Business Process Outsourcing and Offshoring (BPO)

Contents

• Defining BPO• Background: South Africa’s window of opportunity• Gaps South Africa need to address• South Africa’s strengths, weaknesses, opportunities and threats• The actions taken• Sector support programme

– Government assistance programme– Talent development– Marketing inititiative– BPO standards– 2nd Economy interventions– Telecommunication costs

Defining BPO

Customer care

HR/Administration

Payment services

Finance and

accounting

High end offshoring

Business knowledge

services

Administration/General back-

office

– Customer support

– Collections

– Helpdesk

– Telesales and telemarketing (Inbound/outbound)

– Web sales and marketing other SMA

– Recruiting and staffing

– Hiring administration

– Records management– Benefits administration

– Payroll services

– Credit/debit card services

– Check processing

– EDI

– Other transaction processing

– Billing services

– Accounting transactions

– Financial reporting and other

– Tax consulting and compliance

– Risk management

– Treasury/financial management

– Engineering

– Design

– Animation

– Network consultancy

– Financial analysis (?)

– Database marketing and customer analysis

– Biotech research

– Other non proprietary research

– Data entry

– Document management

– Claims processing

– Tax management

– Asset management

– Other (correspondence and report production)

Background: South Africa’s Window of

Opportunity

– BPO&O global market is expected to grow from $10b to $50-60b by 2008

• 40-50% of the growth in banking and insurance

– Result in an additional 3m jobs worldwide,

• 200-500k will be contested by SA and other ‘tier 2’ players

– SA is well positioned to exploit this opportunity

• create 65-100k jobs,

• attract $90-175m in real FDI,

• GDP contribution of 0.3-0.5%.

• substantial positive effect on BEE, SMME and Geographic Equity with respect to job creation

Gaps SA needs to address

•Talent availability: availability of managerial and agent level talent

•Cost of operation: SA is about $7-8/hour/full time equivalent agent costlier than lowest cost centers, (e.g., India, Philippines)

•Risk of operation: Perceived issues exist around personnel security and crime rates in SA

•Set-up assistance: setup assistance and time required to complete set up requirements

•Regulations: Concerns have been raised by companies on the flexibility of the labour regulations.

•Third party vendor landscape: Only 4-5 scale players with experience of migrating international business are available in SA today

•Marketing activities: Target marketing efforts conducted by provinces are not competitive in scale and sophistication

Strengths Weakness Opportunity and Threat Analysis (SWOT)

• Strengths

– Cultural and language familiarity

– Quality of business infrastructure

– Economic and political stability

– Quality of life and attractiveness of location

– International connectivity

– Adaptability

– Entrepreneurial culture

SWOT Analysis

• Weaknesses

– Cost of operations (labour and telecom)

– Inadequate government support and investment (e.g. tax, incentives)

– Talent gaps (agent and middle management)

– Quality and cost of transport

– Perceived security risk

– Investor relationship management (marketing effectiveness)

– Lack of scale vendors

– Difficulty of set-up

SWOT Analysis

• Opportunities

– Demand surplus in the traditional BPO&O market as India and China face supply bottlenecks

– Opportunity to offer specialised services in sophisticated industries (e.g. Financial Services)

– A foundation of multi-language skills

– A location proposition to regional (Africa-based) players

– An alternative location for captive/vendors already present in 1st tier locations e.g., India

– Exploitation of country synergies e.g. culture, legal, regulatory

– Exploit existing relationships

SWOT Analysis

• Threats

– Pace of delivery against telecom deregulation agenda

– Risk of union resistance (cf. atypical employment) and constraining labour regulations (cf. overtime)

– Inability to build a strong, coherent industry body

– Inability to open up lower cost quality talent pools and build sufficient managerial capacity

– Negative perceptions/uncertainty regarding gating criteria and issues such as HIV, BEE and crime

– Exchange rate volatility

The actions taken

• to exploit the opportunity have been largely coordinated through a partnership between the dti and the Business Trust.

• under the direction and leadership of His Excellency, the Hon. Minister Mandisi Mpahlwa, MP. (The Minister of Trade and Industry and Director of the Business Trust).

• The partnership also include key private and public sector decision-makers, namely:

– Ms Thoko Didiza (Minister of Public Works and Director of the Business Trust),

– Ms Elizabeth Thabethe (Deputy Minister of Trade and Industry), – Mr Derek Cooper (Chairman of Standard Bank and Director of the Business

Trust) and – Mr Eddie Funde (Chairman of the SABC and Chairman of the industry body,

Business Process enabling South Africa-BPeSA). • Operations are directed by

– Dr. Raymond Ngcobo (Chief Director for Strategic Competitiveness Unit, Enterprise and Industry Development Division of the dti),

– Mr. Brian Whittaker (CEO of the Business Trust) and – Mr Mfanu Mfayela (CEO of BPeSA).

Sector Support Programme

– Five work streams were identified:• Government assistance and Support• Talent development • Marketing• Industry mobilisation• BPO&O standards

– Additional work streams have been identified• Telecommunications pricing packages for the

BPPO&O sector• BPO 2nd economy strategy

GAS Programme

• The GAS programme was designed to support the development of the BPO&O sector, through:– Providing incentives to enhance the competitive advantage– Close the cost gap for BPO&O operations when compared to other

BPO destinations such as India and Philippines – Address market failures that result in the high cost structure

• Approved in December 2006 by Cabinet– Full roll-out in March 2007– The objective of the investment incentive is to attract BPO&O

investment that creates employment opportunities. – The grant is provided depending on the value of qualifying

investment cost and employment creation. – The grant ranges between R37,000 and R60,000 per seat and is

offered to local and foreign investors establishing projects that aim primarily to serve offshore clients.

Benefits

• INVESTMENT GRANT

Employment Created

Qualifying Investment Costs

Per Seat

Grant Per Seat

200 – 499 At least R74,000 R37,000 – R44,600

500 > Greater than R89,200 R44,601 – R60,000

200 > Less than R74,000 R37,000 - R52,300 or 50% of agents’ salary costs for 2yrs, whichever is lesser

Talent Development

• The most critical element of a distinctive value proposition – the ultimate basis for competition “TALENT AVAILABILITY”

• SA starts with a good foundation of trainable people, however considerable training is needed to deepen the talent pool

• There is a need for substantial government investment through– Company specific training and – work readiness training

• Work Readiness Programme known as Monyetla is an initiative between the dti and the Department of Labour

– aims to take unemployed matriculants or graduates through a process of learning work-readiness skills.

– in its pilot phase aiming to train 1000 learners at a cost of R15 000 each• The Training and Skills Support Grant is directed towards the cost of

providing company specific training (as opposed to industry wide training) up to a maximum of R12, 000 per agent.

– The incentive grant is over and above the assistance obtained through the Sector Education and Training Authorities (SETAs) and is complementary to the BPO&O Investment Grant.

Previous and proposed initiatives

DoL previous Initiatives No Of Learners

Estimated Costs Rand

Services SETA 3200

80,000,000 NSF Skills Development Support programme (part of DTI Small & Medium Enterprise Development Programme Incentive Programme 177 7,873, 000 NSF –through DoL Gauteng South Provincial Office 980

8,805,000

Totals 4,357 96,678,000

Previous and proposed initiatives

DoL proposed initiatives No of Learners

Estimated Costs Rand

Gauteng Provincial Government (Part of NSF funded Strategic Project) 5000

20,835,000

Western Cape Provincial Government through Call the Cape. (Part of NSF funded Strategic Project) 200

2,000,000

Services SETA (Fusion) 211

3,165,000 Services SETA (DTI/Business Trust)(Monyetla) 1000

15,000,000

Totals 6411

41,000,000

Marketing

• To persuade the best companies to do business in S.A. and remain in S.A by:

– Understanding and properly communicating the SA Value proposition.

– Encouraging regional and industrial diversity– Ensuring a competitive environment ( one stop shop)– Removing Regulatory obstacles

• The initiative straddles both targeted and broad-based marketing.  – Targeted marketing focuses on attracting and securing selected

high impact foreign investors, who will in turn create a groundswell of other investor interest.

– Broad-based marketing encompasses the supporting of government and industry initiatives, to raise South Africa’s BPO&O global profile, with the aim of securing a dominant Tier 2 position.

BPO&O Standards

• A set of 3 new standards geared towards service quality• Address Inbound and Outbound Contact Centres and Back-

Office Processing Operations standards in four categories:•Leadership and Customer Service Management•Human Resource Management•Operations Management•Technical Resource Management

• SA Bureau of Standards (SABS) is now turning these into national standards

• ISO is interested in the standards for the first global standard for BPO&O

BPO in the 2nd Economy

• Need to shift from concentration in main Metropolitan areas (JHB, DBN and CT) to ensure equitable distribution of benefit

• New designated areas have been identified to direct some investment to depressed communities

• Criteria for selection– Levels of unemployment and poverty– Availability of buildings– BPO potential in terms of local economic development– Availability of ICT Infrastructure– Talent availability and development

Identified sites

Identified Site Area 1. King Sabata FET,

Umtata, Eastern Cape

2. College of C.T. FET, Athlone/Crawford

Western Cape

3. Atlantis Education & Training Institution

Western Cape

4. Esayidi FET

Gamalakhe, KZN

5. Sekhukhune FET

Burgesfort, Limpopo

6. Nkangala FET

Siyabuswa, Mpumalanga

7. Umzinyathi District Municipality

Endumeni LC, KZN

8. Bohlabelo

Bushbuckridge LC, Mpumalanga

9. Kgalagadi (Satelite for Kimberly)

Northern Cape

10. Galeshewe (Kimberly)

11. Mdantsane Buffalo City, Eastern Cape 12. Ixopo (TBA)

Sisonke District, KZN

13. East London IDZ

Telecommunication costs

• Working with DoC on infrastructure for designated areas/ICT hubs

• Negotiating with Telkom for a developmental pricing framework

– Large offshore clients (>1000 seats)– Domestic clients– SMME’s– Designated areas

• Work is ongoing

QUESTIONS ???