South African offshoring - Due south

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The Budget Group has stumbled onto a complete no-brainer through its offshoring exercise in South Africa. Generous government incentives mean it can expand its operations in a highly cost-effective way, while providing much needed employment to communities. Ralph Savage reports

Last week, the Budget Group announced plans to open an 81,000 square foot building in Cape Town's Century City district, which it plans to fill to a capacity of 700 staff by 2008. The news coincided with a declaration from the South African Department of Trade and Industry that it has set aside R1bn (£71m) as an incentive fund to help boost the country's competitiveness as an offshore location for contact centre operations from the UK, Europe and the US.

The fund, when set against the SADTI's projected growth figures, represents a payment of approximately £2500 per seat created in the business process outsourcing industry. This incentive is further topped up by training grants and tax-deductible costs of up to R60,000 per employee hired.

Budget's operation in South Africa is a wholly owned subsidiary called Fusion Outsourcing Services. It stands to benefit in a variety of ways, and for the time being it appears that there are no plans for the company to transfer jobs abroad. On the contrary, the company claims it is recruiting in the UK.

Adam Winslow, director of Fusion - who incidentally is returning to the UK next week after two years spent building the operation - explained: "The problem is, it's difficult to find and retain staff in the UK, when the attrition rate is as high as 56% and the average cost per seat is of the order of £30,000."

Average attrition rates for BPO in the Western Cape are 14%, with a cost per seat for Budget of around £19,000. This still represents a premium to offshoring in India or the Philippines, which are a further 20% cheaper on average, but Mr Winslow argues the benefits are clear in terms of cost and customer service.

He confirmed that personal lines sales from the Fusion call centre have been closing 4% higher than the UK, while commercial vehicle sales were closing 11% higher.

The current 200-agent operation has been so successful managing the broker's Dial Direct and Budget motor insurance brands that it is hoping affinity clients such as the Post Office and Marks and Spencer will consider using the operation.

The attractiveness of South Africa and the Western Cape province in particular as offshore locations has been a matter of some debate. While the Indian market has stormed ahead, growing to more than 750,000 offshore agents since 1995, South Africa's entire BPO market - domestic and offshore - counts only around 40,000 agents.

The Western Cape (one of nine provinces) makes up 40% of the country's current capacity, and Ebrahim Rasool, Premier of the region, is a strong advocate of its potential for growth. "Four years ago, there were around 6000 employed in the BPO call centre industry in the Western Cape. Now, we are over 13,000 people. That's a phenomenal doubling over a four-year period.

"That shows growing confidence globally in South Africa's call centre industry but also growing affinity by Capetonians to participate in this industry. Investment has been of the order of R1bn to create those 13,000 jobs, and we have been given a major fillip with a further R1bn of incentives after the national government declared the BPO and call centre industry a strategic industry that needs to be nurtured."

Pool of labour

Key to Premier Rasool's message is that the South African BPO market has significant capacity for growth and will differ markedly from India, in that the majority of recruits will not be educated to degree level.

The region has 33,000 'matriculants' each year, which represents a young labour pool educated to the equivalent of A-level standard. However, unemployment is high, and around 25% of these high school graduates remain out of work for many years with little opportunity to find a career.

It is through a partnership between the South African government's Services Sector Education and Training Authority and the regional government's inward investment agency, Calling the Cape, that firms such as Budget will now be able to provide employment to individuals from some of the province's most deprived areas, such as the townships of Khayelitsha and Guguletu.

Almost 50% of Budget's recruitment needs will be satisfied by agents sourced by Calling the Cape in the next two years. In addition, local BPO specialist the Dialogue Group - which currently provides a 150-seat operation for Insurer Admiral - is negotiating for a further intake of staff from this training programme.

CTC has been funded to the tune of £1.4m for 2007 and expects to recruit and train up to 600 contact centre agents, up from one sixth that number this year. Companies that take on the recruits benefit from a pre-screening process and National Vocational Qualification-style training programme, which CTC provides before they are let loose on a demanding UK public.

In the case of Budget, it will then 'host' their development through work experience, during which it does not pay their salary - this is covered by the government grants - and has no obligation to employ them at the conclusion of training.

"People get into this industry and see it as their career," gushed Premier Rasool at a press conference to promote the programme last week. "They are not too overqualified and, therefore, consequently looking outside for other jobs. They know they've got to learn this job and they get in there with gusto and they stay there.

"That's why our attrition level is only 14% and wage inflation is 7% against growth of 39%. Compared to anywhere else in the world - where you see figures as high as 60% - people are moving on as soon as they are trained. Here, once they are trained, they move upwards."

This visit was organised and paid for by Calling the Cape.

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