Guilbault is an analyst at Technology Business Research

Successful IT and BPO firms, along with companies aiming to establish captive shops, are beginning to seriously consider South Africa as a location from which to deliver services, and to a lesser extent as a potential market. The South African government has become aware of the potentially lucrative BPO industry, but, to date has not manifested its understanding through actions to support its growth. Though it remains to be seen whether businesses and governments in the nation will be able to put together a compelling offering for firms in the BPO industry, South Africa does have a number of advantages that make it an attractive prospect.

The South African BPO industry is currently valued at approximately $1.5 billion and is growing at 14 per cent annually. The best case growth forecasts from the South African Department of Trade and Industry indicate that the industry has the potential to grow at a compound annual rate exceeding 20 per cent for each year between 2005 and 2015, boosted by pending initiatives to support the BPO industry going forward. Although this forecast seems overly optimistic at first, English-speaking businesses in the US and the UK, and Dutch-speaking businesses in the Netherlands are key parties already showing interest in expansion to the region.

South Africa’s BPO industry has traditionally been concentrated in call-center operations. South Africa is currently home to approximately 550 call centers, of which approximately 175 are so-called pocket’ call centers having fewer than 20 seats each. The majority of South Africa’s call centers serve the domestic market although at this time, at least 20 facilities serve international clients. The ‘key’ BPO providers serving international clients from South Africa include Sykes and Merchants, serving US firms, and Mindpearl, serving European clients. Among the large multinational companies that have set up captive shops in South Africa are Computer Sciences Corporation, Affiliated Computer Services and Lufthansa Airlines.

As a potential offshoring destination for BPO activities, the country has a number of advantages. One quality that has been differentiating is South Africa’s sizable English and Dutch-speaking population.

South African firms boast that accents of their workers are neutral enough to fool English speakers in all the Anglo-phone countries. South Africa also resides in the same time zone as parts of Europe (GMT+1, GMT+2) making business communications easier. Though relatively few in number, South African BPO providers have considerable experience delivering BPO services, and the nation is experiencing economic and political stability. Moreover, because South Africa is not currently experiencing an economic boom, wages and real estate values are lower than those in more mature markets including India, Canada and even the Philippines.

On the other hand, South Africa also has several disadvantages that must be considered to assess the long-term viability of BPO businesses in the country. Among the technological disadvantages are its limited telecommunications infrastructure and its constrained international bandwidth. TBR estimates that at the end of 2004, fewer than 14 per cent of South African households had Internet access. The problem is exacerbated by an oligopoly of ISPs in the nation, with the top five having 85 per cent market share.

The ISPs provide limited international bandwidth as well. TBR estimates that South Africa’s total international bandwidth is less than 2 Gbps, although it is growing rapidly. This bandwidth is rapidly consumed by multimedia content and the rapid growth of Virtual Private Networks using the public Internet. In terms of government support and incentives aimed to support the BPO industry, South Africa comes up short compared to India. The quality of its educational system also lags behind that of India, and the size of the labor pool is much smaller (current BPO call centers employ approximately 35,000 people).

Some International Companies in South Africa

In the end, an analysis of the overall environment for the IT industry in South Africa reveals that the country is well-positioned in terms of its skill base, infrastructure, economy and international profile to grow as a niche provider in software development. Conversely, social barriers, low literacy levels, limited government funding and involvement, and insufficient skills development demand that if the country is to realize its potential, it will need to develop a national IT vision and culture that promotes IT development and skills to go forward.