Last week, NelsonHall attended the latest BPM Summit in Cape Town organized by BPeSA (Business Process enabling South Africa), the official trade body for the outsourcing and contact center industry in the Western Cape. The event provides an opportunity for potential investors, analysts, providers, and government officials to interact. Here I take a look at the appeal of South Africa as a location for business process services (BPS), at successes to date, and at the drivers and inhibitors shaping the future development of outsourcing in the country.

Backdrop

The expanding automation of low-level front-office interactions and the increasing use of self-service as a channel are driving voice support in contact centers to more complex and potentially higher value interactions. These types of interactions require agents who are confident and skilled in non-scripted conversations. For customer management services (CMS) providers, finding such talent, while keeping wages manageable, continues to be a challenge. Hence, vendors have been expanding their operations in tier 2 and 3 cities in their existing delivery countries, particularly onshore and in the Philippines, as well as looking for other locations (e.g. Guyana in support of the U.S. market, Mauritius to service French speaking customers, and the Baltics to service the Nordics). However, South Africa, while being a well-known outsourcing location for CMS, is still largely underused.

Government ready to help

This year’s conference was opened by the Premier of Gauteng, David Makhura, who emphasized the importance attached by government authorities to the BPS industry for its role in job creation. Representing one of the largest economies in Africa, he champions an aggressive two-year plan to attract 25 new Fortune 1000 BPS providers to his region, while at the same time working with the Western Cape and KZN provinces to promote the country of South Africa as a business destination.

The national government’s commitment includes a BPS incentive program, offered since 2011, which provides tiered financial compensation based on the number and types of opened outsourcing jobs.

Progress so far

Supported by the work of BPeSA and the regional governments, the BPS industry has increased from R1.3bn (~$177m) in 2010 to R3.6bn (~$242m) in 2016. In the CMS space, global vendors with operations in the country include:

• WNS, with over 4k employees and 20+ clients, serviced from five cities offering CMS, F&A, analytics, procurement and legal services, and HRO. WNS has almost doubled its workforce in the country over the last two years, primarily in support of the U.K.,
• Webhelp, with over 1.2k employees in Cape Town and Johannesburg
• Capita, with 2.5k staff and two sites in Cape Town
• Teleperformance, with one site in Cape Town
• Xerox Services, with one center in Johannesburg
• Aegis, present in Johannesburg and Durban
• EXL, a newer entrant.

South Africa also has local players such as Merchants, servicing both domestic and offshore clients, and a number of captive centers, notable ones including Amazon and Barclays.

Need for a focus on target markets

The majority of the work conducted in the centers is serving clients in the U.K. and Australia, but with growing concern of the impact of Brexit, South Africa is also looking to the U.S. as a potential source of growth. We believe this presents a substantial challenge, as the time zones, plus cultural and language differences make the country less competitive compared to traditional offshore and nearshore locations for North America.

In contrast, the U.K still presents a big opportunity as the primary target market. While Brexit may have a negative effect on the available work in certain areas such as banking, some of the largest U.K. accounts serviced from South Africa are in telecoms and utilities, which typically remain stable even in times of economic disruption. One opportunity in the utilities sector is the deregulation of the water market for business clients in England and Wales from April 2017. Overall, the U.K. CMS market estimated by NelsonHall at $4.7bn (2016) has a stable growth potential of 4.2% CAAGR through 2020. With its conversational skills advantages, South Africa has the potential to increase its share in voice work from this market.

Education as a BPS driver

The changing requirements for the BPS workforce, coupled with South Africa’s >25% unemployment rate, especially youth unemployment (>50%), places big demands on education and training. David Blyth from marketing consultancy Yellowwood shared that his surveys among young people show that millennials are forced into vertical work structures, but want horizontal environments. As Lisa Roos from Merchants described, the increasing freelance and self-selection character of today’s agents require school education to incorporate digital learning and gamification.

Both BPeSA and the regional governments recognize this need. BPeSA has developed a mobile game to help young people learn about the BPS career path, while next year Gauteng plans to open schools of specialization offering skills training for the outsourcing industry.

From front office work to advanced BPS

While relatively mature, the BPS industry in South Africa has yet to make substantial gains in middle- or back-office BPS, despite a strong talent pool in financial and legal services. Part of the challenge can be addressed by creating an eco-system of local players who can provide the analytics, digital, and automation services required for advanced BPS. Examples of such capabilities from local companies include:

• Software developer Zailab with its multi-channel platform and custom agent desks supporting 3D gestures
• CLEVVA, which has developed a software platform for non-coders to build virtual agents
• Genii Analytics and its customer experience interaction and predictive analytics platform.

The advantages of South Africa

The decline in the value of the Rand has made South Africa more cost attractive compared to the Philippines and India, and clearly, BPS is getting government support. But these factors on their own would not be sufficient to attract more organizations to look at South Africa for BPS. Its key advantage is talent-related: South Africa has a large population of fluent English speakers with a ‘neutral’ accent, with the ability to communicate with customers effortlessly in a friendly, persuasive manner, making the country the preferred English piece in a global multi-lingual delivery set-up. For environments where conversational skills are important, South Africa offers agents with 'call intelligence'.

NelsonHall published a repprt on‘Analysis of South Africa as a BPO Delivery Location’ in 2015. To find out more, contact Guy Saunders.