South Africa’s emergence as a real international player in the field of business process outsourcing has been a long journey. Technology professionals have been making predictions about its BPO growth and potential for more than 15 years, yet — overshadowed by the larger, more established players like India and the Philippines — it has not been top of mind when companies think of outsourcing.
This is changing, though; a number of recent reports have placed South Africa in the big leagues when it comes to outsourcing. “South Africa is now the third-largest emerging BPO geography, competing with India and the Philippines,” according to a recent survey by BPO consultancy Outsource Accelerator.
South Africa’s reputation as a BPO destination has been growing for a number of years. It was named “Offshoring Destination of the Year” at the Global Sourcing Association (GSA) Awards in 2018 and it has ranked in the top five of the most attractive BPO locations in the world for three years in a row in the annual Front Office BPO Omnibus Survey conducted by Ryan Strategic Advisory. In 2020, it ranked second after the Philippines.
There is a large amount of interest from North America in South Africa at the moment as an alternative service delivery point, compared to the Philippines or India, says Peter Ryan, BPO analyst and principal at Ryan Strategic Advisory.
Language capabilities strengthen BPO position
“It’s really the only other scalable English language option anywhere in the world in the offshore,” Ryan says. “And I truly think that the providers are rising to the occasion, the industry association is rising to the occasion and the energy and enthusiasm is something that you don’t find in many other places and this is really, I think, a key selling point for the country.”
While there is a shortage thoughout sub-Saharan Africa of trained professionals who can meet the demands of IT jobs, South Africa has been at the forefront of efforts in the region to remedy the skills gap.
“Government and private sector efforts to build digital skills capacity among South Africa’s youth over the past five years are bearing fruit,” according to non-profit organisation Business Process Enabling South Africa (BPESA). “This, together with other initiatives have favourably positioned the country as a global destination for outsourced projects.”
Agesan Rajagopaul, a partner at McKinsey and co-author of their report titled Driving economic recovery in South Africa’s BPO industry, has been working on a three-year programme with small businesses on job creation, focused on three sectors: agricultural processing, manufacturing, and BPO. Through industry body BPESA, McKinsey has connected with various BPO companies with high growth potential to help them grow, access new markets, help them cut costs and improve efficiency.
Cost efficiency plays a big role in outsourcing
Rajagopaul describes South Africa’s BPO positioning as being partially built on cost effectiveness — with the exchange rate falling against the pound and dollar there’s been a drastic improvement in competitiveness. He says that South Africa has struck a balance with this, because you don’t want to be too low cost and take advantage of employees. More importantly, Rajagopaul says that South Africa is known for its efficiency and quality. “It’s not just the neutrality of the accent, it’s also the ways that South African call centre and BPO agents are known to engage with customers.”
South Africa is being seen to play in the same space as the stalwarts of outsourcing, India and the Philippines. Amazon’s recent investment in 3,000 new virtual jobs in South Africa, to service customers in the US and Europe, is indicative of this.
Rajagopaul says BPESA’s work to showcase South Africa has played a role and the growth in investment and partnerships from places like the UK has also evidenced a change of perspective on South Africa’s BPO.
It’s not all positives, though. South Africa is facing some real problems that could shake it from its position as a BPO provider of choice. Notably, rumours of a split in BPESA, with the Western Cape taking its own path, have caused concerns.
Infrastructure issues loom large
Reputational issues are a core threat to South Africa’s positioning in BPO as well. South Africa’s infrastructure issues around electricity provision, load shedding and water, for example, have made headlines around the world, something that, Ryan says, has surprised South Africans.
Load shedding is much less of a cost issue and more of a reliability issue. Paul Swainson, managing executive of partnerships at CCI South Africa, a BPO contact centre provider in South Africa and Kenya, explains that whilst South Africa’s central power and water infrastructure require some investment, CCI, like many others, have put in place their own solutions such as UPS (uninterrupted power supply) facilities, power generators, water storage and harvesting facilities in all their buildings, to ensure a seamless consumer and employee experience.
“The overall technology and transport infrastructure are world-class in South Africa, combined with the great quality of our workforce, making South Africa a destination of choice to BPO & IT outsourcing,” Swainson says.
But there are other issues too. “Take a look at the anti-immigration riots that happened a few months ago as well; those didn’t go unnoticed in different parts of the world,” Ryan says. He adds that accessibility could be an issue if national airline SAA goes under. “We know that they’re teetering on the edge of bankruptcy right now. The government keeps having to bail them out, but the same problems keep happening.”
Rajagopaul also cautions that in as much as the exchange rate has been a benefit for South Africa, the BPO sector needs to use this opportunity to create a stronger structural cost advantage going forward. “You don’t want to be so dependent on an exchange rate benefit, but you want to actually create the structural strength to be competitive on your own, without that,” Rajagopaul says. And as with most sectors, the pandemic has also had an impact with some struggling to make the move to home working.
Looking beyond end-user services
For Ryan, it is clear that South Africa’s outsourcing sector needs to stake out very clearly two to three non-end-customer areas and focus on those. “They are not India and they shouldn’t try to be,” he says. He adds that while there is scalability, it is not massive scale, as South Africa is half the size of the Philippines and a 10th the size of India. There are good levels of education in engineering and STEM, but demand for those graduates will be high across a range of sectors.
“If the outsourcing industry is going to be competitive it needs to find higher value niche areas it can focus on,” Ryan says. “A great example I think is legal process outsourcing, where South Africa has made great strides in terms of being able to position themselves as a country that can do legal work for the US or Canada, or the UK or Australia. It’s that type of work that they should really be looking at making real moves around.” McKinsey’s Rajagopaul agrees, adding that there also need to be continued investment in skills building to support this.
Despite all this Ryan believes the benefits outweigh the risks. “South Africa is very much on an upward trajectory in terms of its BPO and IT services value proposition,” he says. “Where it needs to be is in a position that it can draw in investment that is going to ensure long-term, scalable, niche value-add roles that will help develop the economy further.”