Outsourcing: Building a new Bangalore
Africa is proving an attractive destination for business process outsourcing but it has a long way to go to provide end-to-end services for cost-conscious multinational corporations.
Visit a doctor in Australia and she could send the notes overnight to be typed in Durban or Johannesburg. Buy a property in Hong Kong or Brussels with law firm Lovells and they will send the paperwork to be drawn up in Cape Town. African countries marketing themselves as outsourcing destinations would salivate at this kind of high-end knowledge-processing opportunity. It marks South Africa’s efforts to climb the business-process outsourcing (BPO) ladder. Market intelligence company IDC estimates that the global BPO market will be worth $168bn by 2012.
Offshoring is a fiercely competitive business and Africa is a pretender to the established reign of countries like India, China and Malaysia. While ?Accra and Nairobi are a long way from becoming the next Bangalore or Manila, Africa is proving an attractive alternative for companies looking to minimise costs by moving back-office operations to low-cost countries. High-speed cables bringing fast broadband combined with good language skills and a focus on outsourcing as a career rather than a stop-gap job are strengthening the BPO sector in Africa.
Egypt, Ghana and Tunisia are climbing up global rankings of the best destination for offshoring services (see table, page 70). In a sector where the bottom line is the priority, lowering costs is a key consideration for companies looking to set up their own ?’captive’ operations. Employing an operator in Morocco, for example, costs around one-third of the price it would in France.
Africa’s BPO sector is dominated by the call-centre market. In South Africa, where consultants Frost & Sullivan estimate that the BPO sector is now worth $1.6bn, 67% of the market share comes from contact centres. Now, some large multinationals that are already used to offshoring their French- and Spanish-speaking operations in North Africa (Dell, CapGemini, Atos Origin and Accenture all outsource information technology services to Morocco), are now looking to sub-Saharan ?Africa. Accenture has launched a pilot offshoring project in Kenya, where Virgin Mobile Canada is also outsourcing its database management with MFI Business, and Deloitte is considering setting up a 500-seat accounting and financing centre.
Still, these high-tier examples are the exception, and there is unease among operators about the way Africa is positioning itself. Sceptics point to the Philippines, which based its BPO offering around call centres but has found it tough to move away from providing low-level ‘tier-3’ services. One Kenyan blogger lamented what he called “brain-process outsourcing” following the government’s announcement of plans to create 20,000 BPO jobs by 2014, arguing that it would turn graduates into answering machines. Paul Kukubo, chief executive of the Kenya ICT Board, which is implementing the vision, told The Africa Report that the country’s offering was more nuanced. “There will be a great level of innovation that is developed around meeting our own needs first, then taking that expertise onto a global scale – which is always a more sustainable way to do things.” ?
Although South Africa is marketing ?itself as a ‘tier-2’ country and can already offer advanced financial and accounting capabilities that have been well-groomed by the country’s domestic market, Spiwe Chireka, industry analyst at Frost & Sullivan, argues that South Africa remains focused on call centres: “It will catch up with them because the value from contact centres keeps going down.” South ?Africa is “actually underselling its capabilities in other areas”, says Chireka, mainly because of the push to create quick jobs in contact centres that can absorb the unemployed.
One way countries can hope to avoid being pigeonholed is to look closer to home and act as a ‘nearshore’ hub for the African region. The Mozambican IT infrastructure operations of Sasol, the South African chemical company, are managed by Business Connection (BCX), a South African company that delivers regional support for AngloGold Ashanti and BHP Billiton.
Demand for services like these from African corporates will be limited. However, William Ackerman, head of BCX’s 1,000-strong service-integration division, says that 70% of its revenue comes from providing services to companies expanding in the region: “Our biggest growth lies in delivering services on an outsourcing basis for Africa.” ?
Ghana, a relatively new BPO destination, plans to add another 5,000 jobs to the existing 3,000-4,000 by 2012. US firm ACS Services enters data for US insurance companies via a shared services centre in Ghana, while local BPO outfit exZeed has a contract with Vodafone.
Ghana’s short-term strategy is to target West African telecom and banking companies. Pradeep Mukherji, partner at Avasant, a US consultancy hired by the Ghanaian government, hopes that Ghana will “act as the gateway to Western Africa”, with an ability to offer francophone and anglophone services. After 18 months, its strategy will shift to targeting the UK and US, with a long-term plan to move into knowledge-process outsourcing, such as legal and graphic-design services.
Indian offshoring giant Wipro set up a Cairo office in 2007 that now employs 150 people, mainly servicing the software needs of customers from the United Arab Emirates and Saudi Arabia. Wipro’s Cairo operations should gradually move into support for IT infrastructure, databases and systems. The Egypt centre will also provide a gateway for Wipro’s expansion into Africa. “It is going to be one of the centrepieces of the whole expansion strategy into the region,” says Wipro’s head of marketing, Ramachandra ?Yadavilli. The Egypt office is also hosting a back-office service centre providing software, Java and programming support to Wipro Infotech’s Indian operations.
To attract such business, governments understand that they must provide incentives for investors. They fall into three main categories: tax breaks, infrastructure and training. Morocco provides all three as part of a strategy to attract 100,000 full-time offshoring jobs by 2015 and to triple the sector’s contribution to gross domestic product to 18%. Incentives include a training subsidy of €5,800 per employee, a 20% ceiling on income tax for fully-payrolled employees and five years full exoneration from corporate taxes.
The South African government offers a capital-expenditure incentive of up to R60,000 ($8,100) for new BPO centres of over 200 seats plus a training grant of up to R12,000 per employee. Bulelwa Koyana, interim chief executive of the Business Process enabling South Africa (BPeSA) industry association, says various incentives are currently under review after calls from international investors for help with operational expenditure. “They are wanting an incentive that will have a direct impact on their profits and losses,” she says, adding that her impression was their competitor countries were offering better carrots.
Company Profile: SAP
SAP, the German business software company, is spreading its tentacles throughout the continent’s information-technology (IT) systems and already counts Angolan oil company Sonangol, the African Union, Ethiopian Airlines and Nigeria’s Delta State government as its clients.
“For Africa, it’s not a big bang”, says Sunil Geness, corporate affairs executive for SAP in Johannesburg. Supported by a 3,000-seat offshore lab in India, SAP has been active in Africa for 15 years and has offices in South Africa, Nigeria and Kenya, targeting companies in the oil and gas, mining, finance, manufacturing and public sectors. Geness estimates that two-thirds of the top South African companies run SAP software. In 2005, the company opened a research centre in Pretoria focused on technology for developing countries.
Large software systems such as those run by SAP and its biggest competitor, Oracle, typically require large bandwidth, which is often out of reach to all but the multinational and governmental clients in Africa. Cheap internet connectivity through new fibre-optic cables means that SAP will have a chance to market its on-demand ‘cloud computing’ products, which are better suited to midsize companies that may be wary of large software-procurement costs. “If you’re a business in the retail industry, we are going to make available a portal where you can go in and customise the on-demand system,” says Geness.
The global push for more private- and public-sector transparency offers new opportunities to savvy software companies. The World Bank requests that governments put in place efficient IT systems before they can receive aid. In Ghana, SAP is donating software to help the government collect and manage data on tax collection and revenue under the Extractive Industry Transparencies Initiative.
Kenya is focusing on infrastructure and special economic zones. Two projects currently awaiting decisions from the Treasury involve the take-over of the privately-owned Sameer Business Park and the construction of a technopolis at Malili, 60km from Nairobi. Another key incentive will be offsetting businesses’ rental costs, says Kenya ICT Board’s Paul Kukobo: “We just want to know which incentive is easiest to actually kick in without too much legal and regulatory manoeuvring. Incentives cost money.” ?
It is still early days for the African BPO industry, and there may be dramatic global realignments ahead.Futurist Patrick Dixon says that wage inflation in China and India plus an acute shortage of middle-managers are changing the economics of offshoring.He notes that companies are already leaving India for Pakistan, Bangladesh and Vietnam.
Wipro now has 400 people working in Atlanta and another development centre with 500 people in China. “We will have to go where our customers want us to go”, says Yadavilli. But he warns Africa that “the learning curve that we have gone through in India and Asia is something that can’t be reinvented or replicated overnight.” ?
Platform-based services, particularly for the anglophone market, where one company manages an entire end-to-end process are still out of reach of most African markets. While it will be a challenge to stand out from other emerging market BPO destinations in Eastern Europe, South-east Asia and South America, Africa is well-placed to compete for business in this shifting global arena.