December 11, 2008

SOUTH AFRICA EMERGING AS A CREDIBLE ALTERNATIVE OFFSHORE DESTINATION, SAYS EVEREST

Study done on behalf of the South African government and BPO industry shows narrowing of savings gap with other low-cost offshore destinations like India

Large entry-level English-speaking talent pool (~470,000 annually), besides sizeable niche skills in financial sector; has about 4 times the number of actuaries in India

Gurgaon, December 11, 2008: Everest Group has released the findings of its latest and most comprehensive study on South Africa’s BPO industry, titled “Ready to compete: South Africa’s BPO capabilities in the Financial Services sector”. Everest conducted this study with Letsema Consulting on behalf of a South African government and industry partnership, which comprised of “the dti”, Business Trust and BPeSA (BPO industry association). This report provides a comprehensive fact-based view of South Africa’s current BPO capabilities and its growth potential in the Financial Services (FS) sector.

Says Brian Whittaker, CEO of South Africa-based Business Trust, “BPO is one of the priority sectors for growth in South Africa. Our target is to achieve 100,000 direct and indirect jobs by 2009; and we have already made significant progress. Various public and private sector initiatives have been put in place to attract more offshore BPO jobs to South Africa. This report provides potential investors with a level of fine-grained information to support the business case for investing in Financial Services (FS) BPO in South Africa”.

Elaborating on the findings of the study, Nikhil Rajpal, Principal, Everest Group, adds, “South Africa presents a significant opportunity for global Financial Services firms looking to expand their offshore footprint. It offers a 50-60% operating cost savings potential over western markets. Further, we observed that the savings gap between Johannesburg and a low-cost offshore destination like Bangalore has decreased from 30% in 2005 to 15% in 2008 and could  further decrease to just 8% in 2012. One of the reasons is that while most other currencies have appreciated on average over the last 3 years, the South African currency has depreciated. Also, inflation levels in South Africa are lower than other low-cost destinations like India and Philippines. If we take into account the impact of lower attrition in South Africa, the savings gap is even lower.” There are eight established delivery locations in South Africa, with the key ones being Johannesburg, Cape Town and Durban, he said. 

South Africa presents a significant potential for growth driven by various factors including a large experienced talent pool with service delivery and domain skills in the domestic FS industry; sizeable pool with specialized skills; narrowing of savings gap; and, availability of scalable, high quality English skills, at a low cost.

The study further shows that the FS-focused BPO industry in South Africa has established significant scale with ~11,000 employees in service providers (includes suppliers and offshore captives). This scale is comparable or larger than several other emerging global sourcing destinations like Jamaica (2-3k), Romania (5-7k), Czech Republic (7-10k), Malaysia (13-15k) and Argentina (20-25k). The study shows that the service provider industry in South Africa has established credible delivery across FS sub-verticals (retail banking, insurance, asset management) and across BPO functions (front and back-office). The industry is delivering robust cost benefits and is meeting client quality and service level expectations. Further, it is evolving to deliver additional benefits beyond labor arbitrage. In addition to the service providers, South Africa has 65,000-75,000 employees in domestic captives of South African FS companies.

Says H.Karthik , Research Director, Everest Research Institute, “FS BPO service providers in South Africa have credible delivery maturity. As many as 240 FS clients are currently being served. While front-office remains a key strength with about 6,000 employees across inbound and outbound functions, significant back-office activity also exists, with about 5000 employees. Almost 75% of outsource-able FS back-office processes are currently being supported. There are early successes in offshore delivery of complex back-office processes, such as actuarial modeling and investment management”

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