The Eastern Cape Development Corporation (ECDC) has identified Business Process Outsourcing and Offshoring (BPO&O) as one of the key sectors to enhance economic growth in the province. ECDC recognizes the fact that the growth of BPO&O sector has multiplier effect on the economy of the province, leading to higher investments, increased job creation and improvement in quality of life. In this respect ECDC is keen to establish the Eastern Cape Province as a preferred outsourcing destination for Business BPO&O services. In this regard, Ntiyiso-Avasant has been retained by ECDC to assist in understanding the current state of the industry, analysing the potential in the province and create a roadmap to attract investment into the sector.
As part of the project, Ntiyiso-Avasant has analysed current state of the BPO&O industry in the Eastern Cape (EC) by conducting several interviews and discussions with key leaders from industry, academia and the government to inform its review of current state of industry. Avasant has also reviewed current global market trends and analysed Eastern Cape’s capabilities to recommend certain market segments that Eastern Cape should target as its niche. In addition to the industry analysis, we have also reviewed the investment promotion activities and outlined an investment promotion strategy and implementation roadmap to assist ECDC in its objective to attract more investment in the sector. We believe that the key recommendations and roadmap will drive ECDC to market and promote the Eastern Cape as a BPO&O destination.
As mentioned earlier, Ntiyiso-Avasant has conducted several consultations with key stakeholders in Eastern Cape BPO&O sector. The purpose of these consultations was to understand their individual viewpoint, as one of the industry participants, about their assessment of the state of the BPO&O industry in the Eastern Cape. We have used Avasant’s Five-Driver Model in figure 5-1, to assess the Eastern Cape’s capability to be a preferred location of BPO&O investments. The model defines five critical aspects for a location that act as the drivers to its success in attracting investment into the sector and sustaining industry and growth, i.e. Infrastructure, Human Capital, Business Economics, Environment and Capital.
The model is based on Ntiyiso-Avasant’s extensive experience of working closely with various stakeholders (internationally) in the BPO&O industry such as; buyers of services, service providers, governments of provinces and countries and trade associations. Also, Ntiyiso-Avasant simultaneously collected best practices information from across different geographies of the world in order to achieve a holistic approach towards analyzing the competitiveness of the Eastern Cape as an attractive BPO&O destination. Best practices information is also meant as a guide for ECDC and EC and possible input as the province strive to position itself within the BPO&O sector. The growth drivers are analysed in details on the following pages:
Looks at the availability of reliable infrastructure. This includes; telecommunications, power, real estate, and accessibility and connectivity (transport). Availability of infrastructure is a critical aspect for BPO&O sector establishment, as it is heavy orientated towards a 24X7 operational model, with a high demand of all of the above mentioned. According to Ntiyiso-Avasant observations, infrastructure in terms of real estate, power availability is standard throughout the major cities of South Africa. However, telecommunications is an area, especially the bandwidth (fixed-line/cable based connectivity), where Eastern Cape will have to catch up with other provinces.
This driver looks at human resources as being a key differentiator to the capability of the location to attract and sustain particular industry. The following factors are taken into consideration; talent availability, talent quality, training initiatives, and cultural adaptability. Overall, Ntiyiso-Avasant believes that the Eastern Cape has not been able to exploit the human resources of the province fully. While there is abundant supply of manpower, efforts of grooming and nurturing the talent have not been coordinated and in spite of program, employers find accessing trained talent a challenge.
This referrer to legal and operational business environment, including the risk perception of a location. The factors considered under this driver includes; economic and investment scenario, general law and order situation, risk and operational environmental, incumbents, and clusters. Eastern Cape offers a stable and low risk-operating, but has not yet been able to develop a strong incumbents industry in outsourcing. It should encourage developing an ecosystem of consultants and vendors that service providers in the region need desperately. Providing Standard Operational Procedures (SOPs) to these firms in line with the rest of the industry would encourage consultants to set shop in the Eastern Cape.
This looks at location selection for the business. Location might not be cheapest, but it needs to be cost efficient location, and provides the right value mix to the industry to be a competitive provider. The following factors need to be analysed; telecom, talent, real estate, cost of living, and power. Labour costs were found to be significantly higher than other large offshoring destinations, it is recommended that the Eastern Cape develop the talent in the key domains of ports and shipping, and automotive where it already exist as a business. With high labour costs in mind, the Eastern Cape can also provide some training grants and job grants, thus making it attractive for the investors and rationalise the cost for them. Bandwidth has come down by 85% over the period of 2003-2009, but international bandwidth has fallen dramatically, with China being 30-40% cheaper that South Africa. Government needs to consider subsidising telecommunication bandwidth cost as a (GAS) package, for existing and new BPO&O service providers. There is also a need to provide stable power pricing, or assured lock in rates for 3-5 years period for BPO companies that are willing to set up in the province.
This looks at factors including; policies of the government, incentives provided to attract and grow businesses in the region, tax and regulatory setup, etc. The national government has devised incentives to drive investments and the creation of jobs through the BPO&O sector. The Eastern Cape needs to augment the National Government offering by closing the gaps identified on the current incentives, thus enabling Eastern Cape to attract more operators to set up shop in the province. Some of the tax incentives that the Eastern Cape can consider providing are; subsidies for transport, factoring government incentives and offering 50-90% of the incentive amount upfront against specified commitments from investors. The early few investors can be provided 90%, while the next few can get up to 50%.