India and the Philippines are the current leaders in call center offshore outsourcing, according to Datamonitor. But its new November study predicts they have a new rival: South Africa. Datamonitor posits South Africa will become a more popular call center location for European and American companies who need higher levels of service.
"India will continue to have the lion's share of the call center market for the foreseeable future," says Ryan Powell, Analyst, Call Centers and CRM Technologies for Datamonitor. (Today India has 6,300 offshore agent positions while South Africa only has 1,400.) "But India is a labor arbitrage play. For high value transactions, South African offers a higher cultural affinity and a much better alignment with the markets they are serving," he explains.
But outsourcing companies will have to pay the price: South African centers are more expensive, Powell points out. He says a typical South African agent earns two-thirds the salary of a UK agent .
Powell says if US or UK customers are inquiring about their account balances, an Indian call center could perform this low value transaction well. But if the customer needs a high level of customer support, a South African can handle the task better. Some customers are so important to a company, Powell says routing them to a US-based call center still makes overall economic sense. "It's really tough for any offshore call center to handle a very demanding and knowledgeable US customer," he notes.
South Africa's Advantages
South Africans are better equipped to handle the higher value transactions because it has a more westernized culture than India. For example, credit cards are abundant in South Africa while few call center personnel in India have them, notes Powell.
In addition, South Africa has a mature call center industry. Powell says middle managers already exist there. And the country has state-funded "learnerships" to train people who want to enter the industry. "The learnerships help fill the staffing pipeline," notes the analyst.
Moreover, South Africa has a 40 percent unemployment rate. This puts a lid on attrition, according to Powell, because employees are keen to hold onto their jobs. He estimates attrition in South Africa to be as low as six percent. In India, on the other hand, Powell says attrition rates are "on the rise." One reason is multinational corporations are moving aggressively to set up their own operations; they are doing this by "poaching" key personnel they want to recruit by offering a more lucrative salary package. The Datamonitor analyst says agent attrition rates in some parts of India run between 60 and 70 percent.
In addition, South Africans have sector specific knowledge, continues Powell. The country has a well-established travel industry; Lufthansa was an early adopter in South Africa. The country also has seasoned insurance and financial services call centers.
South African Growth
For all these reasons, Datamonitor predicts South African call centers will enjoy a 13 percent annual growth rate through 2008. In 2003 the country had 38,400 total agent positions (serving both onshore and offshore calls). That number will reach 69,600 by 2008. Powell estimates the offshore component will jump to 6,200 by 2008, a 34 percent increase. An offshore call center employee works for an outsourcing service provider who operates the call center; onshore agents work for companies like General Electric or General Motors who own and operate the offshore call center.
Currently there are 494 call centers in South Africa. Powell predicts there will be 939 by 2008.
Not surprisingly, the Dutch market is also contributing to this growth. The Dutch language is the root of Afrikaans, which means many call center agents speak Dutch. The Datamonitor analyst points out South Africa is the only offshore locale that can support the Dutch market on a large scale.
South African Challenges
Of course, South Africa has its challenges, just like all offshore locations. One is the telecommunications situation. Currently telecommunications is a state-run monopoly, Telkom. Powell says the slowness of the bureaucracy "has stymied offshore call centers" because the state can't supply the necessary bandwidth and the lines themselves are "prohibitively expensive." Deregulation is a requirement for growth. In May the government announced plans to deregulate by the summer of 2005. The deregulation includes VoIP (voice over Internet protocol), which means voice and data become much cheaper since companies only need to maintain one network, not two. "Deregulation will be a major stimulus for call center growth," says Powell.
Another challenge is a law protecting black economic empowerment; the law tries to favor the previously disadvantaged in an attempt to level the economic playing field. "Blacks are still angry over the power that whites have over business," Powell says. He says it's unclear how this law will affect the growth of offshore call centers. He's predicting the country will take a middle ground "so they don't stymie economic growth," he says.
All things considered, look to South Africa as a call center hot spot.