Statistics from International Trade centre indicate that by 2050, 80% of the workforce worldwide will be working in services. The growing competitive business environment has positioned BPO as a key source of competitive advantage. India and China have dominated this industry but as the cost of outsourcing gets higher, companies are looking for other possible destinations. The million-dollar question is, can Africa be the next destination? What are the potentials, prospects and challenges of achieving this tall dream? What success stories already exist in Africa? What are the factors behind the success of the leading world BPO destinations? What are the strategies that will take Africa there?
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This module discusses the gradual global expansion of Business Process Outsourcing(BPO). It identified the leading BPO destinations which are geographically located in Asian countries notably India and China. The presentation further highlighted the factors behind the success of the leading World BPO destinations being availability of skilled manpower, enabling business environment created by government in terms of tax holidays and incentives for BPO investors, bilingual factor, IT skill and development as well as fast integrated logistics infrastructure.
In appraising the African potential in benefiting from inherent economic advantages BPO can offer the continent, the paper identified South Africa and Egypt being the leading BPO destinations in Africa today. These countries were leading because of the availability of the prerequisite enabling environment indices already listed above. Although Kenya in the East is equally bracing up to meet up with South Africa and Egypt, while Ghana, Senegal and Nigeria are assiduously working towards evolving BPO markets in the West African Sub-region. For instance, in Ghana … an indigenous company is currently operating. Also in Nigeria … are operating Call Centre outfits.
BPO is a new economic opportunity for the emerging African economy. However, government in Africa needs to partner private sectors under a Public Private Partnership (PPP) arrangement, for s virile BPO sub-sector to evolve in African countries. Apart from helping African economy to grow and be in tune with the international business ethics, establishment of BPO will help reducing high unemployment rate in Africa countries. However, authorities in African countries will need to remove entry barriers for investors in BPO, develop fast and integrated infrastructure in transport logistics and telecommunication. Africa has all it takes to evolve virile competitive BPO outlets, as a result of availability of cheap labour, skill manpower, huge market for Western products as well as cultural affiliation with the Western World. But government in these countries needs to create the enabling environment for prospective BPO investors to operate in Africa.
The rapid competitiveness in the global economy nowadays, as a result of dynamic business innovations are responsible for multinational corporate bodies, at international level, transferring some of their non-core and core business process to an external provider.
The above business approach is consequently conceptualized as Business Process Outsourcing (BPO).This approach (BPO) is unique because it offers companies a way of achieving transformational outcomes much more quickly. For instance, in BPO the outside provider does not only take on the responsibility to manage the function or business process, but he also re-engineers the way the process has been done traditionally.
Nowadays, BPO is fast emerging as a powerful and flexible tool that business leaders can use to achieve a wide range of tactical and strategic aims. BPO leverages process that drives efficiencies in business in terms of organizational excellence, responsiveness, branding, financial, efficiency and customer relationship. The most prominent business process that is being outsourced today is Call Centres. For instance, call Centres and Help Desks of many multi-national companies globally are being outsourced to low waged, English speaking countries such as Philippines and India.
BPO being an IT-based process has positioned India, the IT giant in Asia, to attract outsourcing business from American IT/Technology companies. E.g. IT, Help Desk. These are Help Desks that are configured with the state of the art software and hardware manned by IT experts, who also attend promptly to customer request.
The Operation Component of BPO
Its operations include the following:
Corporate Transcription Services
Worldwide BPO Destinations
Choosing a country for Offshore BPO work presents a strategic challenge to the client on one hand and an opportunity to the country on the other.
The economic benefits to host nation are compelling and therefore governments are becoming involved, offering incentives to providers that bring business to the country, speeding visa and immigration procedures, granting waivers in labor laws etc.
Most BPO consulting firms rate countries on three factors
AT Kearney, a global consulting firm Key has rated 11 countries on the three parameters and its findings rate India best in two of the three categories, cost and people. Weakness includes poor infrastructure, cultural differences, lack of global exposure, poor soft skills, bureaucratic red tape, complex and inefficient legal system and little business process expertise.
It says that Canada, Australia and Ireland, apart from their linguistic strength in English speaking, score best in people and environment. They boast of superior infrastructure and lower political and economic risk is undermined by costs, which are understandably higher. Canada has high employee retention rate, business process experience and proximity to the US making it the best near-shore option for US clients like BP Amoco, Allmerica and Compaq.
The historical influence of the United States on the Philippines has produced a workforce with close cultural affinities and American style English speakers aware of US standards of customer service. The Philippines, however, has a smaller pool of skilled resources and slightly higher labor costs compared to India.
Hungary and Czech Republic offer cultural similarities, language and technical skills along with lower hurdles to data privacy regulations (being part of EU) for multinationals that operate in Europe.
China’s strength includes large cheap labor pool suited to large-scale transaction-based business processes. Its drawback is high level of political risk.
It is becoming clear that the choice of country location carries much higher weightage than choice of service provider for large BPO deals and process of selection is rigorous.
Risk mitigation is an important consideration and work is being distributed to ensure business continuity and recovery in case of natural or man-made disaster. Both BPO providers and clients are using multiple country models with specific provisions for hot site, nearshore distribution of work. For example, in case of a natural disaster in Delhi, a comparable workforce in Manila could perform the same business process without interruption. By the same token companies find it useful to identify subcategories of countries that are most apt to meeting their specific needs.
The Ranking of Global BPO Destinations
The leading global outsourcing destinations, quoting the Economic Intelligence Unit are:
Ironically, USA and UK are placed in 20th and 29th respectively. The serious emphasis on why India came first is as a result of language (English) proficiency; and China 2nd due to her domiciled cheap and surplus labour supply, as well as world-class, integrated infrastructure.
The Index for Determining BPO Destination
The benchmark used by the Economic Intelligence Units for ranking the BPO destinations is:
Proximity to major sources of investment
Tax Regime, and
The BPO Market in Africa
Some countries in Africa have recently started buying into the BPO market, doing everything possible to become competitive destinations. This is as a result of identified huge potential in the African economy, considering the market size, which relies largely on Western Countries’ finished products, which are virtually not being produced on the continent. Geographically, the bulk of African BPO activity is presently concentrated in two regions of the continent namely the Southern and Northern Region.
Although, there are pockets of BPI activities in the West African sub-region, especially in Ghana and Senegal. South Africa is however currently leading the Africa BPO, performing call center services, and all forms of back-office operations. In the Northern region, Egypt is taking the lead in BPO, while Morocco and Tunisia are striving to evolve a reliable BPO sub-sector.
The Egypt Experience
In Africa, Egypt has been able to establish a virile network of BPO. Prominent among them is Xceed Contact Centre. It has on its payroll a total workforce of 850 employees.
The company has been able to excel in Egypt because of the following factors:
Egypt’s relatively reasonable wage rate
Multilingual capabilities of Egypt
Availability of skill manpower
A prime geographical location between the USA and Europe
Business culture of Egypt
Workforce already attuned familiar with to goods and services produced in Western countries
Government support in terms of incentives in stable inflation rate and GDP. The Egyptian government also supports the private BPO investors through the following:
Tax Breaks (that last 5 – 1 years)
Competitive telecommunication rates
Provision of training funds; and
The South Africa Experience
In South Africa there is callingthecape BPO in Cape Town. The South African government has been able to evolve an enabling environment for BPO investors in South Africa by providing business incentives aforementioned. The geographical location and cultural background of the South African workforce also contributed positively to the growth of BPO in the country.
Other countries in Africa that are striving to evolve BPO sub-sector include Mauritius and Botswana. Notably, Mauritius has 23 operators in its Ebene Cyber Tower, with a second tower underway. Nonetheless, Africa has a huge potential in BPO development, not only because of the size of the continent economy or its cultural relationship with the West but because of the rising costs in the traditional BPO countries.
In January of 2007, outsourcing policy guidelines was launched by the Federal Government.
The key thrusts of the policy are:
To promote an outstanding orientation starting with onshore outsourcing and progressing through nearshore to offshore outsourcing by encouraging stakeholders involvement in developing a vibrant outsourcing sub-sector;
To grow Nigeria’s image internationally as the preferred outsourcing destination and ICT business hub by developing a global competitive Information Technology enabled services sector; and
To facilitate the development of appropriate ICT infrastructure to support capacity building for quality service delivery in the outsourcing sector.
The Policy Objectives
The overall policy objective is the promotion of an enabling institutional, legal, regulatory, technological, and infrastructural environment for the sustainable development of the outsourcing sector in Nigeria. Some of the specific objectives are:
Actualization of the goals of the NEEDS policy of Government in the area of Information Technology Development;
Developing a globally Competitive Information Technology Enabled Services (ITES);
Promoting local and Foreign Direct Investment in Outsourcing Infrastructure development;
Developing an Export-Oriented ICT Product and Service delivery industry;
Accelerated Human Resource and ICT infrastructure development to support growth in the outsourcing sector; and
Facilitate rapid deployment of ICT and enabling physical infrastructure.
GOOD NEWS FROM INDIA
India is also no longer leading the pack of most-favoured outsourcing destinations. Instances of foreign firms pulling back the outsourced work are growing.
In recent months companies such as Capital One, Dell Computer, Lehman Brothers and AXA have repatriated their back-office operations from India.
Conseco, an American insurance firm, is the latest to join the roster of firms moving back their outsourcing operations. According to reports in foreign media, the list is expected to grow.
Conseco had outsourced as many as 800 jobs to India three years ago. The company then believed that India would provide better customer services. But that feeling is changing now.
These days more than 150 workers at its headquarters and 100 at a Chicago-based subsidiary field calls from independent agents and customers. These jobs were earlier handled by an outfit near New Delhi.
KNOWLEDGE PROCESS OUTSOURCING
The maturity and evolution of outsourcing strategies is leading businesses to shift towards the offshoring of high-end processes to low-wage destinations, a trend referred to as KPO. This involves offshoring of knowledge-intensive business processes that require significant domain expertise. In comparison to BPO, KPO delivers higher value to organizations that offshore their domain-based processes, thereby enhancing BPO’s traditional cost-quality paradigm.
The central theme of KPO is to create value for the client by providing business expertise rather than process expertise. Hence, KPO entails the shifting from the simple execution of ‘standardized processes’ to carrying out processes that demand advanced analytical and technical skills as well as decisive judgment.
KPO services can enable enterprises to reduce design-to-market lead times; manage critical hardware efficiently; provide research on markets, competition, products and services; enhance organizational effectiveness in business administration, and help in dealing with rapidly evolving business scenarios. Finally, the outsourcing solutions for high-end processes, unlike traditional BPO solutions that are commoditized fixed-price solutions, are usually customized and value-based. It is often this customization that enhances the value proposition of KPO.
YES AFRICA CAN BE THE NEXT DESTINATION
In an interview with Computerworld, Vidia Mooneegan, managing director of Ceridian Mauritius, discussed the emerging growth opportunities in Africa for business process outsourcing (BPO) confirming that Africa has all it takes to be the next frontier.
He stated that Africa is becoming of interest to offshore outsourcing decision-makers because the Asian countries that have been very successful over the past few years at growing their outsourcing industries have started having challenges. India, for example, is now experiencing a labour shortage, which is leading to high attrition, high cost and lower-quality service as Indian companies move to rural areas to find resources. Naturally, this is starting to slow down their growth. People are now considering other locations. The only untapped region left with a large supply of underemployed labour is Africa.
The AT Kearney Global Services Location Index 2007 showed a steady rise of African countries in the ranking, pushing out countries from Eastern Europe and Latin America as labour costs increase in those regions. Seven African countries are among the world’s top locations for outsourcing. Data monitor predicts Egypt will experience most aggressive growth in next decade.
According to him, Africa has a population of 933 million (2007 estimate), and 50% are under 20 years. It has a large pool of underemployed at highly competitive rates. With Asia rapidly increasing in costs, Africa will be a strong alternative over the next few years, and work may be cascaded to Africa.
Another significant advantage is language capabilities. Due to its strong history of European colonial rule, many European languages are spoken on the continent, including English, French, German, Portuguese, Dutch (Afrikaans), Spanish and Italian. As other non-English-speaking countries start to take outsourcing seriously, Africa seems to be a good choice. It also has a favourable time zone, almost the same as Europe. For U.S. companies, working hours are usually in the evening, so Africans avoid the night shifts that Asians have to work. Its geographical location may be an advantage. North Africa is a few hours away from Europe compared to India and China.
He also highlighted some of the challenges that must be addressed, if Africa wants to become a strong player stating that they are the same concerns that people talked about in Asia a few years ago, things like infrastructure, political stability, training and so on.
Africa needs to address the following issues if it wants to be a serious player:
[It needs] a redundant and reliable Internet broadband infrastructure;
more IT education;
government needs to invest in IT or business parks for outsourcing businesses;
the regulatory environment needs improving;
a change in mindset, e.g., [companies] cannot depend on government handouts; and
More entrepreneurs to build markets, probably having the diaspora to come back and start building the Infosys’s and Wipro’s of Africa.
Some African countries such as South Africa, which already has a strong brand, and Mauritius, which is well known to Europeans but not as well known to Americans yet, are quite advanced and already have fast-growing BPO sectors. From Mauritius, I host officials visiting from many of these countries to learn about how we have done it in Mauritius. Given their enthusiasm, I expect improvements to continue steadily. Countries like Kenya, Botswana, Ghana and others are already organized and quite stable. They seem poised to be strong outsourcing destinations over the next few years.
There are significant external opportunities, which could be exploited with appropriate strategy formulation and implementation while at the same time indicating areas of concern with regard to threats from other emerging BPO locations around the world that are positioning themselves for a share of the global BPO market and therefore direct competition to Africa.
Recommendations are made in the following areas to position Africa as an attractive BPO destination.
Overall enabling environment
Introduction of basic BPO Training at School and University level
Offer incentives to private sector for training in BPO
Attract highly qualified and experienced professionals from India and France through easier immigration facilities.
Focus on improving both reading and writing skills in French and English
Reduce International Private Leased Circuit (IPLC) rates either by introducing competition or cross-subsidizing
Ensure that rental and leasing rates for property are relative price consistency across the island for the same quality of services.
Increase international air access and connectivity to destinations
Competitive Positioning Mauritius:
Single Government Body to deal with BPO promotion, both within and outside the country
Ensure commitment from key government officials such as Prime Minister, Minister of ICT and encourage them to be the torchbearers for the country’s BPO initiative.
Establish institutional and governmental linkages with other emerging alternative offshore countries to create niche opportunities
Creating Enabling Environment
Stimulate better coordination between private and public sector in the BPO industry.
Create an umbrella organization for BPO promotion that is dedicated to proactively initiating, setting policies, guidelines and promoting the IT industry advantages within and outside Mauritius.
Accelerate Data Protection Acts so it complies with EU regulations
Government should remove all restrictions and should encourage the immigration of specialized talent pool to settle in the country.
Simplify access to capital for entrepreneurial investments in BPO
National Competitiveness Strategy
Improving competitiveness requires a strategy to improve the business environment and competency at the national level. The strategy should focus on cross-cutting issues, with the needs of key growth sectors determining areas for priority attention.
National branding can boost a country’s profile on the international business scene, but strategists must think long-term and promote national characteristics that match business reality.
Value chain analysis highlights links in the chain where firms and countries can capture more value from Business Process Outsourcing.
Industrial clusters, ICT villages, business networks and alliances between non-governmental organizations and exporters provide ways to improve a country’s international position.
Trade development officials need benchmarks to establish how far they are meeting their objectives. They should try to measure impact, not just resource inputs and service outputs.
BPO appears a new economic opportunity for the emerging African economy. However, governments in Africa need to partner private sectors under a Public Private Partnership (PPP) arrangement for a virile BPO sub-sector to evolve in African countries. Apart from helping African economy to grow; and be in tune with the international business ethics, the establishment of BPO will help in reducing high unemployment rate in Africa countries. However, authorities in African countries will need to remove entry barriers for investors in BPO, develop fast and integrated infrastructure in transport logistics and telecommunication.
Africa has all it takes to evolve virile competitive BPO outlets, as a result of availability of cheap labour, skilled manpower and huge market for Western products as well as cultural affiliation with the Western World. But government in these countries needs to create the enabling environment for prospective BPO investors to operate in Africa.
Dr. Madu is the CEO Multimix Export House; Director General African Centre for Supply Chain and a recipient of the 2014Nigeria National Productivity Order of Merit Award. He can be reached at firstname.lastname@example.org You can follow Dr. Obiora Madu on LinkedIn or on Facebook to gain more insights on the topic.