South Africa’s recent announcement of incentives to attract business process outsourcing (BPO) firms could challenge India’s dominance of the sector in the long run, say executives and experts.
The development comes close on the heels of an International Business Machines Corp. (IBM) report that said the Philippines has overtaken India in terms of the number of people employed by the voice-based BPO segment.
India pioneered the BPO industry two decades ago, bringing in low-end business functions from the US and Europe, but now needs to move up the value chain and offer more specialized services to maintain supremacy, experts said.
Late last month, South Africa said it would offer a tax rebate of nearly 120,000 rand (Rs.8
lakh) over three years for every job created by BPO firms.
English is the mother tongue of a large number of South Africans, another bonus for voice-based firms that service American and British clients. “The lowering of costs with incentives coupled with good English skills and world-class environment have considerably enhanced South Africa’s overall BPO offer,” the statement announcing the incentives said.
Some 200,000 South Africans are employed in the sector, with five of the world’s top 10 BPO firms setting up shop there in the last two years. Genpact Ltd and Aegis Communications Group Inc. have started operations, while Mahindra Satyam is planning to open a centre of its own.
“Genpact has been operating since August 2009 and is exploring expansion opportunities,” said Rein van der Horst, vice-president of Genpact-South Africa. “Clients are looking for a strategy to diversify risks and moving a part of their business to destinations like South Africa,” he said.
Some also want to set up an Africa-wide hub there, he said.
Pravin Kumar, chief executive of Spanco BPO, said similarity of accents and financial systems make South Africa perfectly suited to service European clients. “The lesser time differential also helps,” he said. Spanco entered Africa by acquiring a part of Kuwaiti firm Zain’s assets this year.
Mahindra Satyam operates in South Africa through a partnership with local BPO firm Direct Channel Holdings (Pty) Ltd, but is thinking of opening its own centre, Mahindra Satyam BPO’s chief executive Vijay Rangineni said.
The incentives announced by South Africa reduce the cost of operations by nearly 20% for 10-400 jobs created, and 30% if more than 800 jobs are created.
This can offset even information technology and transportation expenditure, in addition to capital expenditure, said H. Karthik, vice-president of Everest Group.
Kumar Parakala, global head of sourcing advisory at the consultancy KPMG, said South African BPOs typically offered 53-56% savings in operating costs compared with UK-based BPOs. “With the new package, this saving is expected to go up to 73-76%,” he said.
South Africa already has an infrastructure that is conducive for business. Although BPOs have to spend more on salaries compared with India, the new incentive would bring down the difference substantially. “No country should rest on its past laurels and should continue to innovate to remain competitive,” said Rangineni of Mahindra Satyam.
Even if other countries, such as the Philippines or South Africa, get a lead due to their accents or specific skill sets, India has to maintain its significance by moving up the value chain, he said.
Research firm Everest estimates that call centre revenue in the Philippines will be at $5.7 billion (Rs.1.5 trillion) in 2010 compared with India’s $5.5 billion.
John Lutz, general manager of IBM Global Process Services, said the development does not mean the voice-based BPO business will vanish in India.
“There are certain clients who are particular about accents, there are others who are not,” he said. India can continue to service such processes along with delivering other capabilities, he said. India’s strength lies in its ability to deliver a wide range of services, unlike most other countries, he said.
Source:http://www.livemint.com/2010/12/16214542/South-African-incentives-could.html?atype=tp
