Analysis of South Africa as a BPO Delivery Location 2015

Analysis of South Africa as a BPO Delivery Location 2015

Analysis of South Africa as a BPO Delivery Location 2015

Analysis of South Africa as a BPO Delivery Location 2015 Compiled by Nelson Hall

Analysis of South Africa as a BPO Delivery Location 2015
Analysis of South Africa as a BPO Delivery Location 2015
Analysis of South Africa as a BPO Delivery Location 2015
Analysis of South Africa as a BPO Delivery Location 2015

List of Exhibits Services Delivered from South African Contact Centers by Sector 5 Financial Industry-Specific Services Delivered from South African by Sector 7 Profile of Organizations Using South African Contact Center Services by Sector 9 Profile of Sectors Using South African Contact Center Services by Number of Call Center FTEs 9 Services Delivered from South African Contact Centers by Sector 12 Financial Industry-Specific Services Delivered from South African by Sector 14 BPS Incentive Qualification: dti Evaluation Criteria 17 BPS Incentive Bonus Scheme: Non-Complex Jobs 19 BPS Incentive Bonus Scheme: Complex Jobs 20 B-BBEE Generic Scorecard 21 Introduction 2 A.

Objectives and Scope 2 B. Methodology 2 C. Structure of the Report 2 Executive Summary 3 A. Evaluate as “Onshore-Equivalent” for Contact Center Services 4 B. Evaluate for Revenue-Generating Capability in Support of Online Businesses 6 C. Evaluate as GDN Center within Financial Industry-Specific & for Africa-to-Africa Back-Office Services 6 International Contact Center Services 8 A. Business Challenges Faced & Drivers for Offshoring to South Africa 8 B. Sectors Served and Services Delivered from South Africa 9 C. Benefits Achieved from South African Service Delivery 13 D. Contact Center Services Delivery Cost Structure 13 Financial Industry-Specific Services 14 A.

Business Challenges Faced & Drivers for Offshoring to South Africa 14 Skills Availability & Government Incentives 16 A. Skills Availability 16 B. Government Support & Incentives for BPO 16 Companies Delivering Services from South Africa 23 Contact Center Services 23 A. Aegis 23 B. Amazon 24 C. Barclays Africa Group Limited 24 D. Capita 25 E. Coracall 26 F. Merchants 26 G. Mindpearl 30 H. OUTsurance 30 I. Outworx 31 J. Sanclare 32 K. Serco 33 L. Shell 35 M. Teleperformance 36 N. WNS 36 O. Webhelp 37 Financial Services Industry-Specific BPO 38 P. Kleinwort Benson 38 Offshoring Support Services 39 Q.

EOH 39 R. KPMG 40 Table of Contents Analysis of South Africa as a BPO Delivery Location

Analysis of South Africa as a BPO Delivery Location 2015
Analysis of South Africa as a BPO Delivery Location 2015

About NelsonHall NelsonHall provides buy-side and sell-side organizations with deeper research and analyses in front office, mid-office and back office BPO than any other research firm in the world. The company’s subscription-based model provides subscribers with robust market analyses, case studies, vendor assessments, contract analyses, market reports and access to a content-rich BPO contracts database. The firm covers a wide range of industries including financial services, government and utilities sectors, and tracks worldwide and regional BPO activity. NelsonHall’s home page is: research.nelson-hall.com.

The company tracks business services activity. In particular, NelsonHall focuses on the following business services and process areas: • Front-office customer management services • Middle office industry-specific processing services such as network and work management • Back office support services such as HR services, finance & accounting services, and procurement services NelsonHall provides information to its clients in a variety of forms, including within: • NelsonHall’s BPO subscription services, to assist organizations in developing sourcing strategies and in supporting individual sourcing projects including vendor short-list development • Workshops, to assist organizations in identifying the most appropriate areas of BPO for their organization • Business case development, to assist organizations in deciding whether BPO is appropriate for individual processes • Custom assessments, to assist buy-side organizations in benchmarking individual processes and to assist vendors in successfully taking BPO concepts to market.

For more details, contact: U.S. Riverside Center 275 Grove Street Suite 2-400 Newton MA 02466 Phone: (617) 663 5737 U.K. Atrium Court, The Ring Bracknell RG12 1BW U.K. Phone: +44 (0)1344 393036 France NelsonHall 4 place Louis Armand Tour de l’Horloge 75012 Paris France Phone: +33 1 72 76 26 54 1 Analysis of South Africa as a BPO Delivery Location

Analysis of South Africa as a BPO Delivery Location 2015

Introduction A. Objectives and Scope The purpose of this report is to assess the role of South Africa as a BPO delivery location for international companies. The objectives of the report are to identify: • The experience of organizations that use South Africa for international BPO service delivery • The drivers for use of South Africa for delivery of BPO services for both contact center services and for financial industry-specific & back-office services • The profile of companies using South Africa BPO service delivery by industry sector • The profile of international service delivery from South Africa by service type • The benefits sought from South African service delivery and the profile of benefits achieved • The delivery cost structure associated with South Africa, including details of government incentives.

South African “BPO” service delivery typically covers three areas: • International contact center services • International non-voice services typically covering industry-specific financial services processes and back- office processes such as finance and accounting • Voice and non-voice support for the domestic South African market. This report will focus on the first two of these market segments and on the opportunity for organizations to support their international operations from South Africa. By service type the scope of the report is contact center services, financial industry-specific services, and back-office services such as finance & accounting B.

Methodology The survey is based on interviews with executives from organizations, both end user companies and suppliers that are currently using BPO services based in South Africa in support of their international operations. C. Structure of the Report The report is structured into the following chapters: Chapter I: Introduction Chapter II: Executive Summary Chapter III: International Contact Center Services Chapter IV:  Financial Industry-Specific & Back-Office Services Chapter V: Skills Availability & Government Incentives Chapter VI:  Companies Delivering Services from South Africa. 2

Analysis of South Africa as a BPO Delivery Location 2015

Organizations have in the past often polarized their service delivery between use of onshore centers for delivery of high customer experience and complex processes and low cost offshore centers for simple transaction processing and customer service cost deflection. However, the world has changed. While organizations still have a strong need to reduce their customer service costs, they are typically looking to do this through increased use of electronic channels and by improving customer journeys rather than at the expense of the customer experience. Indeed the most common need expressed by organizations in the area of customer service at the present time is the desire to reduce their customer service costs while maintaining their customer experience and levels of customer satisfaction.

This is typically accompanied by a longer-term vision to continue improving their customer experience and customer satisfaction while retaining this lower cost point of operation.

At the same time, the balance in customer service is shifting. This is the result of two factors: • Firstly, the move to electronic self-service for simple queries is in itself shifting the focus of customer service delivered by agents to the more complex end of the customer service spectrum Executive Summary • Secondly, there is an increased focus on using customer service to drive sales and revenue protection through techniques such as welcome calls, health checks, and proactive customer interventions.

This is changing the skills required of agents, with a much greater requirement for agents to be able to build empathy with customers.

Accordingly, the increasing requirement from offshore customer service locations is to be able to offer “onshore-equivalent” customer service or even “onshore-exceeding” customer service at a lower cost of service. In this scenario, South Africa is worthy of consideration for “BPO” delivery whether via a captive or offshoring approach, since it offers an alternative to onshore services for delivery of high levels of customer experience and empathy and the ability to handle relatively complex processes. In particular, organizations seeking new BPO delivery centers whether for captives or outsourced service delivery should evaluate South Africa as: • An “onshore-equivalent” for contact center services • A location with strong revenue-generating capability in support of online businesses • A GDN Center for financial industry-specific services and for delivery of “Africa-to-Africa” shared services.

Analysis of South Africa as a BPO Delivery Location 3

Analysis of South Africa as a BPO Delivery Location 2015

A. Evaluate as “Onshore-Equivalent” for Contact Center Services The profile of customer service delivered from South Africa does not lend itself to lowest-cost offshoring where low-cost scripted call-handling rather than the quality of the customer experience is the main consideration for the client organization. The type of international customer service being delivered from South Africa is best suited to organizations seeking onshore-equivalent levels of customer experience based on metrics such as net promoter scores and high first contact resolution rates at a lower price point than onshore service delivery.

Amazon for example is ramping up its customer service from South Africa and is recruiting “free-thinking” agents with the remit to focus on solving the customer’s problem. The agents are not scripted, which is typical of South African contact center services, and are authorized to take whatever action they feel is appropriate to achieve resolution and a high level of customer experience.

Accordingly, it is most appropriate for organizations to establish customer service delivery from South Africa where they are seeking an onshore level of customer experience either at a significantly lower cost point than is available onshore or to complement existing onshore capability where recruitment onshore is proving challenging. The benefits currently achieved by organizations using contact center services for International customer service, typically to the U.K. and Australia, are, again in order of number of mentions: • Equal or better customer experience (CSAT or NPS) relative to onshore delivery.

The majority of organizations are matching onshore delivered customer experience at a lower price point, though approximately a third of organizations reported that their South African delivery was outperforming their onshore delivery • Cost savings (averaging 40% and typically in the range 30% to 50%) compared to onshore service delivery from the U.K. and Australia • High first call resolution rates • Ability to deliver more complex end-to-end processes than from other offshore delivery locations • Matching and frequently outperforming onshore delivery in sales and debt collection • Ease of management due to time zone compatibility.

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In terms of type of service delivered, the emphasis is typically on end-to-end customer service across a range of customer query types. The profile of services delivered from South Africa in support of international customer service is shown in Exhibit II-1. Exhibit II-1 Services Delivered from South African Contact Centers by Sector In terms of volume, the dominant sectors at present are telecoms/ISPs and online retailing/home shopping, though the level of International contact center activity in the energy & utilities sector has increased significantly in recent years and South Africa has strong financial services domain expertise and provides contact center expertise in addition to industry-specific services to international banks and insurance companies.

In addition to English-language work, which currently accounts for approximately 90% of international contact center services from South Africa, South Africa also provides European language customer service, with for example Amazon and an airline both providing German language customer service from South Africa. Sector Examples of Services Supported Telecoms/ISPs - - Inbound customer service including billing support - - Outbound sales & cross-selling including contract renewals, welcome calls & health checks - - Provisioning & fault management Online retailing/home shopping - - Inbound customer service including delivery support and credit card processing in support of online orders - - Outbound revenue protection, including out-of-date cards & out-of-stock handling - - Customer recovery operating off-process Insurance - - Inbound customer service - - Inbound & outbound sales including courtesy calling - - Customer validation, fraud-checking and policy activation Energy & utilities - - Inbound customer service in support of billing, meter issues, & outages - - Debt collection - - Up-selling & cross-selling Airlines - - Reservations handling and flight changes - - Loyalty program support - - Travel agent support services Banking - - Customer service - - Collections - - Application processing Media - - Outbound renewals & cross-selling 5 Analysis of South Africa as a BPO Delivery Location

B. Evaluate for Revenue-Generating Capability in Support of Online Businesses South Africa has a strong capability in supporting revenue generation and revenue protection within International contact center services. Reasons why organizations have chosen South Africa in preference to other offshore locations for International contact center services include: • High level of cultural affinity between South Africa and U.K., Europe, and Australia • The ability of South African agents to have a greater level of dialogue with, and develop greater empathy with, customers than agents in other offshore locations • The ability of South African agents to handle complex calls and to negotiate and do deals, for example, in support of collections.

These latter two factors, combined with the ability of South African agents often to outperform existing onshore centers in terms of the customer experience, are critical to revenue-generation. South African delivery has traditionally been used in support of collections because of these skills and more recently the industry has developed greater capability in areas such welcome calls, health checks, and other soft-sales approaches. To complement this, South African delivery has a particular strength in outbound calls in support of these types of activity with approximately 27% of the International contact center activity outbound-based.

Examples of existing “revenue-generating” services include: • Outbound subscription renewals on behalf of a leading legal publications business • Health checks in support of a major utility • Health checks and contract renewals in support of a major ISP • Cross-sales to existing mobile telecoms customers • Support for group bookings for major airline • Outbound revenue protection calling for major retailer • Deployment of customer recovery team for major online retailer • Order taking for major energy company.

C. Evaluate as GDN Center within Financial Industry-Specific & for Africa-to-Africa Back-Office Services While much of current international BPO service delivery from South Africa comprises contact center services, there is also a significant level of international service delivery around financial industry-specific and back-office services.

The majority of these services are banking and insurance industry-specific services, though South Africa should also be considered as a potential location within an organization’s global delivery network for back-office shared services in areas such as finance & accounting and human resources for “Africa-to-Africa” support, with organizations increasingly using South Africa as the basis for their African shared services hubs.

Examples of services delivered from South Africa in support of financial industry- specific services and back-office services are shown in Exhibit II-2. 6

In general, South Africa remains suited to the more complex handling of processes and customers within these domains, rather than the more basic transaction processing, which is increasingly being automated. The benefits achieved by organizations using South Africa for financial industry-specific services are: • Cultural match with clients and clients’ clients and ability to be accepted and build relationships • Ability to handle complex and specialized processing work that cannot easily be handled out of other highly standardized offshore processing centers • Time zone benefits for complex tasks where frequent communication with the client is required • Cost reductions compared to onshore delivery of approximately 45% • Presence of high-caliber financial services workforce for non-voice services • Staff more productive than alternative offshore locations for complex processing tasks • Customers more amenable to service delivery from South Africa than from other offshore locations such as India • Accent neutrality & cultural affinity.

Within back-office services such as finance & accounting and human resources, South Africa is increasingly being used as a location for Africa-to- Africa shared services. The principal reasons for choosing South Africa are: • Its relatively high level of political stability compared to other countries in the region • The relative maturity of transactional SSC skills in South Africa. Sector Profile of Services Supported Life insurance - - New business capture - - Premium collections - - Policy administration - - Claims processing - - Commission handling Fund administration - - Investment & portfolio administration - - Client reporting - - Finance Asset management - - Fund accounting - - Business analysis - - Client services EXHIBIT II-2 Financial Industry-Specific Services Delivered from South African by Sector 7 Analysis of South Africa as a BPO Delivery Location

International Contact Center Services A. Business Challenges Faced & Drivers for Offshoring to South Africa While many major organizations wish to reduce their cost of customer service, they are typically no longer prepared to do so at the expense of their customer experience. A more typical current requirement is for organizations to seek to initially maintain their current levels of CSAT while reducing their customer service volumes and costs, and then to subsequently look to increase their CSAT at this lower cost point.

At the same time, there is considerable and increasing emphasis on enhancing sales and on revenue protection, with organizations doing this for example by introducing services such as welcome and check-up calls or dealing proactively with customer issues regarding card payment.

Accordingly, organizations offshoring contact center services to South Africa are not doing so in order to achieve maximum customer service cost reduction. Instead, they are typically looking initially for an “onshore-equivalent” customer service to address their lack of onshore capacity, and/or are endeavoring to achieve onshore-equivalence at a significantly lower price point. Typically these organizations are “moving” service delivery from onshore to South Africa but in other instances they are reacting against the standard of customer service from other offshore locations and looking for a higher standard of customer empathy than that currently achieved from those locations.

The principal business challenges faced by these organizations and their drivers for considering offshoring to South Africa are: • Need to scale to support business growth • Lack of onshore capacity/difficulty in recruiting onshore • Need to match onshore customer experience at lower price point • Need for brand protection at lower price point • Disillusion with customer service delivery from another offshore location • Experiencing high attrition onshore. The principal reasons for then choosing South Africa in preference to other offshore locations for International contact center services are (in order of number of mentions): • The ability of agents to deliver the same quality of service as onshore much more cost-effectively • Cost-effectiveness of service • High level of cultural affinity between South Africa and U.K., Europe, and Australia • The high acceptability/familiarity of the South African accent in the U.K.

Other significant factors mentioned included: • The ability of South African agents to handle complex calls and to negotiate and do deals, for example, in support of collections • The ability of South African agents to have a greater level of dialogue with, and develop greater empathy with, customers than agents in other offshore locations • The existence of a population of second-generation Europeans with native European language skills • Availability of financial services skills • Prior familiarity with South Africa and ease of access to client management.

The three main locations for delivery of International contact center services from South Africa are: • Cape Town (approximately 66% of FTEs) • Durban (approximately 22% of FTEs) • Johannesburg (approximately 12% of FTEs).

Cape Town remains the key location for delivery of international contact center services, though Johannesburg and Durban are increasing in importance. In addition, the organizations interviewed for this study were increasingly reviewing additional locations such as Port Elizabeth, and both Johannesburg and Pretoria already figure strongly in the delivery of “Africa for Africa” financial services customer service. Although approximately 90% of International contact center activity takes place in English, South Africa also provides European language customer service, with for example Amazon and an airline both providing German language customer service from South Africa, and customer services being provided in a wide range of European languages.

The breakdown of countries served by number of FTEs for non-African International contact center services is: • U.K. 70% • Australia 19% • Continental Europe 11%. In terms of call type, South African delivery has a particular strength in outbound calls in support of welcome calls, sales, and collections with approximately 27% of the International contact center activity outbound and 73% of activity inbound. The main channel used in support of international contact center services is still overwhelmingly voice. However, non-voice services particularly around email handling and web chat are increasing in importance, with for example both Merchants and WNS estimating that a fifth or more of their activity is non-voice.

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Sector Proportion of Organizations (%) Telecoms/ISPs 37 Financial services 16 Online retailing/home shopping 13 Airlines 13 Energy & utilities 13 Other, including media & high-tech 8 Sector Proportion (%) Telecoms/ISPs 40 Online retailing/home shopping 23 Energy & utilities 16 Financial services 11 Airlines 7 Other 3 B. Sectors Served and Services Delivered from South Africa Exhibit III-1 shows, on the basis of the organizations interviewed by NelsonHall, the current profile of organizations using South African contact center services for international customer service by industry sector.

EXHIBIT III-1 Profile of Organizations Using South African Contact Center Services by Sector This latter exhibit excludes a major financial services firm’s use of South Africa for “Africa to Africa” customer contact services, which would increase the proportion of FTEs within the financial services sector significantly.

South African delivery continues to be used strongly in support of the telecoms/ ISP sector by both Australian and U.K. organizations, with the adoption of South African delivery by U.K. telecoms operators continuing to develop significantly in recent years. At the same time, the mix of services provided in support of telecoms operators has begun to become more sophisticated with an increasing emphasis on soft-selling via welcome calls, health checks, and cross-selling. Exhibit III-2 shows the profile of sectors using South Africa for international customer service by current number of call center FTEs.

EXHIBIT III-2 Profile of Sectors Using South African Contact Center Services by Number of Call Center FTEs 9 Analysis of South Africa as a BPO Delivery Location

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11 Analysis of South Africa as a BPO Delivery Location

Similarly, in the online retailing sector, Amazon continues to add to its capability in South Africa, and other online retailers have moved beyond simple customer service and inbound sales to incorporate outbound revenue protection services and customer recovery teams.

While, customer service delivery from South Africa in support of both the telecoms/ISP and online retailing sectors has been well-established for some time, and in terms of volume the telecoms/ ISP and online retailing/home shopping In line with the “onshore-equivalence” of South African contact center services, the range of customer service delivered from South Africa typically goes beyond simple queries to handling the full range of customer services, including complex queries in unscripted form.

EXHIBIT III-3 Services Delivered from South African Contact Centers by Sector sectors continue to be dominant, a sector which has adopted South African delivery more recently is the utilities sector. Here U.K. utilities are increasingly using South Africa for inbound customer service to provide support for billing, meter issues, and outages, together with debt collection. One constant theme is the ability of South Africa to largely match, or exceed, onshore delivery in the delivery of complex services where unscripted customer interaction is required. Here, for example, a number of airlines use Sector Examples of Services Supported Telecoms/ISPs - - Inbound customer service including billing support - - Outbound sales & cross-selling including contract renewals, welcome calls & health checks - - Provisioning & fault management Online retailing/home shopping - - Inbound customer service including delivery support and credit card processing in support of online orders - - Outbound revenue protection, including out-of-date cards & out-of-stock handling - - Customer recovery operating off-process Insurance - - Inbound customer service - - Inbound & outbound sales including courtesy calling - - Customer validation, fraud-checking and policy activation Energy & utilities Inbound customer service in support of billing, meter issues, & outages Debt collection Up-selling & cross-selling Airlines Reservations handling and flight changes Loyalty program support Travel agent support services Banking Customer service Collections Application processing Media Outbound renewals & cross-selling South African delivery in support areas such as flight changes and complex itinerary booking in support of frequent flyers, while in the banking sector, card companies continue to use South Africa for application support and for collections, and the insurance sector uses South African delivery for inbound and outbound sales.

The profile of services delivered from South Africa in support of international customer service is shown by sector in Exhibit III-3. 12

C. Benefits Achieved from South African Service Delivery Organizations using South Africa for contact center services are typically not looking for the lowest cost location globally. Typically they are seeking onshore levels of customer experience at a reduced cost. These benefits are currently being delivered. The benefits achieved by organizations using contact center services for International customer service, typically to the U.K.

and Australia, are, again in order of number of mentions: • Equal or better customer experience (CSAT or NPS) relative to onshore delivery. The majority of organizations are matching onshore delivered customer experience at a lower price point, though approximately a third of organizations reported that their South African delivery was outperforming their onshore delivery • Cost savings (averaging 40% and typically in the range 30% to 50%) compared to onshore service delivery from the U.K. and Australia • High first call resolution rates • Ability to deliver more complex end-to-end processes than from other offshore delivery locations • Matching and frequently outperforming onshore delivery in sales and debt collection • Ease of management due to time zone compatibility.

The emphasis on effectiveness rather than absolute cost reduction is indicated by the measures currently being used to manage contact center services in South Africa, with organizations typically placing reduced emphasis on measures such as average handling time (AHT) and increasingly emphasizing performance against measures such as: • Net promoter score (NPS) • Other forms of CSAT • First contact resolution rates (FCR) • Sales conversion rates • Collection success. In line with this high emphasis on effectiveness, South African agents are frequently handling calls unscripted, with organizations aiming for high levels of natural communication in order to achieve high NPS scores.

Attrition varies by type of activity being undertaken but is generally perceived to be lower than other offshore locations with several of the organizations interviewed citing attrition rates significantly below 20%. D.  Contact Center Services Delivery Cost Structure The cost of a contact center agent in Cape Town averages approximately £635 per month (£1=ZAR18.9 at June 2015). Telecoms & facilities costs add approximately 40% to this cost per agent for international service delivery to the U.K.

This gives a total cost per FTE for contact center services from Cape Town starting at approximately £11,000 per annum before government incentives.

13 Analysis of South Africa as a BPO Delivery Location

Financial Industry-Specific Services EXHIBIT IV-1 Financial Industry-Specific Services Delivered from South African by Sector Sector Profile of Services Supported Life insurance - - New business capture - - Premium collections - - Policy administration - - Claims processing - - Commission handling Fund administration - - Investment & portfolio administration - - Client reporting - - Finance Asset management - - Fund accounting - - Business analysis - - Client services A. Business Challenges Faced & Drivers for Offshoring to South Africa The principal business challenges faced by organizations using South African service delivery for financial industry- specific services from South Africa were the need to address difficulties in scaling onshore delivery, and to support local clients and begin to extend the organization’s presence both in South Africa in particular and Africa in general.

“Africa to Africa” delivery is becoming a major factor in the financial services sector.

Accordingly, the reasons for organizations using South African service delivery for industry-specific services were: • Time zone compatibility • The high cultural fit with the U.K. • To generate South African business. Cost-effectiveness was frequently not an initial factor in moving work to South Africa but became increasingly important after the financial downturn. In financial services, as in contact center services, South Africa is typically being used for more complex processing tasks, requiring high levels of expertise and frequently higher levels of customer engagement. For example, a major global asset manager uses South Africa to handle specialized financial processing that isn’t easily handled from other offshore locations while CSC uses South Africa as a staging post for the roll-out of life BPO services to its Indian operations in support of its U.S.

life BPO clients and to handle complex parts of the value chain. Similarly both Old Mutual and Discovery are seeking to build global financial services shared service centers in South Africa, with both new financial services product development and processing being concentrated in South Africa, while Kleinwort Benson encourages its South African fund administration personnel to build relationships with clients in Europe. Overall NelsonHall estimates that at present approximately 50% of financial industry- specific and back-offices services delivered from South Africa are English language based with the remaining 50% being German, Dutch, and French- based.

While it is likely that the proportion of English- language within this mix will increase as the industry scales, South Africa remains a viable consideration for Continental European back-office services within a company’s global delivery network.

International Services Delivered & Why Examples of services delivered from South Africa in support of financial industry- specific services are shown in Exhibit IV-1. In general, South Africa remains suited to the more complex handling of processes and customers within these domains, rather than the more basic transaction processing, which is increasingly being automated. 14

Experience of Companies with Financial Industry- Specific & Back-Office Services from South Africa Benefits Sought and Achieved The benefits achieved by organizations using South Africa for financial industry- specific services, were stated to be: • Cultural match with clients and clients’ clients and ability to be accepted and build relationships • Ability to handle complex and specialized processing work that cannot easily be handled out of other highly standardized offshore processing centers • Time zone benefits for complex tasks where frequent communication with the client is required • Cost reductions compared to onshore delivery of approximately 45% • Presence of high-caliber financial services workforce for non-voice services • Staff more productive than alternative offshore locations for complex processing tasks • Customers more amenable to service delivery from South Africa than from other offshore locations such as India • Accent neutrality & cultural affinity.

As with contact center services, it is apparent that South Africa is most appropriate for handling complex financial industry-specific task, often involving a high level of customer intimacy as part of a global delivery network for industry-specific services such as investment administration.

Analysis of South Africa as a BPO Delivery Location 15

Skills Availability & Government Incentives A. Skills Availability South Africa has approximately 5m English speakers with 160,000 graduates per annum emerging from its universities. However, the contact center industry in South Africa typically employs first-time agents from the high school population rather than from the graduate population, with organizations stating that approximately 1 in 4 applicants are of a suitable standard to become customer service agents. The matriculating and non-degree tertiary pool of personnel consists of approximately 250,000 personnel per annum.

Overall it is estimated that 410,000 personnel with potential to work in the BPO industry enter the workforce annually. South Africa also has an established body of personnel with accounting and financial services expertise, including approximately 36,000 chartered accountants, 1,260 CFA charter holders, and 920 qualified actuaries. In terms of physical infrastructure, the standard of buildings and roads in cities such as Cape Town are comparable with those in Western Europe. In addition the cost of living is relatively low with the cost of living in Johannesburg estimated to be 56% lower than that in London, Cape Town 62% lower than London, and Durban 67% lower than London.

One of the attractions of South Africa, and in particular Cape Town, is that it is a location where executives from the U.K., Europe, and Australia will feel relatively at home culturally, and where they will be willing to visit, even for extended periods. Short visits are facilitated from the U.K. by the availability of overnight flights in both directions, so that working time lost due to travel is minimized. The telecoms infrastructure is now robust. However, although the cost of telecoms has fallen considerably in recent years, it remains high relative to other potential offshore locations, with a 2Mbps line costing approximately ZAR 300,000 per annum.

In addition to the BPS Incentives scheme, the South African government provides financial support for talent development programs, through: • The Monyetia Work Readiness program, whereby employers lead consortia to recruit and train entry level staff, and the government provides approximately ZAR 23,500 per unemployed person trained. The scheme is aimed at young employed South Africans, focused on individuals from previously disadvantaged communities • Sector Education and Training Programs, covering key sectors such as banking, insurance, services, finance & accounting, and IT, whereby employers can claim up to 75% of levies paid under the National Skills Fund.

The Monyetia Work Readiness Program aims to increase the pool of entry-level employable people, while SETA aims to accelerate the development of home- grown supervisors and managers. So far, approximately 10,000 learners have qualified from the Monyetia program with a fourth phase covering 3,000 learners now underway. In general, organizations, particularly service providers, using South African delivery should look to get involved in talent development initiatives such as these, both from a corporate responsibility perspective and also for access to trained personnel. Services are also available to assist organizations in testing the viability of captive and outsourced international service delivery from South Africa and in gaining access to local knowledge, with, for example, KPMG assisting organizations in feasibility studies and establishing shared service center hubs, EOH offering recruitment and “learnership” services, and the Rockefeller Foundation providing “work readiness” support.

As part of a national effort to build on the existing talent base, BPESA, the BPO industry association in South Africa, are in the process of launching a new skills based learning initiative that will use game mechanics to educate and assess talent for the industry. The initiative is funded by the Rockefeller Foundation and will be focused on school leaver talent. The assessment will focus on various contact center specific skills and will be targeted at previously disadvantaged communities where youth unemployment is highest. B. Government Support & Incentives for BPO The initial Business Process Services (BPS) incentive scheme was implemented in January 2011, since then the South African dti estimates that approximately 9,000 offshoring jobs have been created.

This initial scheme has now been replaced by a revised Business Process Services (BPS) Incentive, effective between October 1, 2014 and March 31, 2019.

In order to qualify for the scheme, applicants need to put forward “projects that meet the strategic objectives of the dti”. In addition, approval of applications is subject to the availability of funds and compliance with the relevant provisions of the Public Finance Management Act (PFMA). The primary objective of the incentive is to create employment in South Africa through servicing offshore activities. The secondary objectives of the program include: • Creating youth employment opportunities • Contributing to the country’s export revenue from offshoring services.

The Business Process Services Incentive consists of two components: • A base incentive • A graduated bonus incentive, dependent on the applicant exceeding certain annual offshore job creation targets.

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EXHIBIT V-1 BPS Incentive Qualification: dti Evaluation Criteria Evaluation Criteria Category weights (%) Parameters measured Sub- category weight (%) Credibility of the company/parent 40 Company/Parent Revenues 33 Number of years since inception 33 Company/Parent Net Profit (PAT) 33 BPO/Shared services credentials 20 Shared services scale or total number of BPO delivery FTEs globally 50 Offshore scale of BPO delivery FTEs/shared services 50 Scale of operations in South Africa 20 SA entity scale 50 Current scale of offshore BPO jobs in SA 50 Soundness of the application under review 20 Contract duration 25 Revenue of buyer (end-users) 25 Strength of contract (Transition plan, processes, timelines, termination clause) 50 The key eligibility criteria to qualify for BPS Incentives are: • Be a registered legal entity in South Africa as a going concern and with a valid tax clearance certificate • Be involved in starting a new operation or expanding an existing operation • Submitting an application for BPS Incentives prior to the engagement of qualifying jobs but having already secured a contract for offshore BPS activities • Comply with the requirements for Broad Based Black Economic Empowerment (B-BBEE) as issued in the Government Gazette 11 October 2013 in terms of the Codes of Good Practice.

This entails applicants: − Achieving at least level 6 B-BBEE contributor status or submitting a plan showing how this will be achieved from twelve months to end of twenty-four months from the date of incentive grant approval − Achieving level 5 B-BBEE contributor status from 24-months to 36-months from the date of incentive grant approval − Achieving level 4 from 36 months to end of the incentive period • The project must employ at least 80% youth, defined as people between the ages of 18 and 35 • The project must by the end of three years from the start of the operation, or the expansion, create and maintain at least 50 new offshore jobs in South Africa • In a joint venture, at least one of the parties must be registered as a legal entity in South Africa.

Assuming the above conditions are met, to qualify for BPS Incentive, a project must achieve at least sixty percent (60%) against the evaluation criteria shown in Exhibit V-1. The project must at least score a minimum of five percent (5%) category weight for each above-mentioned evaluation criteria. The base incentive is calculated on projected offshore jobs to be created based on a tapering scale and is awarded on actual offshore jobs created as per the definition of full-time equivalents. The base incentive offers a differential (two-tier structure) incentive for non-complex jobs and complex jobs, based on a fully loaded operating cost per job and is paid for a period of five years (60 months) from the date at which offshore jobs are created.

The base incentive will be determined at application stage depending on the fully loaded operating costs. 17 Analysis of South Africa as a BPO Delivery Location

Number of offshore jobs 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Up to 400 R 32 000 R 24 000 R 24 000 R 24 000 R 20 000 R 20 000 R 20 000 R 16 000 R 16 000 R 92 000* R 100 000* R 108 000* R 112 000* R 124 000* Number of offshore jobs 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Up to 200 R 40 000 R 40 000 R 40 000 R 32 000 R 32 000 R 32 000 R 24 000 R 24 000 R 24 000 R 136 000* R 144 000* R 160 000* R 176 000* R 184 000* * Total grant per job created and maintained over 5 years “Non-complex jobs” are jobs where the fully loaded operating cost is less than or equal to R300 000 per annum with wages contributing at least 65% of the operating cost base for a steady state of operation.

“Complex jobs” are jobs where the fully loaded operating cost is greater than R300 000 per annum per job with wages contributing at least 65% of the operating cost base for a steady state of operation.

Complex Jobs Non-complex Jobs The base incentives for non-complex jobs and for complex jobs are as follows: 18

The bonus incentive is paid at the end of year five. The bonus incentive for non-complex jobs is available to applicants that create and maintain more than 400 offshore jobs over a 5-year period and it is structured into the two components shown in Exhibit V-2. Source: the dti EXHIBIT V-2 BPS Incentive Bonus Scheme: Non-Complex Jobs Number of offshore jobs Bonus Incentive Illustration Greater than 400 but less than or equal to 800 20% once-off Bonus calculated for each job created and maintained between 401 and 800 Illustration: If an investor creates 420 actual offshore jobs in 2014/15, 430 jobs in 2015/16, 440 jobs in 2016/17, 450 jobs in 2017/18 and 460 jobs in 2018/19.

Given that an investor created and maintain more than 400 jobs over a five year period, the bonus incentive amount at the end of the fifth year (2018/19) is calculated as follows: • Bonus: R 32,000*20%*20 = R 128,000 Greater than 800 30% once-off bonus Bonus calculated for each job created and maintained in excess of 800 Illustration: If an investor creates 850 actual offshore jobs in 2014/15, 865 jobs in 2015/16, 875 jobs in 2016/17, 880 jobs in 2017/18 and 900 jobs in 2018/19. Given that an investor created and maintain more than 800 jobs over a five year period, the bonus incentive amount at the end of the fifth year (2018/19) is calculated as: • Bonus: R 32,000*30%*50 = R 480,000 19 Analysis of South Africa as a BPO Delivery Location

The bonus incentive for complex jobs is available to applicants that create and maintain more than 200 offshore jobs and it is structured into the two components shown in Exhibit 3. EXHIBIT V-3 BPS Incentive Bonus Scheme: Complex Jobs Source: the dti Number of offshore jobs Bonus Incentive Illustration Greater than 200 but less than or equal to 400 20% once-off Bonus calculated for each job created and maintained between 201 and 400 Illustration: If an investor creates 220 actual offshore jobs in 2014/15, 230 jobs in 2015/16, 240 jobs in 2016/17, 250 jobs in 2017/18 and 260 jobs in 2018/19.

Given that an investor created and maintain more than 200 jobs over a five year period, the bonus incentive amount at the end of the fifth year (2018/19) is calculated as: • Bonus: R 40,000*20%*20 = R160,000 Greater than 400 30% once-off bonus Bonus calculated for each job created and maintained in excess of 400 Illustration: If an investor creates 450 actual offshore jobs in 2014/15, 465 jobs in 2015/16, 475 jobs in 2016/17, 480 jobs in 2017/18 and 500 jobs in 2018/19. Given that an investor created and maintain more than 400 jobs over a five year period, the bonus incentive amount for the fifth year (2018/19) is calculated as: • Bonus: R 40,000*30%*50 = R 600,000 20

The potentially challenging element in directly accessing the BPS Incentive program for International organizations looking to establish own operations, or captives, is the necessity to achieve B-BBEE Contributor status. The award of points within the scorecard is shown in Exhibit V-4. EXHIBIT V-4 B-BBEE Generic Scorecard This requires organizations to achieve: • B-BBEE Level 6 contributor status within 12- 24months (>=70 points) • B-BBEE Level 5 contributor status from end 24-months to 36-months (>= 75 points) • B-BBEE Level 4 contributor status from end 36-months to end of incentive period (>= 80 points) Element Weighting (points) Ownership 25 Management Control 15 Skills Development 20 Enterprise & Supplier Development 40 Socio-Economic Development 5 Analysis of South Africa as a BPO Delivery Location 21

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Companies Delivering Services from South Africa Contact Center Services A. Aegis Aegis currently employs approximately 1,300 FTEs in South Africa: 3/4 in Johannesburg and 1/4 in Durban, and is expecting to add a further 250 people across these 2 locations shortly. In addition, Aegis is potentially looking to add Port Elizabeth as a delivery location in 2015. The current breakdown of Aegis’ activity in South Africa is 70:30 (domestic to international). All “international” activity is currently in support of U.K.-based organizations, but Aegis South Africa is increasingly targeting the Australian market.

Aegis currently has two “international” clients, namely a leader in legal and business research and a U.K. based energy and home services company. In both cases the major reasons for choosing South Africa were the combination of high cultural affinity and cost- effectiveness. The high cultural affinity is perceived by Aegis to lead to a high quality of service resulting in a high first call resolution rate. In particular, Aegis provides outbound sales calls in support of renewals and up-/cross-selling of a client’s legal publications subscription business. In its last campaign of this type for this organization, Aegis achieved a conversion rate that was 19% higher than target.

The cost differential relative to providing these services from the U.K. was approximately 30%-35%.

Aegis estimates that it recruits approximately 1 in 8 of candidates interviewed and the training program in support of the client takes three weeks covering all soft skills, systems, sales skills, and product knowledge. Aegis supports pay-as-you go energy customer service for the UK based energy & home services company, covering all inbound customer service queries around billing, meter issues and outages. The service is delivered via 230 FTEs based in Johannesburg. South Africa was again selected on the basis of service quality and cultural affinity. The training for agents to support the client takes 6-7 weeks, due to the complexity of the pay-as-you-go product.

This included training with the temperature turned down to provide an appreciation for agents of U.K. temperatures. In terms of benefits, Aegis has recently achieved a score of 7.9 against a target of 7.6 on this organization’s client loyalty barometer, which is a composite measure of customer satisfaction. In terms of NPS, Aegis has delivered above target for the past six months on this account. Overall Aegis services from South Africa are 85% inbound and 15% outbound, the latter in support of customer retention and outbound sales. The majority of the outbound activity carried out by Aegis from South Africa is in support of the domestic market.

In addition, Aegis is looking to get into early stage collections.

By industry sector, approximately 60% of Aegis’ South African services are in support of the financial services and telecoms sectors, with a further 20% of activity in support of the utilities sector. Beyond these sectors, Aegis has a number of clients in the leisure/travel sector, plus a government contract, and a lottery contract. 23 Analysis of South Africa as a BPO Delivery Location

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