Lessons from Promoting Business Process Outsourcing ( BPO...

Lessons from Promoting Business

Process Outsourcing ( BPO)

in South AfricaA presentation to the World Bank

Pumela Salela, Director : BPO

The Department of Trade and Industry

South Africa

30 September 2009

[email protected]

ALIVE WITH POSSIBILITY

•Area 1,219, 090 km2

•Population 44,8m

•Currency R1 = 100 cents

•Time GMT + 2 hrs

•Head of the State: President Thabo M Mbeki

•11 Official languages with English the business language

•Total GDP: 2006 R1 726 bn (US$ 255 bn)

•GDP 2006 per capita: R35 994 (US$ 5 324)

•Real GDP Growth: 5,0 (2006)

•Inflation (CPIX): 4.6% (annual 2006 average)

•Exports: Tourism, minerals, diamonds, metals and

metal products, food products & automotive components.

•Main trading partners: Germany, USA, China, Japan &

the UK.

South Africa at a glance

•Area 1,219, 090 km2

•Population 47,9m (2006 estimates)

•Currency R1 = 100 cents

•Time GMT + 2 hrs

•11 Official languages with English the business language

•Total GDP: 2007 US$ 259 864 m

•GDP 2007 per capita: US$ 13 564 at PPP

•Real GDP Growth: 5,0 (2007)

•Inflation : 6.4% (annual 2007 average)

•Corporate Tax rate : 29%

•Exports: Tourism, minerals, diamonds, metals and

metal products, food products & automotive components.

•Main trading partners: Germany, USA, China, Japan &

the UK.

Interesting Facts !

GDP sources (2007E)

Total Services 70%

Tourism Services 8%

Financial Services 20%

Industry/manufact

uring

25%

Agriculture 2.5%

Age Profile Stats (2006)***

Employed 16-65 yrs 42%

15-24 years old 21%

25-49 years old 27%

50+ years old 14%

•South Africa is 6 hours closer to the

USA than is the Philippines

•South Africa has roughly 150 000 call

centre seats.

•English is the language of business

and education. There are ~9 million

citizens that speak English as their first

language.

TEN TOP LESSONS FROM PROMOTING BPO IN SOUTH AFRICA !

1) Get the foundation right ( Strategy, policy, create an enabling environment)

2) Develop a Unique Selling Proposition ( Value Proposition)

3) Identify target markets and chase them

4) Partner and collaborate with industry

5) Seeing is Believing !

6) Research ! Research ! Research!

7) Identify niche offering

8) Build an Industry Association

9) Monitoring and Evaluation

10)Continued Government Support

Background: South Africa‟s Window of Opportunity

• The South African Government has demonstrated its strong commitment to BPO in South

Africa.

• The government has set aside a dedicated fund over 5 years ( 2007 – 2011) for investors

in the country‘s BPO sector.

• The fund has been created under the Government Assistance and Support (GAS)

programme approved by Cabinet in Dec 2006 and launched in March 2007.

• The objective is to create employment opportunities.

Sources : www.southafrica.info and www.eassy.org

• Strategic focus areas identified:

– Incentives

– Talent development

– Marketing

– Industry mobilisation

– BPO&O standards

• Additional work streams were later identified :

– Telecommunications pricing packages for the BPO&O sector

– BPO 2nd economy strategy

– BPO infrastructure or BPO Parks or Special Economic Zones

Our Strategy for the BPO&O Sector

http://www.southafrica.info/

8

SOUTH AFRICA HAS A WORLD CLASS INFRASTRUCTURE…

Source: Team analysis

• End to end domestic fibre network with

uptime of 99.99%

• High international bandwidth available,

with 120 Gbps available to the US

• Over 16m square feet of premier grade

property available in prime locations, with

vacancy rates from 10% to 25% in major cities

• Premier international conference centres in

major cities, with the presence of premier hotel

chains (e.g., Hyatt, Sheraton, Hilton)

• 55 weekly flights to the UK, direct from

both Johannesburg and Cape Town

• 48 weekly flights to the USA, direct from

both Johannesburg and Cape Town

Telecoms

Property

Connectivity

Power

The CIA World Factbook:

“South Africa has …

financial, legal,

communications,

energy, and transport

sectors … and a

modern infrastructure

supporting an efficient

distribution of goods to

major urban centers

throughout the region”

Our BPO Strategic Pillars in detail…

10

An innovative government funded,

employer led, learner focused,

recruiter and trainer supported

training programme has

been developed

TRAINING PROGRAMS ARE BEING PUT IN PLACE TO ENSURE SCHOOL

LEAVERS ARE SUITABLY QUALIFIED…

Government and industry‟s talent development

programme, aimed at training 30 000 learners, is being

developed . . .

Talent development programme

Objective • Increase the pool of entry-level employable

people by using a targeted customised

skills training programme aimed at 30 000

young, unemployed South African‟s

• Accelerate the development of homegrown

supervisors and managers

• Ensure the ongoing capacity building of a

globally competitive talent pool with the

required skills at all levels of employment

Targets • Train 1 000 entry level learners in 2007

• Train an additional 29 000 learners for the

period 2007-2010.


Employer

Recruiter Trainer

Learner

11

…AND GOVERNMENT HAS COMMITTED TO FURTHER IMPROVING THE

DEPTH AND QUALITY OF SA‟S TALENT POOL


Overarching government objectives

• Develop and improve the skills of the broader

South African workforce

• Reduce unemployment in the country

through increased economic growth

• Empower previously disadvantaged South

Africans, both economically and socially

• Encourage greater investments in training

• Create opportunities for the introduction of

new advanced skills

• The Skills Development Act provides a framework for the

development of South Africa‘s skills base, including the creation of

a National Skills Fund to provide for skills development initiatives

• The Skills Support Programme offers incentives with a value of up

to $840 000 for a 1 000 seat centre over 5 yrs. The programme

provides:

– Training grants for eligible training costs

– Learning development grants for developing customised training

programmes

– Capital grants for installation of training capacity

• A wage incentive programme for learnerships, available for

employers offering approved learnership programmes. Provides up

to $430 000 over 5 yrs for a large centre

Initiatives in place

investors could take advantage of a

range of support that is available to

investors to enable job creation and skills

development

ON TALENT DEVELOPMENT …

1129 passed (86%)

202 supervisors have been trained (against a required 146, exceeded target by 38%)

MONYETLA (WORK READINESS PROGRAMME) SUCCESS RATE :

In our first rollout …

1307 learners were enrolled, 1129 (86%) were certified competent,

and of the 1129 graduates,

1009 (89,4%) were successfully employed

1009 of the 1129 successful learners have been employed (89.4%)

13

SA LAUNCHED BPO SPECIFIC INCENTIVES…

National Incentive Comments Value

Investment Incentive Grant The incentives are offered to

local and foreign investors

establishing projects that aim

primarily to serve offshore

clients. The objective of the

incentives is to attract BPO

investment that creates

employment opportunities

From

$5300

[R37,000]

To

$8500

[R60,000]

per seat

Dependent on the level of

qualifying investment expenditure

and employment creation.

Minimum jobs = 200 and 90% of

revenue must be derived offshore

Training and Skills Support

Grant

The Grant supports company-

specific training

requirements including:

• in-house trainer/

facilitator/assessor

development/ skills

• costs for development of

learning materials/

programmes

• costs for trainer

secondment into South

Africa

• costs of purchasing and

installing training

equipment and facilities

Up to

$1700

[R12 000]

per agent

Grant per new employee trained,

calculated as 50% of qualifying

training expenditure

Source: The Department of Trade and Industry South Africa March 15, 2007

Note: The BPO Investment Incentives are effective from 06 December 2006 up to 31 March 2011

SA Rand (R) : US dollar exchange rate ~ 7 : 1

Employment Created Qualifying Investment Costs Per

Seat

Grant Per Seat

200 – 499 At least $10 500 [R74,000] $5300 [R37,000 ]– $6400 [R44,600]

500 < Greater than $12 700 [R89,200] $6400 [R44,601] – $8500 [R60,000]

200 < Less than$10 500 [ R74,000] Between $5300 [R37,000] and $7400 [R52,300]; or

50% of agents salary costs for 2yrs, whichever is

lesser

… DETAILS OF THE INVESTMENT INCENTIVE GRANT

Source: The Department of Trade and Industry South Africa March 15, 2007

• A project employing between 200 – 499 agents with Qualifying Investment Expenditure of more than R74,000 per seat is

eligible for a grant between R37,000 and R44, 600 per seat.

• A project employing 500 or more agents with Qualifying Investment Expenditure greater than R89,200 per seat is eligible for a

grant between R44,601 and R60,000 per seat.

• Should a project have qualifying investment expenditure of less than R74,000 per seat, but 200 or more agents, it will be

eligible for a grant between R37,000 and R52,500 per seat. The approved grant may not exceed 50% of the salary costs of

agents for the first 2 years of the project.

SA Rand (R) : US dollar exchange rate ~ 7 : 1

DISBURSEMENT OF INVESTMENT GRANT

The approved grant will be disbursed in 4 stages, over 3 financial years of the company, subject to performance criteria:

Claims Period Percentage

1 6 months 25%

2 Year 1 25%

3 Year 2 25%

4 Year 3 25%

16

IN ADDITION INVESTORS CAN ACCESS OTHER INCENTIVES

Source: The Department of Trade and Industry

General Incentives Comments Value

Technology and Human Resource

for Industry Programme (THRIP)

The aim is to build R & D capacity $1 for every $2

put in

Matching grant to support costs incurred in

R & D that enhances skills

Urban Renewal Programme The aim is to encourage the

development of businesses in urban

renewal areas

Accelerated depreciation allowance on the

capital value of buildings and improvements

in Urban Development zones

National Learnership Programme The aim is to develop a pool of

nationally accredited agents,

supervisors and managers

$8500

[R60,000]

Tax deduction per unemployed person at the

start of and on certification of a registered

Learnership (split into 2 amounts, before

and after)

$5700

[R40,000]

Tax deduction per employed person at the

start of and on certification of a registered

Learnership (split into 2 amounts, before

and after)

Location in Industrial

Development Zones (IDZ)

There are 3 IDZ‘s in South Africa Various • Grant to cover 50% of the cost of

developing innovative products and

processes

• Exemption from Value Added Tax (VAT)

on imported goods and a rebate on duty

on imported goods

Regional Programmes Each region offers individual investors

options; typically reduced facility costs

Various • In the Western Cape: 100% rates rebate,

free land and buildings, subject to

availability

• Gauteng: Highly reduced rental space

SA Rand (R) : US Dollar exchange rate ~ 7 : 1

ON INCENTIVES...

To date… 25 Applications received

22 Applications Approved

2 cancelled

1 was declined

BUDGET RECONCILIATION

Commitments = R619m until 2013

Total investments received = R1.5billion

Projected Number of Jobs = 21 052

SOUTH AFRICA‟S VALUE PROPOSITION FOR BPO&O

• South Africa offers a high quality, low cost destination for offshoring

business processes, in a stable investment environment supported by

world class infrastructure

• South Africa has a vibrant offshoring industry, which draws on the

country‘s linguistic, cultural and product affinity with the USA, UK

and Europe to deliver distinctive quality across service lines

• The public sector in South Africa has made a high-profile, long-term

commitment to the offshoring industry, resulting in strong investor support

and sustainable reductions in costs over the next several years

Source: SSF Team Analysis

ON MARKETING…2008


Event Target Rationale Date

IAOP Outsourcing

World

Summit,

Florida USA

Outsourcing

professionals

from around the

globe

The International Association of Outsourcing Professionals

Outsourcing World Summit has been running for over 10

years and has managed to attract virtually every major

corporation involved in outsourcing. The conference is

attended by top executives and outsourcing practitioners

from around the world.

18-20 February 2008

Gartner

Outsourcing

and IT

Services

Summit,

London

700 core

outsourcing-

specific

attendees

The attendees make and sign off outsourcing decisions,

but are not ―C‖ level. The attendees will be the initial

contacts in persuading and influencing investment

opportunities.

2-4 June 2008

ITES-BPO Summit,

Bangalore ,

India

Indian

outsourcers/third

party service

providers

More than 500 delegates are expected over the two day

summit. This presents an opportunity to show SA case

studies and arrange meetings with target investors.

10 – 11 June 2008

SA BPO Policy

Conference

BPO investors

SMMEs

Industry

Stakeholders

General public

SA to host its very own BPO Conference to include

international speakers. The objectives of the conference:

to review the current BPO&O Policy, to receive feedback

from the BPO&O industry on the dti‘s strategy for BPO&O,

to create a networking platform for BPO&O investors , to

create public awareness about the growing BPO&O

industry in South Africa

10 – 11 July 2008

(in South Africa)

Outsource World

Summit

New York

Business

executives from

more that 25

different countries

attended the 2008

summit

The Outsourcing World Summit is the world‘s longest

running and most highly acclaimed, global, executive

program on outsourcing.

15-16 October 2008


ON MARKETING… 2009


Event Target Rationale Date

Nasscom Leadership

Forum,

India

The NASSCOM India

Leadership Forum 2009, a

milestone event that will

mark NASSCOM‘s 20th

year, will bring under one

roof industry leaders,

thought gurus, analysts,

Government decision

makers, academia and IT

users from across the world.

For the very first time, the

global conclave will journey

through three key themes—

one for each day—to

completely transform the

experience for delegates.

As the IT software and services industry gears up to touch USD 50 billion in FY 2008-09

and stay on track to achieve USD 60 billion in exports during FY 2009-10, it will use the

platform of the NASSCOM Leadership Forum to discuss the new industry drivers and

enablers that will take the sector forward. The aim will also be to develop a platform where

global companies , customers and analysts can come together and define the strategies

and challenges for the next decade .

11 – 13 February 2009

International

Engineering and

Technology Fair (

IETF)

India

Top companies and

investors from India , South

Africa and the rest of the

world

Organised by the dti Export Promotion , South Africa is partnering the Confederation of

Indian Industries ( CII) at the 18th IETF in India , the CII‘s biannual flagship event. As one of

the largest events of its kind in Asia, the Fair allows countries and companies to showcase

their entrepreneurial and technological expertise, and build strategic partnerships and

networks, benchmark themselves internationally, and market their brand presence in Asia

23 – 26 February 2009

Africa Outsourcing

Summit

London

Ministers, Corporate and

experts in the fields of BPO

and ICT.

A number of delegates are expected over the two day summit from source destinations (

UK, US ) and more than 15 African Countries . This presents an opportunity to show SA

case studies and arrange meetings with target investors. Is the first time that there is an

event focusing on Africa as Outsourcing destination. Issues for discussion will include

Infrastructure, Education, Governance and Support as it relates to BPO and ICT.

2– 3 March 2009

Gartner 6th

Annual Outsourcing

Summit

Sao Paulo

Third party service

providers/ Outsourcers

Delegates from all over the world from Multinational Corporations, Outsourcers, Third

Party Service Providers.

15 – 16 July 2009

South African seminar

on Legal and

Knowledge Process

Outsourcing

New York

Representatives of

Corporate America,

Outsourcers/ third part

service providers

This presents an opportunity to show SA case studies and arrange meetings with target

investors. It will be arranged with the dti office in New York.

September 2009

International BPO

Policy Conference

South Africa

Potential investors,

government, industry and

the general public

To review the current BPO policy

To receive feedback from the BPO&O industry on the dti‘s strategy for BPO&O

To create a networking platform for BPO&O investors

To create public awareness about the growing BPO&O industry in South Africa

17 – 22 November 2009


SOUTH AFRICA CONTINUES TO ATTRACT SOME SIGNIFICANT

CAPTIVE AND THIRD PARTY BPO INVESTORS

23

europ

assistanc

e

The „Triple Play‟

customer service

functionality makes

Merchants one of the

most advanced

contact centre

operations in South

Africa

Customer

satisfaction

results are in line

with the UK

centres: Virgin

Brightview was

rated 5 stars in

customer service

by “Which”

Magazine in 2006

23

“South Africa's excellent infrastructure,

together with first-class financial, legal

and commercial systems, makes this

country a natural location to pursue the

significant opportunities of South and

southern Africa….We look forward to

successful and profitable operations in

southern Africa, that meet our global

goals and create wealth for the GE

shareholder."

- GE South Africa president Michael C

Hendry

THE INDUSTRY IS SUPPORTED BY A NATIONAL PARTNERSHIP

OF GOVERNMENT AND THE PRIVATE SECTOR

Source: SSF Team Analysis

Partnership Committee

Steering Committee

National Working Committees

Leadership Management and

Customer Satisfaction Management Practices

Operational

Management

Practices

IT Management

Practices

HR Management practices

Performance

ON BPO STANDARDS…

Sources: ARP – 99 under the auspices of the South African Bureau of Standards (SABS)

• Launched in October 2008

• Collaboration between industry and government

Telecommunications in Summary.


Seacom

• East Coast

• 13 700km undersea cable

• to connect Southern & East Africa

• to India and Europe via Madagascar, Mozambique, Tanzania, Kenya

• complete 17 June 2009

• to provide low cost broadband

EASSy

• East Coast

• 10 000km

• to connect SA, Mozambique, Madagascar, Somalia, Djibouti, Sudan

• to be complete by end of 2010

• Financed by WorldBank and DBSA

Infraco

• West Coast

• to UK

• Complete first half of 2010

• Orinally built by State Companies Eskom & Transnet- both shareholders at Neotel.

Sentech

• To provide state owned internet connectivity through wireless systems rather than fibre optic

cable.

South Africa wants to bring down the cost of telecommunications and internet connectivity


THE TELECOMS SCENARIO

3131

SUMMARY OF THE EVEREST RESEARCH REPORT ON SOUTH AFRICA BFSI CAPABILITIES

From a talent perspective, SA is well positioned with strong availability of

Financial Services specific domain skills

Management

talent

Entry level

pool

Entry-level

specialized skills

(e.g., accounting)

Language

skills

FS Industry

experienced pool

Views on talent pool

1

2

3

4

5

Source : Everest

55%

18%

27%

Services provided cut across most sub-verticals and BPO functions

Asset

managementRetail

banking

Insurance

FS BPO employee split by sub-verticals

Number of employees

100% = 11,000

33%

5% 2%

40%

20%

FS BPO employee split by BPO functions

Number of employees

Industry

specific

back-office

Inbound

Outbound

KPOCorporate services

Fro

nt

off

ice

(53

%)

Ba

ck

off

ice

(4

7%

)

100% = 11,000

SERVICE PROVIDERS = SUPPLIERS AND OFFSHORE CAPTIVES

Sources: Everest Questionnaire responses; Interviews with leading service providers

Several examples exist of high end back-office work being

supported for UK clients

Scale: 160 FTEs

Scope: Insurance

BPO and KPO

Life Administration

Legacy

transformation

Actuarial

analysis

Product

development

Global supplier

Scale: 500 FTEs

Scope: Investment

operations

Investment

management

Trade processing

Funds accounting

Accounting, Tax and

regulatory

compliance

Global investment bank

Scale: 430 FTEs

Scope: End-to-end

insurance operations

including

Voice

Quotation

Underwriting

Broker support services

Commission calculation

Loyalty administration

Insurance major

Sources: Everest Questionnaire responses; Interviews with leading service providers

3636

SOUTH AFRICA HAS LEVERAGED DOMAIN KNOWLEDGE IN KEY

VERTICALS AND DEEP SKILLS IN ASSOCIATED SERVICE LINES

South Africa‟s Strengths

• Mature industries in insurance, banking and telecoms

• Widespread use of English with similar accents to UK/US

• Cultural similarities to US/UK

• Strong product similarities in banking and insurance

• Compliance with internationalregulations

• Data privacy and intellectual

• Property legislation in force

POTENTIAL OPPORTUNITY AREAS

• Mature industry;

• First world operations

• Large, experienced players

with scalable infrastructure

• Sophisticated product line-up

similar the UK/Europe

• Examples: Old Mutual, AIG,

Budget Insurance UK, Zurich

Financial Services

Insurance

• Mortgage application and

loan processing

• Payments and settlements

• Credit card operations

• Account opening

• Account management

• Customer service

• Transaction processing

• Finance and accounting

• Asset Base US$311bn

• Financial services hub for

Africa

• Sophisticated banking

• Well regulated

• Strong Compliance

framework - Basel II, Data

Privacy Act

• Examples: ABSA (Barclays

UK), Standard Chartered

Bank, Citibank, JP Morgan

Banking

• New business

• Application processing

• Account opening and

maintenance

• Claims administration

• Payments processing

• Large scalable telecom

infrastructure

• Many experienced players

• Good technical know-how

and capability

• Examples: Virgin Mobile

(UK), Vodacom

(Vodafone), MTN, Telkom,

Telecoms

• ITO

• Customer service

• Billing

INDUSTRIES

Number of qualified

actuaries

2008; Total number

800-

900

80-90

70-80

4,000-

4,500India

South

Afric

a

Philippines

Czech

Republic

225

65

80

770

90

15

4

26

Number of Chartered

Accountants

2007; ‗000s

Number of CFA charter

holders

2008; Total number

While not the largest in every domain, there are clearly pockets of niche skills in meaningful

scale (e.g., in actuaries)

Analysis of specialized skills and qualifications

in South Africa

Sources: EIU Master country database, Industry reports, Internet Research, Everest-Letsema Analysis

English language skills comparison

Brazil

Mexico

Argentina

ChileSouth Africa

China

Philippines

Malaysia

India

Canada

Costa Rica

Caribbean

PolandCzech Republic

Hungary

Northern Ireland

Scotland

Can support small scale; typically as

part of multi-lingual center

Can support large scale English

language centers

Robust English skills, can support

medium scale centers

ILLUSTRATIVE

SA is one of the few

alternatives that can

provide good English

skills at scale

Romania

Vietnam

Kenya

Source: Everest Research Institute analysis

Egypt

South Africa could have different roles to play in the global sourcing

delivery network

Offshore destination for

high-quality English

language front-office

1

Offshore destination for

complex FS back-office

work

2

Near-shore scalable

destination for sub-

Saharan Africa

3

Risk diversification

option for India /

Philippines

4

Source : Everest Research Institute

ON INDUSTRY MOBILIZATION…

Before …

After…

BPO&O IN SOUTH AFRICA, NOW AND BEYOND …

Objectives of the 1st National BPO Conference held in July 2008

Review the current BPO Policy

Receive feedback from the industry on the current dti strategy for BPO&O

Create a networking platform for local and international investors

Create public awareness about the growing BPO&O industry in South Africa

The next BPO policy conference will be held in South Africa, Port Elizabeth

from 17-22 November 2009. It will be a joint collaboration between

government and industry under the theme BPO Week Local and

International Speakers are expected.

46

THE DEPARTMENT OF TRADE AND INDUSTRY (THE DTI) IS WILLING TO

ASSIST INVESTORS IN SETTING UP A BPO CENTRE IN SA


Government is willing to facilitate…

• Fulfilment of regulatory requirements

– Information on all regulatory requirements

– Progress tracking on different applications

• Access to Incentives programmes

– Information on which incentives are

available

– Assistance in applications for incentive

programmes

– Progress tracking and feedback on

incentives applications

• Acquisition of work permits

– Information on work permit requirements

– Assistance in applications for work permits

– Progress tracking and feedback work

permit on applications

• Required information relating to

– National data, e.g., telecoms, connectivity,

transport

– SA BPO landscape

– More detailed regional information e.g.

average salaries, rental costs, amenities etc.

• Assistance for investors in setting up

site visits with

– Vendors

– HR agencies

– BPO centres

• Assistance in identifying a location for a BPO

centre

– Identify available space

– Consider required amenities

Government

Support Offered to

investors

• Support in planning further

investments/ramp up of existing investment

Thank You !!!

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