South African Contact Centre Industry: Will Growth Match Goals?

Business Wire, July 24, 2008

CAPE TOWN, South Africa -- While South Africa's outsourced contact centre industry is set for growth, this may not reach the government's targets. In the next five to seven years Frost & Sullivan (http://www.ict.frost.com) anticipates that the total number of outsourced seats will reach about 60,000, but will fall short of the government's goal of 100,000 by 2009.

"The planned growth in the industry is unlikely to be realised under the current circumstances," says Frost & Sullivan research analyst Spiwe Chireka. "This is due to a number of factors, particularly that South Africa's value propositions are not all relevant. The country is relying increasingly on factors such as good language capabilities, favourable time zones, its advanced financial services sector and strong government support which investors are not necessarily looking for anymore."

In the past few years, there has been growth in the business process outsourcing (BPO) sector as a target for job creation and drawing in foreign investments. The number of call centres has grown significantly, from 450 call centres in 2004 to over 1,300 in 2007. Currently, the number of outsourced seats in South Africa is estimated to be between 24,000 and 25,000.

The key factors driving this growth are increased government support for the sector and the strong alliance with key offshore markets. As demand for domestic outsourced contact centres slows, South Africa hopes for growth in the offshore contact centre market.

However, Chireka believes that the country needs to re-evaluate its value propositions in order to maintain strong growth rates.

"Language and time zones have become irrelevant as most offshore destinations are operating 24 hour centres and have large English speaking populations," she says. "Also, the largest outsourced services in the US and UK, which are South Africa's target markets, are information technology (IT) and contact centres. However, South Africa's IT and contact centre skills are limited, which is a major hindrance to its success as an alternative destination."

Furthermore, while the government may be supportive of call centres, some organisations have discovered this support is not synonymous with efficiency. Government support is regarded by some industry organisations as slow and bureaucratic, which is frustrating investors into setting up operations elsewhere.

Set up and operating costs are also higher than most think. Local labour costs are considered too high, compared to the country's competitors.

"Countries like Ghana, Nigeria and Kenya are also making headway into the offshore contact centre space," Chireka notes. "Kenya has made large investments into its telecommunications infrastructure and is looking to have a world class telecoms network by 2015. With this increasing competition, South Africa's dominance as an offshore destination for contact centres in Africa may be under threat."

Frost & Sullivan believes there are two critical factors that South Africa must address to maintain its growth rates in the contact centre industry. Firstly, the country must invest in skills training to contain the attrition rate. Doing so would lower the initial human resources training costs, which would give South Africa a competitive advantage over its competition.

Secondly, stakeholders must address a belief in the market that South African telecoms costs are amongst the highest in the world.

"This contention has never been independently proven to be accurate," Spiwe notes, "but to address this negative perception, industry stakeholders - telecoms operators, industry bodies and government - must appoint an independent body to verify whether this is indeed the case. If it is, they must address it promptly, either by reducing costs or justifying them to potential investors."

For South Africa to maintain its lead in attracting both domestic and offshore contact centres, they need to address the above concerns. Doing so will generate the competitive advantage they need to continue attracting foreign investors.

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