BPO Industry Growth in SA Factors at Work That Inhibit and Uplift the Telecommunications Market
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BPO industry growth in SA Factors at work that inhibit and uplift the telecommunications market Abstract The cost of telecommunications prevails as a primary inhibitor for the growth of the BPO industry in South Africa. Despite this however, South Africa has established itself as a lucrative outsourcing hub on the strength of overall quality of services delivered. Expanding undersea cable networks, increased Government support, increased broadband bandwidth capacity, use of robotics, increased skills development and access to growing skills pools as well as lower business broadband costs required to boost this industry further. This paper examines some of these factors and provides recommendations to grow the BPO industry in South Africa. Background As the global economy increasingly shifts In addition to Call Centre solutions, the towards a digital economy, it becomes most sought after service from a vertical very important for telcos to provide perspective in South Africa, has been competitive voice and data services. The in the finance and accounting sector cost of business broadband connectivity which accounts for 50% of the market. and associated services are quite high Talent also plays a key role in the growth in the Africa region when compared to of the outsourcing industry e.g. with other parts of the world. There are a the focus on Artificial Intelligence (AI) number of factors behind this which are and analytics driven solutions, South inextricably linked to the growth of the Africa has a larger number of actuarial Business Process Outsourcing (BPO) resources when compared to India, business in South Africa. Although, the and can provide support in a number cost of telecoms for consumers in South of languages including French and Africa has reduced significantly in the Spanish. The use of AI and robotics as past few years; in order to compete a complementary strategy to human with well-established outsourcing resources can help the South African destinations such as India, increased BPO industry pull away from it’s lowering of telecom’s pricing in the competitors in the EMEA region. business sector would place South Africa on a solid footing to attract more growth to the BPO industry. South Africa has been able to successfully position itself as an emerging offshoring destination for voice as well as non-voice services. The South African BPO industry accounted for 1% of the global BPO revenue in 2014 and is expected to account for 4% of global revenues by 20301. In addition, three South African cities feature in the top 100 global outsourcing destinations. Johannesburg leads the pack (#20), followed by Cape Town (#56) and Durban (#100)2. The number of international jobs in South Africa increased by 23%, from 21 700 in 2014 to 26 700 in 2015. These captive centres account for close to 64.1% of the total Business Process Management (BPM) market dominated by the Gauteng Province. 1 South Africa’s Big Five - Bold priorities for inclusive growth by McKinsey 2 Tholons 2016 Top 100 Outsourcing Destinations BPO industry growth in SA 4 South Africa’s position as an outsourcing destination is strengthening A number of studies indicate that South Africa has been able to succesfully Based on Gartner studies4 conducted extended telecom’s reach is essential establish itself as an emerging earlier this year, more than 85% of for growth and business viability within outsourcing destination not only for enterprises select more than one an information-focused global economy. Call Centres but also for high-end BPO location to provide offshore, nearshore Accessibility and affordability of telecoms services such as analytics and Legal or onshore outsourced solutions. is pivotal to the success of the BPO Processes Outsourcing (LPO). South South Africa is categorised as a primary industry in South Africa. The South Africa’s BPO industry grew 18% Year-on- location within the EMEA region whereby African BPO industry is a significant GDP Year (YoY) between 2010 and 2012, on an South Africa is an attractive option contributor and employment creator in estimated base revenue of $825 million based on overall value, cost and risk. the country. As per Business Process in 2010, to $1.1 billion in 2012. In 2014, This study comparatively examined Enabling South Africa (BPeSA), the BPO South Africa accounted for 1% of the Language, Government Support, Labour sector contributes ZAR50 million to global Business Process and Information pool, Infrastructrure, Educational the country’s national annual GDP and Technology outsourcing market ($151 System, Political and Economic provides employment to approximately billion, 2010 prices) and has the potential Environment, Cost5 (Labour), Cultural 215 000 people. to increase its market share by an Compatibility, Global and Legal Maturity additional 3% through to 20303. as well as Data/IP Security and Privacy. However, the overall cost of wireless and fixed line tariffs is an inhibitor, While this expected growth benefits In addition to the cost of labour, impeding the growth of the BPO from, amongst other factors, a positive the following factors play a crucial industry in South Africa. Alongside this, business environment and infrastructure, role in establishing a location as an factors such as Government support, it is challenged by cost and labour pool outsourcing hub of choice: availability of the labour pool, linguistic availability for higher-end services. These capabilities, cultural compatibility, and challenges can hamper South Africa’s • Telecommunications costs legal structure also play an important prospects when compared to other • Talent pool role in establishing overall differentiation emerging outsourcing destinations such in terms of destination advantage. While as Brazil, Ghana, Kenya etc., where some • Cultural affinity South Africa is performing relatively of these factors are more favourable. • Legal system well within it’s EMEA peer group, much In India, the Government introduced more has to be done to make South attractive policies for the BPO industry, • Linguistic capabilities Africa globally competitive while India along with providing Special Economic • Government support remains entrenched as a firm leader in Zones (SEZ) and industrial parks with the BPO space. various tax relaxations. These pro-IT • Infrastructure e.g. electricity, roads government interventions continue etc. to focus on developing higher-quality infrastructure and communication systems that act as a primer for the overall growth of the industry. 3 Souce: BPeSA 4 Source: Gartner – Evaluate Offshore/ Nearshore countries for outsourcing, Shared Servces and Captives Worldwide, 2016; – Evaluate Offshore/ Nearshore countries for outsourcing, Shared Servces and Captives in EMEA, 2016 5 Indicative cost of labour based on the cost of the Application Developer role in the US market BPO industry growth in SA 5 Introduction South Africa’s country comparison versus established BPO competitors in the APAC region The Gartner study stated that the cost of telecoms in South Africa is less competitive than that of global competing destinations such as the Phillipines and India and described this as a risk factor. South Africa can also do much more to enhance its ranking by addressing factors such as increased Government Support, Labour as well as Educational System interventions. An elaboration of some of these factors is presented below. Language Governance Support Labour Pool Infrustructure SystemEducational Cost Political Economic and Environment CompatibilityCultural Maturity Legal Global and Data/IP Security and Privacy South Africa 9 6 4 5 4 5 4 9 6 4 India 8 9 9 5 7 8 8 7 5 5 Philippines 9 6 8 5 5 8 6 7 4 4 (Source: Excerpt from Gartner Evaluate Offshore/Nearshore countries for outsourcing, Shared Servces and Captives in EMEA, 2016) BPO industry growth in SA 6 Cost of telecoms in South Africa – a prevailing concern for the growth of the South African BPO industry South Africa’s telecoms industry, particularly the mobile segment, has grown rapidly in the last one and half decades amidst aggressive market competition. According to the Economist Intelligence Unit (EIU) forecasts, mobile subscriptions are expected to grow by an annual average of 1.2% during 2015- 19, resulting in over 84 million mobile subscribers by 2019. This high penetration can be attributed to individual ownership of multiple mobile phones and devices and a continued increase in disposable income. As per market estimates, the Average Revenue Per User (ARPU) is set to decline steadily towards 2020, although this declining trend will not be sharp. This soft ARPU decline is expected to be supported by a strong growth in 4G/LTE connections and the ARPU is projected to reach ZAR82 by the end of 2020 from ZAR88.8 in 20146. 6 BMI South Africa Telecommunications Report 3Q2016 BPO industry growth in SA 7 Cost of Telecoms • As per the Global IT Report 2016 published by the World Economic Forum (WEF), South Africa ranks 58 and 61 (out of 139 countries) in terms of prepaid mobile cellular tariffs and fixed broadband internet tariffs, PPP USD per minute, respectively. Based on this ranking, the cost of telecoms is still much higher when compared to leading outsourcing destinations such as India and the Philippines. • Lower telecoms tariffs are recognised as a major success factor for the growth of the BPO/BPM industry, along with the other factors cited above. India, for instance, ranks 5 and 36 in terms of mobile cellular tariffs and fixed broadband internet tariffs respectively7. Affordability of Telecommunications (Ranks out of 139 countries) Prepaid mobile cellular tariffs, PPP $/min 150 120 % % 90 % % 60 % 30 % % 0 Brazil hana reland enya Paraguay Philippines South Africa Fixed broadband Internet tariffs, PPP $/month 120 % % 100 % 80 % 60 % 40 20 % % 0 Brazil hana reland enya Paraguay Philippines South Africa (Source: World Economic Forum, Global IT Report 2016) 7 World Economic Forum Global IT Report 2016 BPO industry growth in SA 8 While it has been widely recognised that there is a continued decline in fixed-line services in South Africa, this is in keeping with global trends.