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JULY 2010

Date posted: 2010-07-07Back to newsletter page

 

June has been an amazing month for all South Africans with the World Cup 2010 proving to be one of the best ever. Despite Bafana Bafana's early exit from the tournament, we have continued to show the world that we are a world-class destination, with the capabilities to host a global event.

This month's edition of our newsletter focuses on recent developments in the telco industry. We also speak to Hosted Solutions provider 1Stream and get their feedback around the state of telecoms in South Africa and what it means for local and international business.

In addition, we hear from PixelFaerie on how South Africa is set to benefit from expected cost increases in India over the next few years.

June has been another exciting month for the industry in the Western Cape, with Teleperformance opening its Cape Town office to our members; giving them firsthand experience of the inner workings of a world class BPO. I would like to thank Gareth for making this possible and we look forward to the next site visit.

As always if there are any key industry topics you feel need to be highlighted please contact us and we will do our best to accommodate them.

Lastly, to the remaining four teams in the World Cup, good luck we wish you well, South Africa and Cape Town is behind each and every one of you.

Fagri Semaar

Interim CEO BPeSA Western Cape

 

Reduced Telco costs set to drive BPO sector growth

Reduction in telecoms costs and improved quality of voice services are key contributors to the sustainability of the BPO industry in South Africa, according to interim CEO of BPeSA Western Cape, Fagri Semaar.

In a recent trade mission to the UK, South Africa was highlighted as a prime BPO destination, with the only real areas of concern being the cost of telecommunications and latency rates of calls.

With the arrival of SEACOM in 2010 and the emergence of alternatives to Telkom, telecoms costs have continued to fall; making South Africa a more attractive investment destination for foreign business.

"Over the past three years telecoms costs have come down by around 40%, which has had a positive impact on various industries; with cost baskets related to telecoms falling from between 18 and 22% to just 8%," says Semaar.

Semaar believes that telecoms is very important, especially for a global industry where every cent counts. "We need to constantly look at ways to not only reduce costs, but to improve the quality of our services."

"Despite the cost reductions, South Africa is still a relatively expensive destination when it comes to telecommunications. The quality and reliability of lines to international countries is good, but our latency rate can be reduced. With SEACOM and the imminent arrival of the West African Cable System (WACS) in the first or second quarter of 2011, our offering to international destinations will become more competitive," adds Semaar.

In another venture which is set to benefit the BPO sector, the city of Cape Town recently opened the first part of its 360km fibre network; which will link all its main municipal buildings, allowing the city to carry its own voice and data traffic.

At the recent Telkom/IEEE exhibition in Cape Town, Premier Helen Zille highlighted the importance of IT to the economic future of the Western Cape. She went on to discuss how the network will not only save the municipality money, but will allow it to resell its spare capacity at a very competitive rate.

"BPeSA Western Cape is currently in talks with the province on how the BPO sector can leverage off the networks benefits," says Semaar. "Fast and affordable broadband is a major financial and socio economic driver, which government and the private sector must continue to push for."

In a recent study conducted by the World Bank it was found that in low and middle income countries, every 10% increase in broadband penetration accelerates the economic growth of the country by 1.38%.  "This shows how internet access can be a key driver of business," adds Semaar.

Semaar says that all major countries have been through the same telecoms issues South Africa has. The good news is that change is inventible, but if it takes too long we could lose business to up and coming BPO destinations like Egypt or Kenya.

To prevent this from happening, we need government and the private sector to continue to lobby for key industry issues and assist us in reaching our target of creating 100,000 jobs by 2014.   

 Telecoms costs not a major deterrent for BPO investors

According to Jed Hewson, Director of Hosted contact centre provider 1Stream, the costs of telecoms in South Africa is only a minor deterrent to international BPO investors.

The cost of telecoms in South Africa is still high, making up about 9% of the cost basket of call centres in the BPO space, but it is broader issues such as;  the strong rand, high labour costs,  shortage of skills, and ineffective government incentive programmes which are limiting foreign investment into South Africa.

By international standards South Africa has a quality telco infrastructure to service foreign markets. If you compare South Africa to the likes of India, they might be cheaper, but our telecoms sector is reliable and is backed up by a good power supplier.

Over the past two to three years, the cost of telecoms to key BPO destinations like the UK has almost halved. This combined with faster internet has enabled South Africa to provide an increasingly attractive offering to overseas investors.  This change has been driven by the developments like the SEACOM cable in 2010 and with the imminent arrival of WACS (West Africa Cable System) in 2011; one can expect further improvements.

The real problem lies in the state of the local telecoms industry, where things have hardly improved, with internet speeds still very slow and telecoms costs far too high.

It is still cheaper to call an Australian cell number than a local cell number, while setting up a direct 1mb connection from Cape Town to London, costs less than a connection from Cape Town to Joburg.

Despite the arrival of a number of alternate providers to Telkom over the past few years, not much has changed for local business.  This combined with the issue of government not outsourcing public sector call centre operations, has meant the local BPO industry and SMMEs in particular have continued to suffer.

The majority of telecoms infrastructure in South Africa is still owned by Telkom which means we do not see the benefits of local loop unbundling which would allow the likes of Neotel, Internet Solutions, Vox Telecom and various other players to compete on a more level playing field.

Interim CEO of BPeSA Western Cape, Fagri Semaar believes that from a telecoms perspective South Africa is heading in the right direction, but that a lot still needs to be done particularly for the local BPO industry.

"It is our responsibility together with the private sector and government to continue to fight for a more competitive outsourcing market and thus help drive socio and economic development through the BPO industry."

SA to benefit from India cost hike - ITWEB 02July

The local business process outsourcing (BPO) sector is gearing up to take advantage of anticipated cost increases in India.

Research collated by Cape Town-based PixelFaerie shows that India's cost base is set to be 45% higher in the next two years, as salaries rise and the rupee loses ground against the euro and dollar.

Marius Münstermann, head of sales and marketing at PixelFaerie, says SA's cost base will remain stable over the same timeframe, which will give the country a cost edge over India.

Münstermann explains that salary increases in SA are expected to be more moderate than those in India. In addition, local inflation is stable, which means cost increases will not surprise on the upside.

He adds that Cape Town-based BPO companies will be able to hold their pricing structure over the long-term. PixelFaerie, for example, has not had a price hike in six years.

Not cheap enough

SA has long been positioning itself as a BPO destination of choice, and has been adding more services to the mix, such as back office administration. The country also has a language, time zone and cultural affinity with its main target market, Europe.

However, the country's BPO sector has come under pressure for not being cost-effective enough due to a range of factors, including high telecommunications costs.

India's cost hikes will also mitigate some of the effects of the stronger rand, which earlier this year gained strongly against the euro and the dollar.

The strength of the currency was concerning, because it eroded some of the cost-saving proposition of setting up a South African operation.

Bulking up

Münstermann says PixelFaerie will grow its staff base by about 30% by the end of next year to take advantage of India's expected cost increases.

Fagri Semaar, acting CEO of Business Process enabling SA Western Cape, says: "We are seeing a definite trend from BPO destinations who are viewing SA as a real alternative to India. There are a number of reasons behind this, with cost obviously a major one."

Semaar explains that India's rising costs will result in the playing fields being levelled.

"The issue of quality, as opposed to cost will be a major factor for international investors. This bodes well for SA, whose BPO value proposition is centred on quality," he says.

Events

Thank you to all those who attended the site visit on  30 June 2010 at Teleperformance, we look forward to the next one.

Membership

For any membership information please contact our Stakeholder Relations Manager, Nicky Floris on 021 630 1500.

Have a great month! 

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