In the decade and a half since US and UK businesses first started placing IT and IT-enabled business process contracts with Indian services providers, the benefits have, for the most part, been undeniable – lower costs, better quality, huge scalability.
But where such deals have gone wrong, the executives who committed their company’s service delivery to Indian partners – and then thought again – have invariably highlighted two problematic areas: high staff attrition rates and an awkward cultural fit.
For obvious reasons, those subjects are not the first to be raised by Indian IT and business process outsourcing services companies. And for good reason. In the case of staff turnover, insiders talk of functions such as call centres or forms processing where attrition can be 120% or more per year – in other words, offshore managers can expect the complete workforce to churn every year, with all the customer service issues that throws up. That is put down to the fact that, in India at least, the competition for experienced staff, coupled with high wage inflation and the ambition of employees to move up the skills ladder fast drives a fluid employment market.
The other complaint is subtler: it relates to the mores of communication – between service provider and client, and service agent and consumer. Some point to too great a willingness on the part of offshore staff to give a highly positive or over-optimistic answer to customer requests, no matter the likely outcome; others argue that the issue lies in the fact that Indian English, as the working language of government and commerce across the subcontinent, does not always map onto British or American English – in accent, nuance and vocabulary.
Of course, the extensive training that agents undergo irons out a lot of these differences. But ‘accent neutralisation’, as it is known, does not work for everyone – especially at the lower end of the skills chain. The upshot is that some businesses in the UK and US have found their consumers have becoming openly prejudiced about calling service centres at their bank, licence agency, Internet service provider (ISP) or elsewhere – let alone willingly take inbound calls – when they know they are contacting an India-based customer service centre.
That has prompted some businesses to pull back call centres to their home country; but others are looking at opportunities in other locations with strong English language cultures. And South Africa – for long dismissed as either too expensive or outside of mainstream communications channels – is currently making a strong pitch to establish its business process outsourcing (BPO) services as an alternative to those typically hosted in India – and with highly positive results from early adopters.
Just ask BT-owned ISP, PlusNet, managed hosting company Rackspace or AWD Home Finance. All three have chosen to place offshore customer services with Bizworks, a mid-sized call centre service provider based in Durban, on South Africa’s east coast. Bizworks was formed five years ago by leading local Black Empowerment technology companies, Data World and ImvoTech, in alliance with international group ICH.
Around 130 agents from Bizworks work in conjunction with 35 to 40 PlusNet staff in Sheffield to deliver 24/7 technical and customer support to PlusNet’s Madasafish ISP brand, as well as the Internet services offered by the John Lewis Partnership’s Waitrose and Greenbee divisions.
That situation shows an active choice of South Africa over India. BT inherited the Bizworks arrangement when it bought another ISP, Brightview, in July 2007; Brightview had earlier decided to move the contract to Durban after two years of outsourcing customer support to India had proved “cost effective, but ultimately failed to meet our customers’ expectations”.
PlusNet has quickly come to appreciate some of the advantages Brightview was after. Writing in the internal company blog late last year, operations manager Nick Dodds, highlighted the benefits of working with mostly mother-tongue English speakers: “Unlike many offshore call centres, the guys here speak English as their first language and have a culture not entirely dissimilar to the British.”
His colleague Carol Axe, PlusNet’s customer services director, also sees the benefit of South Africa being roughly in the same time zone as the UK (one or two hours ahead, depending on the South African location): “[It] makes it really easy to work together, [including] daily conference calls and constant instant messenger chat.”
And the quality of the support that PlusNet’s 300,000 customers have been receiving has encouraged it to expand that Durban connection. “Up to now, our South Africa team has worked exclusively with the Madasafish and John Lewis brands,” says Axe in an internal blog. “But we’ve been working towards the point where, instead of PlusNet’s Support Centre in Sheffield getting larger and larger, we could use the South African team to allow us to continue to grow as a business.”
Bizworks, with its 364 seats in total, is hardly a lone figure on the South African outsourcing landscape. The largest local call centre companies – Direct Channel and the Dialogue Group – boast around 2,000 agents each and derive an increasingly large proposition of their business from Western customers.
One aspect that is encouraging more customers to go down that route is the stability of the employment market. By Indian standards for example, attrition rates are low.
According to Willy Govender, CEO of Bizworks, annual staff turnover is 26% “at worst”. Other call centre providers have an even lower attrition.
At Vodacom, South Africa’s largest mobile network provider, now majority owned by the UK’s Vodafone, the attrition rate at one of its largest call centres (298 agents in Cape Town) is running at under 8%, according to Anel Coetzee, its business operations manager; in other Vodacom centres it might be 15%, but that is still low by any measure.
Aside from the competitive pay rates of R90,000 to R120,000 (£6,160 to £8,220) a year, the company perks of a free mobile handset and call allowance, free meals, travel allowance and training might also be factors in keeping people, says Coetzee.
Notwithstanding such numbers, South Africa has been slow to trumpet the opportunity. One reason is that the country has only relatively recently shed its inward-looking nature, says Yusuf Timol, a director in the enterprise and industry division of the South African Department of Trade. Although the Apartheid regime ended 15 years ago, many of the country’s businesses are only now evolving from a state in which trade sanctions meant the business community had to be self-sufficient in almost every aspect of their activities.
“We spent the first ten years getting the country integrated into the global economy. Now we are ready,” says Timol. He points to the establishment of what is now a 365-seat telesales call centre and aircraft documentation preparation centre by Lufthansa almost a decade ago – not only to taking advantage of English so it could address the US market, but also to tap into native Afrikaans speakers for sales in its
home market and Benelux.
At analyst group Frost & Sullivan, Lindsey McDonald agrees that a lot of the elements are now in place. “Call centres are the low-hanging fruit,” she says. “Other BPO will follow.”
According to fellow analyst group Gartner, the BPO industry, with its emphasis on call centres, is one of South Africa’s fastest-growing economic sectors, already employing about 80,000 people.
But there are roadblocks to that growth. All observers highlight several challenges that still need to be addressed head on, most notably the traditionally high cost of telecoms and the limited availability of bandwidth.
“South Africa has a well-developed telecommunications network compared with other African states, but costs remain very high compared with the rest of the world, and they can have a substantial impact on some operations, such as call centres,” say Gartner analysts in a research report from October 2008.
That situation has its historical roots in the near-monopoly exercised by Telkom, the previously state-owned fixed-line operator. The government has now cut its stake in the telco to 39%, and Telkom is now being challenged by a second fixed-line operator, Neotel. However, the hottest competition is coming from the country’s main mobile carriers: Vodacom, Cell-C and MTN (see box). “At one stage, we had the highest telecoms charges in the world,” says McDonald. But prices have been coming down fast as competition opens up further, she adds.
Supporting that view, Bizwork’s Govender says he has witnessed a 30% fall in his company’s annual telecoms costs as a result of competition.
There are other dramatic improvements on the horizon too. Bandwidth should also be plentiful in the next few years, with the arrival of four new undersea cables.
Seacom, due in June 2009, is a 1,280Gbps fibre pipe that will join southern and east Africa to Europe and India; EASSY is promising a 320Gbps cable running along the Eastern cost of Africa by the end of 2010; Uhurunet/NEPAD is laying a 3,840Gbps data pipe that will encircle the whole of Africa; and Broadband Infraco/AWCC is going to provide a 2,560Gbps line running down the West coast of the continent, connecting South Africa to the UK and due in the first half of 2010.
At a local level, MTN is planning a national 5,000km fibre optic network, to be completed during 2009, aiming to become the preferred data supplier to businesses and dramatically reduce the cost of leased lines.
At the same time, different municipalities such as Cape Town and Durban are in various stages of developing and deploying their own fibre optic networks.
That confluence of delivery dates around 2009-10 is no coincidence. The government is backing huge infrastructure investments in advance of the 2010 FIFA World Cup which South Africa will host, and those can only aid the offshore outsourcing case.
That business case should be weighed across many factors, though. Gartner recently ranked the country across ten criteria that it suggests are important for any company looking to offshore: language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy (see table).
The upshot was that it rated South Africa among the 13 target countries in Europe, the Middle-East and Africa region that were best for offshore or nearshore outsourcing.
However, the scope of that outsourcing opportunity – at least at this stage – is restricted. On the plus side, “the labour pool has more than 300,000 school leavers and 100,000 graduates entering the workforce annually,” says Gartner. Indeed, Vodacom’s Coetzee says the company has no call centre staff or skill shortage issues.
That is good news for some types of BPO, but not for many other IT services. “Call centres have a regular supply of sufficiently educated staff, but there is a shortage of employees with higher IT skills, particularly in areas such as enterprise applications and software development,” says Gartner.
At most levels, though, labour costs – especially when compared with India – are a factor. “IT outsourcing and BPO salaries in South Africa are significantly higher at all experience levels than other global delivery destinations,” says Gartner. “But they are still about 55% lower than in the UK or US.”
The DTI’s Timol begs to differ, indicating that unit labour costs are on a par with many Eastern European countries and significantly lower than those of many other emerging markets.
Talking from direct experience, Bizworks suggests that in South Africa, businesses can operate efficient call centres for less than 50% of average European and North American costs. Helping that, at least in the initial stages, is a subsidy of around $8,000 per call centre seat from the South Africa government.
Skilled IT functions are a different matter. Software engineers, developers and programmers would expect to earn salaries of approximately $22,000 to $29,000, says Gartner. “This is about three times the salary of an equivalent position in India, but approximately one-third of the salary in the US.”
While South Africa may be uniquely placed to deliver software skills into some fast-developing areas (see box), at this stage that is not where the main opportunity for offshore delivery lies. The value proposition of contact centre and BPO activities are now coming into its own in South Africa, says Bizwork’s Govender. “The time is right,” he says, confidently predicting he will raise agent numbers to 500 in 2009.
While no one is suggesting that South Africa will match India’s prowess in offshore call centres, it has enough advantages to grab the attention of a growing number of service delivery executives – whether they are happy with India’s service levels or not.