2008InvestorReport

Contact Centre and Business Process Outsourcing Research KZNonSOURCE Investor Report: February 2008

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CONTENTS

Executive Summary ..................................................................................................... 1 Statistical Review ......................................................................................................... 2 About KZNonSOURCE ................................................................................................ 3 Acronyms ..................................................................................................................... 4 1. Introduction .......................................................................................................... 5 2. Global Markets and Trends .................................................................................. 6

2.1 Introduction ................................................................................................... 6 2.2 Industry Drivers ............................................................................................ 7 2.3 Global Industry Size ..................................................................................... 7 2.4 Global Industry Investment Trends............................................................... 8

3. South African Profile ............................................................................................ 9 3.1 Introduction ................................................................................................... 9 3.2 South African Industry Size .......................................................................... 9 3.3 South African Industry Profile and Trends .................................................. 10

4. KwaZulu-Natal Industry Survey Findings ........................................................... 12 4.1 Introduction ................................................................................................. 12 4.2 Industry Profile ........................................................................................... 12 4.3 Operational Performance ........................................................................... 18 4.4 Environmental Profile ................................................................................. 24

5. Advantages of Durban ....................................................................................... 29 6. Future Scenarios ................................................................................................ 31

6.1 Introduction ................................................................................................. 31 6.2 The Low Road ............................................................................................ 31 6.3 The Middle Road ........................................................................................ 32 6.4 The High Road ........................................................................................... 32

List of Sources ........................................................................................................... 34 Appendix A: Methodology .......................................................................................... 35 Appendix B: Surveyed Contact Centres ..................................................................... 36 Appendix C: Contact Details ...................................................................................... 37


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LIST OF FIGURES

Figure 1: KwaZulu-Natal industry focus by call volume ............................................. 13 Figure 2: Comparative outsourcing versus captive focus .......................................... 14 Figure 3: Comparative local versus offshore focus .................................................... 15 Figure 4: Year of establishment of KwaZulu-Natal contact centres ........................... 15 Figure 5: KwaZulu-Natal industries / markets of operation ........................................ 16 Figure 6: Functions performed in KwaZulu-Natal ....................................................... 16 Figure 7: KwaZulu-Natal industry hubs ...................................................................... 17 Figure 8: Average contact centre growth ................................................................... 19 Figure 9: Methods used for communicating with clients ............................................ 19 Figure 10: Average inbound versus outbound call volumes ...................................... 20 Figure 11: Call handling performance ........................................................................ 21 Figure 12: Call handling performance ........................................................................ 22 Figure 13: Frequency of client satisfaction surveys undertaken in KwaZulu-Natal .... 22 Figure 14: Current language capabilities used in KwaZulu-Natal .............................. 23 Figure 15: Average monthly salary costs ................................................................... 25 Figure 16: Frequency of agent appraisals undertaken in KwaZulu-Natal .................. 26 Figure 17: Absenteeism ............................................................................................. 27 Figure 18: Average tenure period by employee category .......................................... 27 Figure 19: Total attrition per annum by employee category (voluntary and forced) ... 28


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LIST OF TABLES

Table 1: Average number of seats, agents and employment per contact centre ....... 13 Table 2: Medium and large contact centres versus pocket call centres ..................... 13 Table 3: Comparative percentage growth for the period 2005 to 2006/7 ................... 19 Table 4: Methods used for customer segmentation in KwaZulu-Natal ....................... 20 Table 5: Preferred methods of recruitment in KwaZulu-Natal .................................... 25 Table 6: Hours of training per annum by employee category .................................... 26 Table 7: Standard tariff for voice telecoms services originating in Durban ................ 28 Table 8: Primary advantages of Durban .................................................................... 29 Table 9: Secondary advantages of Durban ................................................................ 30


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EXECUTIVE SUMMARY

The purpose of this research was to establish updated data for key indicators on the contact centre industry in KwaZulu-Natal, identify differentiating factors which provide the industry with key strategic advantages over other regions competing for investment, identify the markets which present the most significant opportunities for growth, and scope possible future scenarios for the industry. The literature study found that the three primary factors that influence decisions to establish a contact centre operation in a particular location are those of availability of inexpensive land, availability of inexpensive and appropriately skilled labour, and Government grants and incentives. Available global industry data also suggests that outsourcing, near shoring and off shoring are three trends that are set to continue for a number of years. Very encouragingly, South Africa would also seem to be well placed as a beneficiary of off shoring from English speaking markets. Key advantages of South Africa include the prevalence of English language skills and cultural affinity to Europe, competitive labour and operating costs, a sophisticated legal, banking, medical and business environment, and its level of infrastructural development and technology.

The contact industry in KwaZulu-Natal has enjoyed considerable growth over the past few years and it is evident that the industry remains dominated by captive, domestic operations rather than outsourcers and off shoring operations. Furthermore, the industry can be expected to enjoy further growth in the medium term, with this linked to continued growth in demand for contact centre services domestically. The findings from the industry survey showed that the local industry can be considered to be operationally on a par with both the international and local comparators considered. The survey findings also suggest a good match with markets requiring English capabilities, be they domestic or offshore. 58.3% of all contact centres provide some function linked to the financial services market segment, with insurance, government and ICT also emerging as important. Further to this customer services can be considered to be by far the most prevalent function performed by contact centres in the industry. While KwaZulu-Natal has a marginal labour cost advantage over the Western Cape in respect of salary costs, it is also evident that this differential is not of the same magnitude as the difference between the two South African regions and either India or the Philippines.

The likely future scenarios for the industry are all positive, with the principle differentiator between the possible low, middle and high roads being the level of integration of both the national and local industry into the global arena.


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STATISTICAL REVIEW South Africa Gross domestic Product (GDP) Population GDP (PPP) per capita Number of contact centres (estimate) Number of call centre employees (estimate)

$ 160 billion (GBP 80 billion) 45 million $ 12,796 (GBP 6,398) 535 65,000

KwaZulu-Natal Economic Profile

GGP Population Call centres (estimate) Call centre employees (estimate) Call centre seats Universities University campuses

Operational Performance Growth in seats 2005 – 2007 Projected growth in seats 2007 – 2009 Agent English language capability

Industry Profile Greenfield sites (established 2003-2006) Average number of seats Proportion of outsourcing (by calls) Proportion of off shoring (by calls) Major international market Primary industries of operation

Environmental Profile

Inexperienced agent CTC per month Experienced agent CTC per month Average training per agent per annum Absenteeism per annum Agent attrition per annum Average agent tenure period National calls per minute International calls per min (UK & US)

$ 12 billion (GBP 6 billion) 9.6 million 65 to 75 8,800 8,000 4 11 25.7% 67.8% 100% 37.5% 126.4 14.3% 6.2% United Kingdom Financial services, Government, ICT, and Insurance R 4,170 (GBP 303) R 4,903 (GBP 357) 153.9 hours 6.0% 21.5% 36.9 months R 0.51 (GBP 0.037) R 0.54 (GBP 0.039)


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ABOUT KZNONSOURCE Welcome to the second report on the KwaZulu-Natal contact centre industry. It is with great pleasure that I share with you the depth of experience and wealth of potential that this independently researched report highlights. KZNonSOURCE is tasked primarily with attracting potential investors and clients to the city and the region, and in keeping with that mandate I am confident that this report will provide current and potential investors with quantifiable information on the benefits of operating in Durban and other metropolitan areas within KwaZulu-Natal. Very encouragingly, this report outlines not only the very impressive performance of the industry over the past few years, but also gives a very strong indication that the industry will continue to perform well over the next few years. In closing, I look forward to sharing our vision and strategy with you as we develop, and to introducing investors and interested parties to the benefits of our city. William Goldstone Chief Executive Officer KZNonSOURCE


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ACRONYMS BPO Business Process Outsourcing CBD Central Business District CPIX Consumer Price Inflation excluding mortgage costs CTC Cost to Company FDI Foreign Direct Investment GBP Great British Pounds GDP Gross Domestic Product GGP Gross Geographic Product GMT Greenwich Mean Time GPRS General Packet Radio Service ICT Information and Communications Technology ISDN Integrated Services Digital Network ITES Information Technology Enabled Services IVR Interactive Voice Response KZN KwaZulu-Natal MFMA Municipal Financial Management Act PFMA Public Financial Management Act PPP Purchasing Power Parity R South African Rand SETA Sector Education Training Authority SME Small and Medium Enterprise SMS Short Message Service WAP Wireless Application Protocol


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1. INTRODUCTION This research was commissioned by KZNonSOURCE with a view to providing industry managers and executives in KwaZulu-Natal with information to compare their performance against for selected measures, provide prospective international investors with accurate information upon which to make informed investment decisions, and to provide government with a more accurate representation of the industry upon which they can base policy and development decisions. The purpose of this research is consequently multi-fold, and covers the following:

o Establishment of updated data for key indicators on the industry. o Identification of differentiating factors which provide the industry with key

strategic advantages over other regions competing for investment. o Identification of the markets which present the most significant opportunities

for growth, with particular reference to both sector and region. o Scoping of possible future scenarios for the industry.

The research methodology utilised for this research has evolved since the research conducted for the 2005 report, and can be considered to be even more rigorous and insightful. The research process as a whole consequently involved a detailed literature study covering the current global and national industry environment as outlined above, telephonic surveys with management and executives at contact centres in KwaZulu-Natal, face to face interviews with executives from national companies with a presence in KwaZulu-Natal and interviews with executives from international companies with operations in South African but outside of KwaZulu-Natal. These processes were then supplemented by telephonic interviews with providers of telecommunications and staffing services to the industry. The nature of the industry can be considered to be unique from a researcher’s perspective. On the one hand the industry is characterized by rapid advances in knowledge and practice. On the other, academic research published in accredited peer reviewed journals has often been seen not to keep pace with such rapid advances in the sector and their practical implications. Further, there is relative scarcity of industry-relevant academically published literature. One of the reasons for this is the time lag between the production of knowledge and its dissemination. The world of research is thus characterized by a dilemma. Purely academic research is seen as lacking relevance by industry, commercial research is expensive, and internet based research is perceived to lack rigour. This study has thus relied on comprehensive sources of literature and data which include academic research, commercial research, internet based reports and web-based information portals. The first two sections of the report summarise existing literature on global markets and trends, as well as current literature on the South African contact centre industry. A discussion of the various survey findings then follows, covering first the quantitative findings relating to industry profile and performance, and then the qualitative findings obtained from the various face to face interviews. The qualitative findings consequently span a variety of areas including the sketching of likely future scenarios for the industry.


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2. GLOBAL MARKETS AND TRENDS

Summary points

o Quality and efficiency performance are key to success in the industry, and

investments are consequently made in anticipation of a cost differential and confidence in local skills.

o Synergies between outsourcing operations and clients are important. Back office outsourcing may therefore require a fit between the business operating environment of the outsourcer and the client’s own business environment, while outsourcing of front office functions (such as call centre activity) may require a fit between the outsourcer and the market environment of the client.

o While inbound contact centres generally allow customers to obtain information, report a malfunction or ask for help, outbound contact centres mostly perform sales functions. This potentially infers a difference in level of value adding activity and nature of investment between the two types of contact centre operations.

o Factors that emerge as very clearly as determining decisions to establish an operation in a particular location include availability of inexpensive land, availability of inexpensive and appropriately skilled labour, and Government grants and incentives.

o Available global industry data suggests that outsourcing, near shoring and off shoring are set to continue for a number of years and the primary beneficiaries of off shoring from English speaking markets continue to be India, Philippines and to a lesser extent South Africa.

2.1 Introduction Defining industry terminology is critical in order to draw valid conclusions from related research. In particular, industry terms such as call centre, contact centre and BPO centre are frequently referred to. The literature defines these distinctly, and while there is an overlap of the three, an assumption that a reference to one infers another would be erroneous. For the purpose of this research the follow definitions have been adopted: o Call centre: a centralised office used for the purpose of receiving and

transmitting a large volume of requests by telephone. o Contact centre: collective handling of telephone calls, letters, faxes and

emails at one location is known as a contact centre. o BPO: contracting of a specific business task, such as payroll, to a third-party

service provider usually implemented as a cost saving measure. While this research is interested principally in the contact centre industry, findings from literature relating to BPO in particular are still relevant. For example, BPO literature suggests a need for a fit between the BPO unit and the environment it is engaging with. More simply put this suggests: o BPO of back office functions may require a fit between the business operating

environment of the outsourcer and the client. o BPO of front office functions, such as call centre activity, may require a fit

between the outsourcer and the market environment of the client.


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2.2 Industry Drivers Contact centres are labour intensive and customer oriented, with the result that the industry is driven by the two key factors of quality and efficiency. These in turn define requirements and trends in the areas of technology, skill, management and systems. Interesting trends that have emerged in recent years as a result of the drive on cost and efficiency include: o Remote agents who work from home and use an ISDN access line to

communicate with a central computing platform o Temporary agents which allow for a flexible workforce o Virtual call centres that are created using many smaller centres in different

locations and connecting them to one another o Interaction centres that make provision more media than telephony alone Based on the location of outsourcer and client, a typical operation could be classed as outsourcing, near shoring or off shoring, with all three of these trends increasingly popular. The quality and efficiency (inclusive of cost) requirements of a particular organisation tend to determine the option chosen with regards to outsourcing, near shoring or off shoring. Distinctions also need to be made between contact centres that are inbound as opposed to outbound. While inbound calls are generally made by the customer to obtain information, report a malfunction, report a malfunction or ask for help, outbound calls are generally made by agents to potential customers mostly with the intention of selling a service to the customer. Although these are generalisations, there is potentially an inferred difference in level of value adding activity and nature of investment associated with the two types of contact centre. Factors that emerge as determining decisions to locate a BPO operation in a particular location, particularly when it comes to country selection, include: o Availability of inexpensive land o Availability of inexpensive and appropriately skilled labour o Government grants and incentives Other emerging secondary considerations which overlay the above requirements are customer privacy regulation compliance and approaches to customer service and experience. 2.3 Global Industry Size The global BPO industry is valued at US$ 120 billion to $ 150 billion, while the value of the offshore portion of this is valued at $ 11.4 billion, or approximately 7.6% to 9.5% of the total (Businessworld.in, 2007). It is worthwhile to note that despite India’s widely acknowledged success as an offshore BPO destination, reportedly capturing 63% of all off shoring BPO activity, its share represents just 5% to 6% of the global BPO industry. It is therefore reasonable to conclude that the industry remains predominantly captive based in ‘home’ markets – and that much activity likely remains captive as opposed to outsourced. Given the importance of cost as an industry driver, the comparatively low level of off shoring to date it, the massive differential between labour costs in developed countries and developing countries, and reducing international tele-


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communication costs it can reasonably be concluded that outsourcing, near shoring and off shoring are likely to continue for some time.

2.4 Global Industry Investment Trends The key beneficiaries of investment in the contact industry in recent years have been India and the Philippines. o India: India offers both low operating costs and reasonable English language

proficiency. The industry in India has been plagued by wage increases of 10% - 15%, although these have to an extent been offset by greatly reduced telecommunication costs, favourable tax rates and improved infrastructure. The Indian industry is frequently criticised for quality and lack of cultural affinity to the consumer market, although it should be noted that the literature is mixed on this particular issue. In 2005 the BPO industry (specifically excluding ITES) was estimated to employ 400,000 people. (Pai, 2007)

o Philippines: Presents a value proposition in respect of low operating costs

and English proficiency with an American accent, which makes it particularly attractive to US companies. In 2006 the Philippines was estimated to have 120 BPOs employing 200,000 people. (Philippine Information Agency, 2006)

Available information also suggests that South Africa, along with China, Malta, Mexico, Puerto Rico and Pakistan, stands on the periphery of the next big wave and hence are well positioned to benefit from the outsourcing and off shoring phenomenon. While industries on the African continent outside of South Africa are developing industries, notably those in Tunisia, Egypt, Morocco, these remain small and not necessarily capable of providing English language capabilities. (Dimension Data, 2007) While Greenfield investment from multi-national companies is frequently pursued by regions and government with a view to job creation, recent large scale investments in Brownfield operations in India suggest that there is more than one model that can be adopted when pursuing Foreign Direct Investment (FDI). Industry giants such as IBM and Citigroup, which initially placed business with local outsourcers in India, over a period of time took equity stakes in their local partners. More recently the remaining shares in these joint ventures were also purchased in deals valued at $100 million to $200 million each (Emergic, 2004). Attracting investment of this magnitude and nature is evidently quite different from attracting Greenfield investment as it requires that that the local industry be able to demonstrate competitive performance over a sustained period.


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3. SOUTH AFRICAN PROFILE

Summary points

o The SA industry is growing rapidly and the beneficiaries of that growth are

principally Gauteng, the Western Cape and KwaZulu-Natal. The current size of the industry is difficult to gauge, but likely has more than 535 contact centres.

o Outsourcing and off shoring in South Africa remains fairly small – indicating that much of the recent growth in the industry is still driven by captive, domestically focused contact centres.

o Most offshore activity is directed at the UK. Off shoring directed at the US, Germany and other developed economy markets is occurring but to a lesser degree.

o Domestic demand for contact centre services will likely also continue to grow as the economy expands and local companies such as banks and utilities evolve their customer interface strategies.

o Key advantages of South Africa include the prevalence of English language skills and cultural affinity to Europe; competitive labour costs and operating costs; a sophisticated legal, banking, medical and business environment; the level of infrastructural development; and the presence of modern technology.

o The findings strongly suggest that South Africa is well positioned to take advantage of the next wave of outsourcing, but has not yet benefited to the same extent as what is evident in India and the Philippines.

3.1 Introduction South Africa is actively pursuing a share of the international business process outsourcing, including the outsourced call centre industry (Turner B, 2005). The strategy aims to make South Africa the world's third-biggest business process outsourcing centre by 2008 (Kjellerup, 2007). To this effect regional industry associations have been formed with support of government along with a national representative body. 3.2 South African Industry Size An accurate estimate of the size of the South African contact centre industry is difficult given the lack of accurate and reliable national information. Although Mital Research (2003) estimated that there were 535 contact centres employing 65,000 in South Africa, this is unlikely an accurate estimate of the industry size in 2007. There are currently roughly 270 contact centre between the Western Cape and KwaZulu-Natal, and these two provinces combined account for just 30% of South Africa’s GDP, suggesting that the national figure closer to 900 contact centres. Irrespective, however, it is evident that the industry is a well established one comprising several hundred contact centres of reasonable size. The industry is growing rapidly and the beneficiaries of that growth are principally Gauteng, the Western Cape and KwaZulu-Natal. Public media announcements of FDI in the industry as well as reports by CallingtheCape indicate that at this point most of the off shoring activity serves the UK. Off shoring directed at the US, Germany and other developed economy markets is also occurring, but this is to a lesser degree.


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For global firms, South Africa slots in between near-shore locations such as Canada, Mexico or Eastern Europe (which offer close proximity and also cultural affinity to domestic markets) and more traditional offshore locations, such as India and the Philippines (which offer inexpensive labour) (Kjellerup, 2001). The region is consequently increasingly being seen as a viable alternative to India and Philippines in customer intensive processes such as customer service, sales and tech support. Despite these comparisons, South African can be considered to represent a value proposition which is distinct from that of other regions. This can be surmised as follows: o Language and culture: English language skills are available and accents in

many cases can be considered to be fairly neutral. The level of cultural affinity between South African and the UK and European markets in particular can be considered to be higher than those of India or most other Asian countries.

o Costs: Labour and operating costs are considerably lower than those in developed economies.

o Legal, banking, medical and business environment: Despite being considered as a developing economy South Africa has a well developed legal, banking, medical and overall business environment with strong parallels to that of the UK and Europe.

o Infrastructural development and technology: Good infrastructure is both available and accessible, as is support for advanced technologies employed in the industry.

3.3 South African Industry Profile and Trends Benner et al (2007) states that the industry’s overall profile is similar to that in most other countries covered in the study in respect of call centre size, mix of captive and outsourcing, ratio of inbound to outbound, work organisation and job design. Three distinct differences do however emerge from this study. These are: o SA call centres have a higher proportion of matriculants whereas globally

graduates constitute the larger proportion of the workforce o Outsourcers are smaller than captive operations in SA, whereas globally this is

the other way around o The number of contact centres covered by collective bargaining agreements is

below the global average The above findings suggest that basic skill levels of operators are low and that this may either constrain growth when competing globally or hinder more rapid entry into higher vale adding services. Operational findings relating to the same study include the following: o 81% of the contact centres were captive, 91% of the contact centres service the

domestic market and calls are primarily inbound o The most prominent industries served are telecommunications, insurance,

banking and financial services o The average number of agents was 77 o Labour costs account for 60% of total operating costs, above the 57% for

industrialising countries and below the 70% for developed countries o Performance monitoring processes and disciplines are more prevalent in South

Africa than in most other countries


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These findings affirm the earlier statement that South Africa is well positioned to take advantage of the next wave of outsourcing, but has not yet benefited to the same extent as what is evident in India and the Philippines. Interviews with contact centre Executives in Cape Town and Durban highlighted further trends over the past two to three years that are of relevance. These include: o Skill shortages: Skill shortages have become more acute, with this evident in

reduced applications for job vacancies and above CPIX wage inflation. o Telecommunications costs: While broadband costs have been reduced in

many cases, the impact of the change would seem to have been far less than desired. In one particular case the benefits of deregulation and greater competition in provision of bandwidth had been completely mitigated by the ability of non-Telkom providers to provide adequate bandwidth (i.e. capacity constraints emerged which would only be addressed by using Telkom’s higher cost service).

o Shift towards contact centre interfaces: Local banks and utility services were cited as two particular industries that were set to continue increasing their dependency on contact centres (either outsourced or captive).


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4. KWAZULU-NATAL INDUSTRY SURVEY FINDINGS 4.1 Introduction The findings from desktop research and the telephonic survey of contact centres in KwaZulu-Natal indicate that there are likely between 65 and 75 contact centres in operation in the province. 24 contact centres participated in the telephonic survey over the period August 2007 to October 2007, providing information on industry indicators spanning principally the areas of overall industry profile, operational performance and environmental profile. This was further supplemented by telephonic surveys covering two telecommunications and two staffing service providers. Comparative information on the industries in the Western Cape1, India2 and the Philippines3 have been provided where available. Importantly, however, it should be noted that in many cases comparisons with these additional regions should be considered indicative rather than conclusive as it is based on secondary research which utilised research methodologies that differ from those employed in this research. 4.2 Industry Profile

Summary points

o The contact centre industry in KwaZulu-Natal is estimated to comprise 65 to 75

contact centres, have 8,000 seats and employ 7,200 agents. o The average contact centre size is slightly larger than that in the Western Cape,

although both local regions currently lack large scale investments such as those that have been made in India and the Philippines.

o The KwaZulu-Natal industry can be considered to have a very strong captive, domestic market orientation when measured by call volumes. While the local industry is a beneficiary of the outsourcing and off shoring trends, these trends are some way from dominating the local industry.

o A high level of Greenfield investment is evident, with 37.5% of contact centres being established in the previous three years.

o Financial services are clearly the most important market segment for the industry, with 58.3% of all contact centres involved in this market segment. Insurance, government and ICT are however also important.

o Customer services can be considered to be by far the most prevalent function in the industry.

o 44% of the industry is based in Durban’s CBD, with the Umhlanga/Mt Edgecombe and Pinetown/Westville areas forming two notable secondary and tertiary hubs.

By extrapolating the average number of seats, agents and employees per contact centre obtained from the survey sample over the estimated number of contact centres in the industry it is possible to estimate the size of the industry in KwaZulu-Natal. On this basis it can reasonably be concluded that in 2007 the industry comprised 8,000 seats and employed 7,200 agents, while total employment in the industry was 8,800. o Both the KwaZulu-Natal and Western Cape industries have a higher average

number of seats per contact centre than number of agents, suggesting that installed capacity currently exceeds utilised capacity even on a single shift basis.

1 Calling the Cape and Deloitte, 2007 2 Batt et al, July 2005 3 CallCentres.net, 2007


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o Table 1 also indicates that the average contact centre in KwaZulu-Natal has 126.4 seats and employs 103.2 agents, both of which reflect an average contact centre size larger than that of the Western Cape.

o Significantly, however, the mean number of seats per contact centre in the Philippines is 676, while the median is 48. This is an indication that the Philippines industry is structurally different from the KwaZulu-Natal industry – notably including a number of very large scale contact centres.

o Although the average employment level of 575.4 per contact centre in India is suggestive of the fact that India call centres are of a similar average size to those in the Philippines, there is also an indication that the industry is structurally different from that of KwaZulu-Natal. This structural difference would seem to be accounted for by the far greater size of contact centres serving international clients (average employment levels at these contact centres is 741 as opposed to an average employment level of 104 for contact centres serving domestic clients).

Although the proportion of ‘pocket contact centres’ to medium and large contact centres in the Philippines is almost identical to that of KwaZulu-Natal, the median number of seats of just 48 in the Philippines suggests that the mean is skewed upwards by a number of very large scale contact centres. Table 1: Average number of seats, agents and employment per contact centre KZN Western Cape Philippines India Seats 126.4 94.4 676 Agents 103.2 79.1 Employees 115.1 110.2 575.4

Table 2: Medium and large contact centres versus pocket call centres KZN Philippines Pocket Contact Centres 21.1 21.0 Medium and Large Contact Centres 78.9 79.0

Figure 1: KwaZulu-Natal industry focus by call volume

Captive serving local clients84.0%

Outsourcing serving local clients

9.8%

Captive serving offshore clients

1.7%

Outsourcing serving offshore clients

4.5%


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The KwaZulu-Natal contact centre industry can be considered to have a very strong captive, domestic market orientation when measured by call volumes. Figure 2 shows that 85.7% of total calls can be considered to be captive, while for the Western Cape and Philippines the figures are 69.0% and 70.0% respectively. In addition to this, 93.8% of total calls can be considered to be national in nature, compared to 85.1% in the Western Cape, 26.0% in India and 54.0% in the Philippines (Figure 3).

It is therefore evident that the local industry is a beneficiary of the outsourcing and off shoring trends, but at the same time it can be concluded that these trends are some way from dominating the local industry. Figure 2 and Figure 3 provide interesting insights into the industries in India and Philippines: o The proportional offshore focus of the Philippines contact centre industry is far

lower than for the Indian industry. The measurement is notably skewed by the measurement by number of call centres rather than a scale related measure such as call volumes or seats, and as such does not account for the likely larger size of the offshore contact centre. Nevertheless, it is still noteworthy that the information is suggestive of a strong domestic contact centre services market not unlike that of KwaZulu-Natal.

o The proportional outsourcing focus of the industry in Philippines is far lower than that of the Indian industry. Again, while the measure is notably skewed, it is suggestive a different type of investment, and possibly even contact centre activity, from that which is evident in India.

Figure 2: Comparative outsourcing versus captive focus

(by Calls for KZN, by agents for CT & by contact centres for Phillipines)

0%

20%

40%

60%

80%

100%

Perc

enta

ge

Outsourcing 14.3 31.0 30.0Captive 85.7 69.0 70.0

KZN Western Cape Phillipines


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Figure 3: Comparative local versus offshore focus

(by Calls for KZN, by agents for CT & by contact centres for India & Phillipines)

0%

20%

40%

60%

80%

100%

Perc

enta

ge

Offshore clients 6.2 14.9 74.0 46.0Local clients 93.8 85.1 26.0 54.0

KZN Western Cape India Phillipines

37.5% of the surveyed contact centres were established between 2003 and 2006, while 83.3% were established between 1994 and (Figure 4). A high level of Greenfield investment in the industry can therefore be assumed. This, along with pre-existing investment, has created an industry that services a multitude of markets. Figure 4: Year of establishment of KwaZulu-Natal contact centres

4.2 4.2

20.8

25.0

37.5

8.3

0

5

10

15

20

25

30

35

40

-1986 1987-1990 1991-1994 1995-1998 1999-2002 2003-2006

Perc

enta

ge o

f Con

tact

Cen

tres


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Figure 5: KwaZulu-Natal industries / markets of operation

58.3

33.3

33.3

33.3

29.2

25.0

20.8

16.7

16.7

12.5

12.5

12.5

8.3

4.2

20.8

0 10 20 30 40 50 60

Financial Services

Government

ICT and Telecom

Insurance

Medical Services

Legal

Retail

Security

Tourism

Petrochemicals

Pharmaceuticals

Vehicle Fleets

Publishing

Tobacco

OtherIn

dust

ry o

f Ope

ratio

n

Percentage of Contact Centres

Figure 6: Functions performed in KwaZulu-Natal

87.5

66.7

62.5

54.2

37.5

37.5

37.5

33.3

20.8

16.7

12.5

12.5

12.5

12.5

4.2

0 10 20 30 40 50 60 70 80 90 100

Customer services

E-Mails

Data Capture

Sales

Data Cleansing

Correspondence management

Technical Support

Insurance/Medical

Payroll Processing

Appointment Setting

Credit Collection

IT Related

Financial Accounting

Credit Card Admin

Other

Func

tions

Percentage of Contact Centres Current industry markets served by the contact centre industry are varied and cover all of the 14 options explored in the survey. Similarly, the functions performed by the industry can also be considered to be highly diversified. Despite this level of diversification, the data does suggest that the industry does have particular market and function competencies:


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o Financial services is clearly the most important market segment for the industry, with 58.3% of all contact centres involved in this market segment. Insurance, government (e.g. municipal services) and ICT emerge as the next most important industry markets, with a third of all contact centres operating in each.

o Customer services can be considered to be by far the most prevalent function in the industry, with 87.5% of all contact service performing this function. E-mailing (66.7%), data capture (62.5%) and sales (54.2%) can be considered to be the next most important functions.

Figure 7 shows that the Durban CBD remains the heart of the KwaZulu-Natal contact centre industry, while the secondary and tertiary hubs of the industry can be considered to be the Umhlanga/Mt Edgecombe and Pinetown/Westville areas. Notably 45.5% of the contact centres are based in the CBD, while 77.3% of all contact centres are based in the three identified hubs. These findings are in keeping with both the literature and interview findings, both of which suggest a need for infrastructure and industry density to facilitate reliable access services and skilled labour. Figure 7: KwaZulu-Natal industry hubs

Umhlanga/Mt Edgecombe, 18.18%

Pintetown/Westville, 13.64%

CBD, 45.45%

Other, 18.18%

PMB, 4.55%


18

4.3 Operational Performance

Summary points

o Growth in the industry is extremely impressive over the period 2005 to 2007. Given the strong domestic orientation of the industry it can be concluded that the region has been a principle beneficiary of the growth in domestic contact centre service demand.

o Growth projections for existing operations in the industry indicate a further 48% increase in employment through to 2009. Given that Greenfield investment will likely also occur over this period the projected growth in the industry as whole can be expected to be even greater.

o Call handling performance measures explored suggest neither a clear advantage nor a clear disadvantage in any particular areas, although the comparative measures provided could be used as performance benchmarks for individual companies once adjusted for operational and market considerations.

o An analysis of inbound versus outbound call volumes shows that 75.8% of all calls are inbound, which is in keeping with the customer service orientation.

o The prevalence of English language capabilities amongst all contact centres and all agents very strongly suggests that any drive towards off shoring should focus exclusively on English language markets.

o The prevalence of English and Zulu language capabilities, and to a lesser extent Afrikaans and Xhosa, indicate that domestic market opportunities should be explored in line with these language competencies.

The high level of Greenfield investment evident in Figure 8 over the period 2003 to 2006 needs to be considered in conjunction with firm-level contact centre growth figures. This makes the following growth indicators for existing contact centres for the period 2005 to 2007 all the more striking: o The average number of seats per contact centre increased by 25.7%. o The average number of agents per contact centre has increased by 76.5%. o The average employment per contact centre has increased by 76.0%. The growth of the industry in KwaZulu-Natal is also impressive when compared to that of the Western Cape (Table 3). While growth in seats in the two regions was comparable over the period 2005 to 2006/74, growth in agents and employment in KwaZulu-Natal was more than double that of the Western Cape. If the comparative regional growth statistics are considered in conjunction with the proportional domestic focus and captive orientation of the two regions, then it is reasonable to conclude that KwaZulu-Natal has been a major beneficiary of growth in domestic contact centre service demand amongst large corporates. The growth outlook for KwaZulu-Natal is very positive. Average growth projections for existing contact centre for 2008 are 22% - 34% depending on the measure used, slowing slightly to 20% - 25% for 2009. Average growth in employment is therefore projected to be 48% over the two year period through to 2009, while the increase in agents and seats are projected to be 49% and 68% respectively. Notably, these growth projections relate to growth in existing operations and hence exclude any industry growth resulting from further Greenfield investment. The existing level of excess capacity in the industry (if measured by the ratio of agents to seats) can be expected to be maintained over this period.

4 The average performance for 2006 and 2007 for each of the indicators was used in the case of KwaZulu-Natal to obtain a 2006/7 figure comparable to that of the Western Cape.


19

Figure 8: Average contact centre growth

100

120

140

160

180

200

220

240

260

280

300

Year

Gro

wth

inde

xed

KZN Employment 100.0 151.3 176.0 216.0 260.5KZN Agents 100.0 149.0 176.5 218.1 263.3KZN Seats 100.0 108.0 125.7 168.6 211.0

2005 2006 2007 2008 (projected) 2009 (projected)

Table 3: Comparative percentage growth for the period 2005 to 2006/7 KZN Western Cape Employment 63.6 28.3 Agents 62.7 16.8 Seats 16.9 18.0

Figure 9: Methods used for communicating with clients

100.0

95.7

82.6

69.6

65.2

43.5

39.1

26.1

17.4

13.0

0 10 20 30 40 50 60 70 80 90 100

Voice

E-Mail

Fax

SMS

Internet

Postal Mail

Face-to-Face

IVR

Self-Service

WAP/GPRS

Met

hods

Percentage of contact centres


20

Five methods of communication with clients are widely adopted by the industry, with the remaining methods of communication explored present in the industry but not as widely adopted (Figure 9). As might be expected, all firms communicate with clients via voice, while 95.7% use e-mail and 82.6% fax. 69.6% communicate via SMS and 65.2% via the internet. 26.1% of firms make use of IVR technology, which is in keeping with the findings relating to the routing of calls (Table 4). Routing of calls can be considered a common practice, with 71.4% of contact centres routing according to operator skill. Customer value and product type have been adopted as routing methods amongst 42.9% of the industry, while routing according to language occurs at only 21.4% of the contact centres. Table 4: Methods used for customer segmentation in KwaZulu-Natal Customer segmentation method Percentage of contact centres Operator skill 71.4 Customer value 42.9 Product type 42.9 Customer language 21.4

An analysis of inbound versus outbound call volumes shows that 75.8% of all calls are inbound (69.1% originating from local/national sources and 6.7% from international sources). In the Western Cape inbound calls constitute 58.0% of calls, while in the Philippines 66% of contact centres are inbound. The literature suggests that inbound calls tend to typically be made by the consumer to obtain information, report a malfunction, report a malfunction or ask for help, rather than to sell the customer something. These findings are therefore in keeping with the strong customer service orientation of the industry in KwaZulu-Natal that has already been established, and infers a level similarity in this regard between KwaZulu-Natal and the Philippines. Figure 10: Average inbound versus outbound call volumes

6.7

69.1

0.6

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KZN Cape Town Phillipines

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21

Various call handling performance measures were gathered during the survey. Dealing with each: o Average first call resolution in KwaZulu-Natal is 76.7%. This is higher than the

73.0% reported for the Philippines but lower than the 89.0% reported for the Western Cape.

o Call abandonment rates for both local and international calls were captured for KwaZulu-Natal firms, with average performance for local calls at 1.7% and international calls at 4.6%. By comparison firms in the Western Cape reported an average abandonment rate of 5.0% for all calls, while firms in the Philippines reported 10.0% for all calls.

o 46.4% of local firms utilise scripted text during calls with this higher than the 33.7% reported by Indian firms.

o The average time in queue for calls to contact centres in KwaZulu-Natal is 39.8 seconds, while in the Philippines the average is 27 seconds.

o Average response time to an operator in KwaZulu-Natal is 33.3 seconds, compared with 26.0 seconds in the Philippines.

The call handling performance of the KwaZulu-Natal industry is mixed when compared to that of the Western Cape, the Philippines and India for the various measures explored. Points of consideration in this regard include factors such as the particular call management strategies of companies operating in those regions, the proportional domestic focus of the regions, the type of functions being performed, and industry markets being served. Therefore, while these measures could be used as possible performance benchmarks for individual companies once the above mentioned factors have been considered, the measures themselves are unlikely to indicate a particular operational strength or competency of a particular contact centre region. Figure 11: Call handling performance

76.7

1.7 4.6

46.4

89.0

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73.0

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KZN 76.7 1.7 4.6 46.4Western Cape 89.0 5.0India 33.7Phillipines 73.0 10.0

First Call Resolution (%)

Abandonment rate for international

calls (%)

Abandonment rate for local calls (%)

Abandonment rate for all calls (%) Scripted Text (%)


22

Figure 12: Call handling performance

39.8

33.3

26.027.0

0

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25

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45

50

Avg. time in queue Time to Operator

Seco

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KZN Phillipines

Client satisfaction measures were established to be very common in the industry. Of the surveyed contact centres 40% indicated that they undertake customer satisfaction surveys on a weekly or more frequent basis, with all firms indicating customer satisfaction surveys are undertaken. A comparatively strong emphasis on customer service can therefore be expected within the industry, with this complimented by continuous improvement in the field of customer experience.

Figure 13: Frequency of client satisfaction surveys undertaken in KwaZulu-Natal

40.0 40.0

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23

Language capabilities of contact centres and amongst agents are important. o Within a South African context language capabilities determine a location’s

suitability to providing certain services on a national basis. English is widely accepted as the language of business in South Africa, but when dealing with consumer markets and particular sectors of business additional language capabilities may become necessary.

o International language capability is similarly crucial in determining a location’s suitability to provision of services to offshore clients. The presence of international language skills as well as their availability is therefore crucial in matching the local industry with potential international markets.

Figure 14 shows that 100% of the contact centres in KwaZulu-Natal have English language capabilities. 82.6% can provide services in Zulu, 56.5% in Afrikaans, and 21.7% in Xhosa. A high proportion of the contact centres can therefore be considered to be capable of providing services in these four major local language groups. When measured according to the number of agents that have the capability to communicate in a particular language the picture changes somewhat. While 100% of agents have English language capabilities, the proportion of agents able to communicate in Zulu drops to 20.8%, Afrikaans to 5.3% and Xhosa to 3.9%. The language capability findings are particularly significant from an industry development perspective for the following reasons o The prevalence of English language capabilities amongst all contact centres and

all agents very strongly suggests that any drive towards off shoring should focus exclusively on English language markets.

o The prevalence of English and Zulu language capabilities, and to a lesser extent Afrikaans and Xhosa, similarly present opportunities in domestic markets segments requiring those languages.

Figure 14: Current language capabilities used in KwaZulu-Natal

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Perc

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By number of agents 5.3 100.0 0.1 3.9 20.8 1.3 0.8 0.4 0.2 0.1 0.1By contact centres 56.5 100.0 8.7 21.7 82.6 13.0 13.0 8.7 13.0 8.7 8.7

Afrikaans English IsiNdebele IsiXhosa IsiZulu Northern Sotho Sesotho Setswana SiSwati Tshivenda Xitsonga


24

4.4 Environmental Profile

Summary points

o KwaZulu-Natal has a marginal labour cost advantage over the Western Cape in

respect of salary costs, but it is also evident that this differential is not of the same magnitude as the difference between the two South African regions and either India or the Philippines.

o Minimum recruitment requirements at an agent level are either Grade 12 or an appropriate certificate. At a supervisory level this increases to either a certificate or diploma.

o Fairly strong human resource development practices are in place in the areas training and appraisal of staff.

o Non-salary related costs of employment linked to attendance and staff retention are likely similar in KwaZulu-Natal and Western Cape, but findings suggest that both are lower than India and the Philippines.

o National calls originating in Durban cost R0.51 per minute, while international call costs to both London and New York both cost R0.54 per minute.

The literature review indicates that access to a pool of adequately skilled and inexpensive labour is a critical enabler of industry growth. The comparative cost of salaries is therefore a particularly important consideration of prospective investors. Figure 15 reflects the monthly cost of agent, supervisor and manager level staff in KwaZulu-Natal as provided by the surveyed staffing service providers. o The average total cost to company of agents ranges from R4,170 (GBP 303) to

R4,903 (GBP 357) per month depending on experience. o Inexperienced supervisors earn R6,000 (GBP 436), with this climbing to R10,000

(GBP 727) for experienced supervisors. o At a management level the total cost to company for inexperienced line function

managers is R15,0000 (GBP 1,090), while experienced managers earn R20,000 (GBP 1,455).

o Available information on the Western Cape contact centre industry places the basic salary cost of inexperienced agents at R4,724 per month, while inexperienced supervisors cost R6,500 per annum, and inexperienced managers cost R18,000.

o Basic salary costs in the Philippines are considerably higher than the total cost to company salary costs in India, indicating that the gap would be even wider if total costs to company were available for the Philippines.

In summary, the information available suggests that KwaZulu-Natal has a marginal labour cost advantage over the Western Cape5, but that this differential is not of the same magnitude as the difference between the two South African regions and either India or the Philippines. Furthermore, labour costs in the Philippines are clearly greater than those in India.

5 The basic monthly salary costs for the job title ‘Call Centre Operator: Junior’ for ‘Cape Town and Environs’ and ‘Durban, PMB and Environs’ are slightly higher than those established in this survey at R6,147 and R5,802 respectively (Deloitte Consulting, 2007). Despite this difference, these figures nevertheless reflect a similar marginal labour cost advantage of Durban over Cape Town.


25

Figure 15: Average monthly salary costs

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Employee Category

Rand

s

Agents (unspecified) 4,170 4,724 1,587 2,952 4,903 Supervisors/Team Leaders 6,000 6,500 2,142 3,373 10,000 Managers (line function) 15,000 18,000 5,121 5,961 20,000

KZN (CTC, inexperienced)

Western Cape (Basic,

inexperienced)India (CTC, average) Phillipines (Basic,

average)KZN (CTC,

experienced)

Table 5: Preferred methods of recruitment in KwaZulu-Natal Agents Supervisors/

Team Leaders Managers

Recruitment Agency 50.0 20.8 33.3 Training Provider 4.2 4.2 4.2 Direct Employment 70.8 79.2 75.0 SETA Learners 16.7 4.2 0.0

The most common method of recruitment amongst contact centres is via direct employment, with over 70% of agents, supervisors and managers recruited via this method. Recruitment agencies are the second most common method of recruitment, although this is more common at an agent level than at either a supervisor or management level. Minimum recruitment requirements at an agent level are either Grade 12 or an appropriate certificate. At a supervisory level this increases to either a certificate or diploma. Findings relating to the training and appraisal of staff in KwaZulu-Natal suggest fairly strong human resource development practices in key areas. o Agents are provided with an average of 153.9 hours of training per annum, while

supervisors receive 136.6 hours and managers receive less training at 75.5 hours.

o Performance improvement is supported by frequent agent appraisals, with 17.4% of contact centres undertaking agent appraisals on a weekly or more frequent basis, 52.2% on a monthly basis and 34.8% on a quarterly basis.


26

Table 6: Hours of training per annum by employee category KZN Philippines

Agents 153.9 56.0 Supervisors / team leaders 136.6 Managers 75.5

Figure 16: Frequency of agent appraisals undertaken in KwaZulu-Natal

17.4

52.2

34.8

30.4

4.3 4.3

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Retention of skills and labour force commitment to the workplace is a key determinant of the cost and sustainability of contact centre operations. Important measures include absenteeism, tenure period and attrition. o Average absenteeism in KwaZulu-Natal is 6.0%, slightly lower than the Indian

performance of 6.4%. o The average agent tenure period in KwaZulu-Natal is 36.9 months, similar to the

40.0 days reported for the Western Cape and more than double the 18 months reported for the Philippines. At a supervisory level the KwaZulu-Natal tenure period extends to 48.7 months, while at a management level the average tenure period is 78.8 months.

o The attrition rate per annum (internal and external, forced and voluntary) for agents in KwaZulu-Natal is 21.5%. 15.8% of this is voluntary attrition, while 5.6% is forced. When total attrition is classified according to internal versus external attrition, it is evident that almost all staff are lost externally. Irrespective, however, it should be noted that the attrition rate in KwaZulu-Natal is higher than that in the Western Cape (14.9%), similar to that in the Philippines (18.0%), but far lower than that in India (28.8%).


27

Figure 17: Absenteeism

0

1

2

3

4

5

6

7

8

Employee category

Perc

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Absenteeism (%) 6.0 6.4KZN India

Figure 18: Average tenure period by employee category

0

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30

40

50

60

70

80

90

Employee category

Mon

ths

Agents 36.9 40.0 18.0Supervisors/team leaders 48.7 18.0Managers 78.8 44.0

KZN Western Cape Phillipines


28

Figure 19: Total attrition per annum by employee category (voluntary and forced)

0

5

10

15

20

25

30

Employee category

Perc

enta

ge

Agents 21.5 14.9 28.8 18.0Supervisors/team leaders 3.1Managers 0.2

KZN Western Cape India Phillipines

Overall the findings suggest that the non-salary related costs of employment linked to attendance and staff retention are likely similar in KwaZulu-Natal and Western Cape, but that both are possibly lower than that of India and the Philippines. Although a less important cost factor than labour, telecommunication costs are nevertheless of great importance. Average telecommunication costs for contact centres operating in Durban are provided in Table 7. Calls originating in Durban and terminating locally cost R0.31 per minute, while national calls cost R0.51 per minute. International call costs to both London and New York both cost R0.54 per minute. Table 7: Standard tariff for voice telecoms services originating in Durban Rands per minute Local calls 0.31 National calls 0.51 International: Durban to London 0.54 International: Durban to New York 0.54


29

5. ADVANTAGES OF DURBAN

Summary points

o The following industry-specific factors which can be considered to be advantages

of Durban and are best surmised with reference to what have already been determined to be primary investment requirements of investors.

Advantages

Suitable inexpensive land

- Rental costs lower than those of Johannesburg and Cape Town. - Accessibility from Johannesburg. - Appropriate supporting infrastructure on a par with both

Johannesburg and Cape Town in sophistication and reliability. -

Inexpensive and suitably skilled

labour

- Lower industry density which provides for greater accessibility to certain skill sets.

- Labour costs which are lower than those in Cape Town and Johannesburg.

- English, Zulu and Afrikaans language skills are readily available. - Neutral English accents within a South African context.

In order to determine the current advantages of Durban as an investment location interviews with Executives from a range of contact centres were undertaken. This exercise was seen as an opportunity to take a hard look at what competitive advantages Durban currently offers to the industry and what areas are hindering more rapid industry growth. The interviews were conducted with Executives from international contact centres based in South Africa, national contact centres with operations in KwaZulu-Natal and with Executives from local contact centres. Importantly, in the case of foreign investment the advantages of Durban need to be considered within the context of pre-existing advantages of South Africa as a whole (e.g. South Africa’s time zone of GMT +2 time zone and the existence of national incentives). The implications of tables Table 8 and Table 9 are significant as they highlight quite clearly where the industry perceives Durban in a good light. Table 8: Primary advantages of Durban Advantage Description Availability of skills - There is a low industry density and hence less competition

for skills. - Language skill capabilities in English, Zulu and to a lesser

extent Afrikaans are readily available. Lower cost base - Costs, especially in respect of rent and labour, are lower

than in Johannesburg and Cape Town. Accent neutrality - Within an English speaking South African context local

accents are considered to be fairly neutral.


30

Table 9: Secondary advantages of Durban Advantage Description Proximity to Johannesburg - Durban is more accessible from Johannesburg than Cape

Town but without the additional cost of actually being in Johannesburg.

Risk diversification - Durban presents an attractive alternative location to Cape Town or Johannesburg from a risk management perspective.

Low attrition rates - Lower attrition rates are reported in Durban in some cases, which may possibly be linked to the lower industry density and hence lower demand for skills at this point.

Infrastructure - The level of infrastructural sophistication and reliability is similar to that of Cape Town and Johannesburg, all three of which are considered superior to that of smaller cities.

Support for technology and equipment

- Support of equipment and technology infrastructure and systems is readily available, which is not necessarily the case in smaller cities.

Revisiting the key industry investment determinants of inexpensive land, inexpensive and suitably skilled labour, and government grants and incentives, it is apparent that the following cross cutting issues are of greatest advantage to Durban at this point: o Inexpensive land: The region is more accessible from Johannesburg than Cape

Town, and rental costs are more competitive than either Cape Town or Johannesburg. Appropriate supporting infrastructure for operations can be considered to be on a par with both Johannesburg and Cape Town in respect of sophistication and reliability.

o Inexpensive and suitably skilled labour: The lower industry density at this

point provides for greater accessibility to certain skill sets, and labour costs can be considered competitive. English, Zulu and Afrikaans language skills are readily available, and within an English speaking South African context local accents can be considered neutral.


31

6. FUTURE SCENARIOS

Summary points

o The industry is particularly well placed in relation to growth in domestic demand

for contact centre services, and as a result can be expected to enjoy healthy growth in the next few years even if South Africa is unsuccessful in its bid to become a major international contact centre destination.

o Creating a local industry of global standing will however require improved linkages into international markets. In this regard KwaZulu-Natal is not currently positioned as well as the Western Cape, and the Western Cape can therefore be expected to continue to benefit disproportionately from South Africa’s entry into the international arena.

o In summary, while the future for the industry is promising, considerable institutional changes at a local level will likely be required if KwaZulu-Natal is to reposition it self as the preferred location for international contact centre investment in South Africa in addition to its current favoured status as a location for local investment.

6.1 Introduction There is little evidence to support an assumption that institutional support for the industry in Cape Town, or Johannesburg for that matter differs considerably from that in Durban at this point in time, with both the literature review and interviews in Durban and Cape Town supporting this finding. It is therefore reasonable to assume that the status quo will remain in respect KwaZulu-Natal’s current position in relation to national industry growth trends unless certain institutional changes are made at a local level. In relation to the above statement the current position of the local industry can be surmised as follows: o An uncoordinated approach, along with a lack of strategic intent, in the

development and marketing of the industry o A lack of engagement by government and industry associations on the needs of

the industry o An inability of the industry, government and associations to develop a suitably

skilled and readily available labour pool that exhibits a customer-centric culture The exploration of possible future scenarios for the industry that follows is done from a national perspective, but with an interpretation of the implications for KwaZulu-Natal should the current status quo remain. 6.2 The Low Road The general consensus amongst the Executives interviewed is that the low road for South Africa would be an ad hoc presence in niche services internationally. This would be caused by a lack of coordinated industry development and marketing and a subsequent inability of the industry to develop particular competencies. Under this scenario the industry would continue to grow, but in line with the expansion of the local economy and increased demand for contact centre customer interfaces in local industries such as banks and utilities.


32

Ironically, despite the less than captivating national implications for the national industry of this scenario, KwaZulu-Natal would likely be a major beneficiary of the growth in domestic contact serves demand and hence would continue to grow at a healthy rate. This assumption is drawn principally based on the current strong domestic and captive orientation of the industry. There would consequently also continue to be a failure of the KwaZulu-Natal industry to enter the international arena in any meaningful way, with a limited amount of international outsourcing business being placed with locally owned outsourcers, but little or no long term foreign investment in the industry. The key determinants that would result in this scenario, and which can be considered applicable to both the national and local industry, are as follows: o An uncoordinated approach, along with a lack of strategic intent, in the

development and marketing of the industry o A lack of engagement by government and industry associations on the needs of

the industry o An inability of the industry, government and associations to develop a suitably

skilled and readily available labour pool that exhibits a customer-centric culture 6.3 The Middle Road The middle road scenario for South Africa would be characterised by a semi-coordinated approach to development and marketing the industry with a defined strategic intent. Under this scenario the industry would continue to grow, but at a rate that now exceeds growth that is linked solely to an increased domestic demand for contact centre services. KwaZulu-Natal would continue to be a principle beneficiary of the growth in domestic service demand, and again would achieve considerable growth as a result of its current strong domestic orientation. This would likely be accompanied by an increase in placement of off shoring business with local outsourcers, and possibly limited long term foreign investment. This would represent a limited entry into the international arena for the local industry. The key determinants that would result in this scenario can be considered applicable to both the national and local industry: o Partially coordinated marketing of the industry with a loose strategic intent o Partial success in developing the required talent pool and customer-centric

culture for the industry, accompanied by a the potential labour pool starting to view the industry as one providing opportunities for long term employment and career progression

6.4 The High Road The high road for the national industry would be characterised by a move into targeted niche services internationally, with the co-ordination of development and marketing of the industry resulting the emergence of clear industry competencies. This would probably be characterised by the entry of a few large scale players into the industry, bringing with them 30,000 to 40,000 seats. The outcome of this level of investment and economies of scale would be a reduction in telecommunications costs for the entire industry.


33

In keeping with the focused and coordinated development, the industry would become recognised as a destination of choice for off shoring for selected services. Under this scenario KwaZulu-Natal will continue to be a principle beneficiary of the growth in domestic service demand, and again would achieve considerable growth as a result of its current strong domestic orientation. However, this would likely be accompanied by a considerable increase in placement of off shoring business with local outsourcers, as well as the establishment of a number of medium sized and one or two large sized foreign owned call centres. The key determinants that would result in this scenario can be considered applicable to both the national and local industry: o A very clearly articulated strategic intent with full buy-in from both government

and industry guiding the industry into higher value added services o Coordinated development and marketing of the industry targeted at attracting

investment in line with the strategic intent o Success in developing a much larger and highly skilled talent pool of agents,

supervisors and managers for the industry, with the industry regarded as providing huge opportunities for individual advancement.

o Longer term incentives and incentives supporting the expansion of existing operations

o A highly effective public private partnership approach to addressing the skills, operational and other needs of industry


34

LIST OF SOURCES Batt R, Doellgast V, Kwon H, Nopany M, Nopany P, & Costa A, 2005. The Indian Call Centre Industry: National Benchmarking Report Strategy, HR Practices, & Performance. Centre for Advanced Human Resource Studies [CAHRS], Cornell University. Benner C, Lewis C, & Omar R, 2007. The South African Cell Centre Industry: A Study of Strategy, Human Resource Practices and Performance. University of the Witwatersrand. Businessworld.in, 2007. www.businessworld.in/issue/web_exclusive04_12feb07.asp. CallCentres.net, 2007. 2007 Contact Centre Benchmarking Report: The Philippines. www.callcentres.net. Calling the Cape and Deloitte, 2007. Contact Centres and Business Process Outsourcing in Cape Town: 2006/7 Key Indicator Report. www.callingthecape.co.za. Deloitte Consulting, 2007. The National Remuneration Guide: 2006. Deloitte Consulting: South Africa. Dimension Data, 2007. Global Contact Centre Benchmarking Report: 2007. Dimension Data: London. Emergic, 2004. IBM buys Daksh. April 8. www.emergic.org/archives/indi/008610.php. Kjellerup, 2007. “Personal View of the Coming Call Centre Boom in SA” reported by Niels Kjellerup, Editor and Publisher of The Call Centre Managers Forum. February 20, 2001. Mitial Research, 2003. South Africa 2002/3 call centre country report. Mitial Research: Johannesburg. Pai S, 2007. Managing Director, TPI India. Philippine Information Agency, 2006. BPO provider expands operation in provinces. September 15. www.pia.gov.ph/?m=12&sec=reader&rp=1&fi=p060915.htm&no=3&date=. Turner B, 2005. South Africa seeks call centre investment. www.financemarkets.co.uk.


35

APPENDIX A: METHODOLOGY A significant proportion of the research was desktop based, although extensive fieldwork was also required to effectively cover the absence of reliable information on the industry in KwaZulu-Natal and the eThekwini Municipality. The methodology therefore comprised four distinct components: 1. Secondary research:

a. Review of existing consultant and government reports on the South African and international contact centre industry.

b. Review of academic books, papers and articles focusing on the South African and international industry.

2. Primary research:

a. Internet searches reviewing newspaper and electronic articles on the industry in South African and internationally.

b. Interrogation of various databases to profile the industry and explore their performance trajectories.

c. Interviews with, and data collection from, industry support organisations including recruitment, telecommunication and IT service providers; as well as government.

d. Engagements with a selection of major global operations that have invested in South African but outside of KwaZulu-Natal to establish (1) the key drivers underpinning investment location decisions, (2) the markets which present the most significant opportunities for South African operations, (3) key issues which will determine success or failure in those markets (in respect of either investment from or service provision to) and (4) possible future scenarios for the South African industry based on their experiences locally and internationally.

e. Engagements with a selection of major national organisations with call centres KwaZulu-Natal with a view to establishing (1) key drivers underpinning investment location decisions, (2) key opportunities for increasing investment and (3) possible future scenarios for the South African industry based on their experiences locally and internationally.

f. Engagements with Executives from call centres in respect of identifying (1) key strengths, weaknesses, opportunities and threats associated with operating in KwaZulu-Natal and the eThekwini Municipality, (2) performance relative to the investment drivers in (d) and (e) above, (3) views on the markets which present the most significant opportunities for South African operations, (4) key issues which will determine success or failure in those markets and (5) possible future scenarios for the South African industry based on their experiences locally and internationally..

g. Development and administration of an industry survey to capture the present regional industry profile.

3. Detailed analysis of findings including the compilation of various input documents

for inclusion into the research document. Subsequent brainstorming session with KZNonSOURCE and selected industry experts on the key primary and secondary research findings.

4. Compilation of a draft research report and presentation for submission/

presentation to KZNonSOURCE and selected industry representatives/experts, and subsequent completion of final report and presentation based on comments and/or criticisms received.


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APPENDIX B: SURVEYED CONTACT CENTRES

1. ADT 2. Auto and General 3. BizWorks 4. Business Connection 5. Cell C 6. Direct Channel Holdings 7. Discovery Health 8. DRG Outsourcing 9. Eskom 10. Ethekwini Electricity 11. Ethekwini Water and Sanitation 12. Franke Kitchens 13. Gold Circle 14. Independent Newspapers 15. Lexis Nexis 16. Mr. Price 17. MTN 18. KZN Wildlife 19. Nedbank 20. Pharos 21. Rewards 22. RL Daly 23. Stannic 24. Talking Shop/Cell Talk


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APPENDIX C: CONTACT DETAILS This report was produced for KZNonSOURCE by B&M Analysts. For further information please contact: KZNonSOURCE William Goldstone Chief Executive Officer KZNonSOURCE Tel: + 27 (0)31 311 1964 E-mail: [email protected] www.kznonsource.co.za

B&M Analysts Douglas Comrie Managing Director B&M Analysts Tel: + 27 (0)31 765 3870 E-mail: [email protected] www.bmanalysts.com

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2008InvestorReport

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