South Africa’s business process outsourcing industry adapted rapidly to the Covid-19 crisis and is expected to almost triple in size by 2030, according to management consulting firm McKinsey.

In September, the sector — which involves sub-contracting a range of business-related operations to third-party providers — employed more than 270,000 people in the country, including 65,000 staff who service international clients, according to McKinsey. It estimates that the industry’s total number of employees could jump to more than 775,000 by 2030, with up to two-thirds catering for overseas markets.

South Africa was voted the second most attractive Business Process Outsourcing (BPO) location in the world for three years in a row, according to the 2020 Front Office BPO survey by Ryan Strategic Advisory. India was ranked in first place and the Philippines in third.

International reputation

In September 2020, McKinsey valued the overall South African BPO market at $461m — $272m of which was attributed to traditional BPO, while business process as a service (BPaaS), a form of BPO that employs a cloud computing service model, was valued at $188m.

The South African industry had a compound annual growth rate of 24% between 2014 and 2018, and of 34% in 2019 — twice the industry’s global growth rate — according to Business Process Enabling South Africa (BPESA), the country’s industry trade association. Currently, the country has more than 100 local and international BPO providers, including Teleperformance, EXL, WNS, and Webhelp.

During the year to the end of March 2020, the sector attracted $250m of new foreign and domestic investment, according to BPESA. In June 2020, Amazon announced it would hire 3000 people in South Africa to support customers in North America and Europe. Even during the pandemic, between January and September 2020, more than 6500 new employees were added to the industry.

“In April last year, the industry in South Africa reacted extremely quickly to the Covid-19 crisis,” says Traci Freeman, the marketing and growth executive at BPESA.

“Within a few weeks, up to 80% of essential service agents were working from home. A number of multinational companies either shifted their call centre work from other destinations around the world [which were] unable to meet the demands lockdown had placed on them, or due to customer demand and growth, to South Africa because they were impressed by how fast our industry had managed to adapt.

“The South African industry’s reputation globally certainly improved last year and I think that bodes well for us in the future. The country presented new options to international brands and clients to de-risk their businesses in times of uncertainty and disruption.”

Essential service

The national government granted the BPO industry ‘essential service status’, which ensured that local providers could continue to service their clients during the country’s lockdown in April and May. BPESA has estimated that 60% of the industry’s employees are now working from offices, while the remainder work from home. It is expected that this new hybrid model will continue, as it opens up an expanded pool of talent who can work from home, but were previously excluded from the industry. It has boosted the ‘gig economy’ and enabled firms to pull in staff for shorter bursts of work, when possible.  

BPO providers deliver a range of services for their local and global clients including contact centre services, finance and accounting services, legal services, information technology services, and human resources services. The South African industry is particularly strong in customer service and shared services — specifically in the area of banking, financial services and insurance and in alternative legal services. More than half of the work performed by South Africa’s call centre outsourcing currently comes from the UK.

According to BPESA, international clients have found the South African industry attractive because it combines an educated workforce with a clear English accent at relatively low labour costs. Clients also appreciate the cultural affinity that exists between South Africa and Western countries, it added.

Connectivity issues

Teleperformance, the world’s biggest BPO provider, rapidly expanded its headcount in South Africa to 2500 staff in the first quarter last year, from 450 staff in the first quarter 2019. It currently has five offices, all located in Cape Town, but is considering expanding into Johannesburg and Durban.

“In terms of internet connectivity in South Africa, we have no issues whatsoever with in-office connectivity,” says Gary Slade, chief executive officer of Teleperformance UK and South Africa. “However, we have had some issues with out-of-office connectivity. Broadband deployment has been slow in the country and less than 3% of our staff have it in their homes. The good news is the country’s telecommunications companies have worked hard to improve network capacity, so voice-over standards are now acceptable.”

Providing opportunities

The industry says it provides South Africans with good jobs with clear career prospects. Around 88% of employees who work for overseas clients are under the age of 35 while 65% of the workforce are women, according to BPESA. It says that around 90% are black or mixed race, and most reside in townships. 

“In a country in which 43% of 15- to 34-year-olds are officially unemployed, any work which provides dignity and money is better than no work at all,” says Jon Foster-Pedley, the dean of the Henley Business School in South Africa. “Remote working creates all kinds of opportunities for South Africa in the future. The country is pretty Westernised and all sorts of high-value functions can be outsourced to here.”

Mr Slade adds: “I have not found any function that South African employees cannot do. We are able to place more complex work there than was originally thought possible, including in finance and accounting. South Africa is particularly good in the area of front office functions; it is as good as, if not better than, the UK, for example. Our industry probably offers the best career prospects of any industry worldwide. For every 15 agents, I need a team leader and for every 30 agents a quality assurance manager.”

He adds that his South African employees earn around three to four times the minimum wage of R20.76 per hour ($1.37).

The solid performance of South Africa’s BPO sector is partly due to the backing it has received from the national government. The country’s Department of Trade, Industry and Competition has provided the industry with incentives in the form of grants and bonuses valued at R1.3bn ($87m) between 2007 and 2018. In 2019, it committed a further R1.2bn for sector support and other operational-improvement support programmes.

South Africa’s BPO industry is expanding fast and is likely to continue to do so in the post-Covid world, as many Western companies embrace remote working and migrate functions previously carried out in the developed world to cheaper, but productive locations in emerging markets. 

This article first appeared in the February/March print edition of fDi Intelligence.