to cut costs by 25%.
Telecoms costs are expected to drop by 20% as competition increases in the industry over the next few years, but “flexibility of labour regulations, particularly on overtime work in a 24-hour, seven days a week, 365 days a year industry, is a concern,” says the report.
Business Trust CEO Brian Whittaker said the Department of Trade and Industry has “insisted that it is committed” to achieving these requirements, including the necessary labour regulation amendments. He said trade unions have been “informally consulted”.
Sacccom CEO Mfanu Mfayela said the department has acted as a “conduit” between other ministries, such as the Department of Labour, “which is committed to the process”.
The opportunity for South Africa to enter the market arises in the context of massive global growth in the traditional English-speaking market (the United States and United Kingdom specifically) and coinciding with increasing supply constraints, such as talent and infrastructure, on the part of the major beneficiaries — India, Philippines and China.
The report notes that, although South Africa is not competitive against these first-tier players, it is increasingly more attractive as a “tier-two destination”. The country is, however, competing against other emerging tier-two players, namely Malaysia, Singapore, Russia, Thailand, Mauritius and Pakistan.
Achieving the goals set out in the report will require South Africa to attract five to seven multinational corporations of 1 000 to 2 000 people each, five to seven “third party vendors”, such as call centres, of a similar size and between 20 and 30 smaller investments.
In addition, the country will have to expand existing players by 150% to 200%. Currently the South African international market has between 3 500 and 4 500 direct players.
The BPO&O sector is wide-ranging and includes customer care, human resources services (benefits and payroll administration), payment services, finance and accounting, back-office and administration, and high-end off- shoring services such as engineering, design and analysis. These in turn cut across multiple industries, such as financial services, airlines, tele- com, health care, manufacturing and utilities.
American Express, HSBC, Standard Chartered, British Airways, Bechtel, General Motors, Ericsson and Toshiba are all keen outsourcers.