By Gemma Ware and Michael Omondi in Nairobi *
As Africa struggles to position itself as an outsourcing destination for global clients in Europe and North America, Indian companies are raking in the few local contracts up for grabs.
A couple of years ago, confidence was running high that Africa would soon be winning a barrage of lucrative outsourcing contracts to serve clients in the United States and Europe. These global ambitions have faltered. In North Africa, buffeted by the Arab Spring, the industry has struggled to win back the confidence of multinationals.
Further south, while the flow of international outsourcing contracts has dried up, in its place there is a small but growing supply of work supporting the African operations
of multinational corporations. Driven initially by demand from the telecoms sector, experienced Indian business process outsourcing (BPO) players are snapping up many contracts, covering everything from data entry to fielding calls from customers.
North Africa’s attractiveness as an outsourcing destination took a hit during the political upheaval in 2011. In Egypt, some left for good. Vodafone New Zealand, which had a 180-seat call centre in Cairo, shut down its operations and then withdrew completely in May 2011. Others scaled back. Indian information technology (IT) services firm Wipro, which had opened a service centre in 2007 that was employing 150 people doing IT back office and Java support, decided to pull back in September 2011. It now employs just 50 people doing the same type of work but mainly placed within its clients’ operations.
Companies have not reacted uniformly to the political uncertainty in the region. In Tunisia, French technology firm Solutions 30 transferred its call centre from Tunisia to Morocco. Teleperformance, one of the largest French outsourcing companies, opened its sixth call centre in Tunisia – employing 200 – this April and plans to add another 500 people by the end of the year to take it to 6,000 employees in the country.
However, Tunisian workers are demanding more under the new dispensation. On 15 February, Teleperformance was affected by a one-day strike that hit a number of companies. “Our actual operations remained open during this activity with minimal disruption,” said Brigitte Daubry, Teleperformance’s president for Central Europe, the Middle East and Africa. In late May, a wave of protests hit Tunisia, and judges and training doctors went on strike. Industrial action may become more frequent as trade unions and secular parties try to make things difficult for the ruling Islamist Ennahda party.
Shielded from the political turmoil of Egypt and Tunisia, Morocco is pushing ahead with an aggressive plan to build ready-made infrastructure to host offshoring companies. “Morocco has been one of the few countries not to be touched by the upheavals,” says Abderrafie Hanouf, general director of MedZ Sourcing, which currently hosts 20,000 employees in two outsourcing parks – Casanearshore in Casablanca and Technopolis in Rabat. Both parks are operating at 90% capacity, offering office space for call centres and shared service centres from which companies can offer IT outsourcing. Hanouf says outsourcing players in neighbouring countries have done due diligence on the opportunities in Morocco. In June his company opened the first phase of Fès Shore, a park it is building at a cost of Dh1.2bn ($120m). A second project, Oujda Shore, is also under construction.
Politics in Europe may make it harder to fill these new centres. French companies may start using more companies at home, as President François Hollande strains away from austerity towards a more growth-led recovery strategy for the eurozone. The US presidential election has also put offshoring centre stage, with President Barack Obama’s campaign running an advert attacking Republican nominee Mitt Romney for outsourcing US jobs. In January, Obama announced plans to encourage ‘inshoring’ and to remove tax incentives for companies to operate offshore.
However, analysts insist that multinationals will seek out the cheapest place to do business. Despite increasing wage inflation in India, a collapse of the rupee – which depreciated 11% against the dollar between March and May – means US and UK companies are still saving 60-70% by offshoring to India, according to Shyan Mukerjee, an India-based BPO analyst at Everest Group. The global BPO industry was worth $45bn in 2011, says Mukerjee, but Africa makes up less than 7% of that. The sector’s growth in Africa is coming from servicing local operations rather than answering calls from the US and Europe.
Ghana has had early success at winning this sort of business. In February 2011, Nestlé opened its first shared service centre in Accra to provide financial and human resources support to its African operations. In September of the same year, Swedish company Ericsson chose Ghana for its first African regional support centre. Firms such as Indian IT company HCL and US firm Aegis Global have been looking at the opportunities in Ghana, where the government began building a 20ha IT park in May and is developing a BPO incubation centre. The industry may have brought in more than 1,500 jobs in the past two years, but it is still a far cry from the government’s target of 7,000.
“Because of the global pressures and US companies themselves facing a lot of issues, some of these decisions have not been taken or are on the back burner,” laments Gurmeet Chopra, a consultant at Indian firm Avasant, which just completed a two- and-a-half-year contract with the Ghanaian government to improve Ghana’s attractiveness as a BPO destination.
Elsewhere, telecoms companies and banks have been the main driver of demand. Seven months after India’s Bharti Airtel bought Zain’s African operations in 2010, it announced it was outsourcing customer service management to IBM and Indian firms Tech Mahindra and Spanco. More contracts have followed. Tech Mahindra now has delivery centres in seven African countries that employ more than 2,000 people. “Currently, we are serving only regional/African clients in Africa,” explains Prasenjit Roy, Tech Mahindra’s director of marketing and head of corporate communications. As well as the Bharti contract, the company is working for a Ghanaian and a Zambian bank.
India’s Wipro also leveraged a new expansion into East and West Africa on the telecoms sector. “We identified Africa as a high-growth market,” says Ramachandra Yadavilli, who moved to Nairobi last year to become Wipro’s new head of business for Africa. Wipro is focusing on three sectors – telecoms, banking and oil and gas – and on picking up local business rather than offshore work.
With BPO turnover in Africa of around $30m in the last financial year, the continent still represents less than 0.5% of Wipro’s global operations. It is now employing around 500 people in Africa, the majority in South Africa. Despite plans announced last year to open a 1,000-seat service centre in South Africa, Yadavilli said clients still preferred to have in-house staff – such as the 250 employees it has working at a large South African bank. “Unless there’s a critical mass, service centres don’t make sense,” he argues.
In Kenya, this influx of foreign firms is frustrating local BPO players already suffering from a slowdown in offshoring work. “We have been affected by the weak global economy and the competition from India and the Philippines,” says Nick Nesbitt, chief executive of Kencall. Back in 2008, Kenya’s pioneer BPO firm had a target to employ 5,000 employees by 2013. It had 700 but now has 500.
Kenya’s BPO sector has shrunk from 45 firms in 2007 to just nine today, according to the Kenya ICT Board. This could dampen the government’s target to generate 20,000 direct jobs through BPO operations by 2013 and increase its contribution to the national economy to KSh10bn ($110m). The anchor of this plan was the construction of Konza Technology City, 45km south of Nairobi, which has been delayed by government bureaucracy and a lack of funding.
To keep afloat, seasoned Kenyan operators like Horizon Contact Centers, Kencall and Techno Brain have turned to local contracts. In 2010, Horizon snapped up a multi- million-dollar contract to manage mobile phone operator Orange’s customer care services. Kencall is now working with the African Medical and Research Foundation.
“For the last two or three years, there has been a big push for local business, but uptake has been slow because it’s still a new concept in this market,” said Munjal Shah, director of Techno Brain. “Experienced foreign firms have joined the fight for the local contracts and maddened the outlook further.”
Foreign firms such as Accenture and Tech Mahindra have also won outsourcing contracts worth millions of shillings from the public sector and multinationals, while South African firm Payment Solutions won a government tender to manage the public-sector payroll in December 2010.
Local operators are asking the government for protection. “Local BPOs lack the experience being enjoyed by our competitors from countries like India, and this is why we are asking the government to change the procurement rules and make it a must for the foreign firms to partner with the locals,” said Nesbitt.
As North Africa’s political climate settles, the region remains an attractive offshoring destination. But sub-Saharan Africa has a long way to go if it wants to steal substantial offshoring contracts from Asia. “In the Philippines, the industry is worth $9bn and has 500,000 jobs. What they excel at is English-language voice to the United States,” says Everest Group’s Mukerjee. “Africa has to carve a niche for itself, a story for itself and the industry is large enough for it to get a fair share of jobs”