horsesforsources.com 1

© 2010, HfS Research, Ltd.

An HfS Research Special Supplement November 2010

Africa: The Last Frontier – the Lion Sleeps no More

Authors Bruce McCracken, Contributing Analyst, HfS Research Mark Reed-Edwards, Vice President, HfS Research

Executive summary

After years of relative sourcing obscurity, African locales are overcoming some of the past barriers to become worthy of consideration as nearshore destinations for Europe. Increasing numbers of African nations are seeking to emulate the success of India and the Philippines in luring business to their countries. The growth of the economies of many nations on the continent is generating interest for multinational firms to invest to tap into potential markets.

Foreign investment, government and World Bank support have combined with new communications capabilities in broadband and fiber optic links to Europe are improving the African value proposition in ITO, call centers and BPO. Low cost labor, lower employee turnover, and little local competition from other prospective employers combine to add to the attraction. The heritage as colonies with language skills and compatible time zones are also assets that enhance the viability, though distance excludes many nations as truly being nearshore to Europe.

The enticing offerings are limited to selected cities for specific functions to meet the individual needs of clients with a limited number of seats at centers due to a smaller labor pool of skilled workers.

HfS Research asked four contributors to help us take stock of the African offerings:

- Rick Kitchen, Vice President of Global Operations Support Business Process Solutions at ACS, A Xerox Company

- Stan Lepeak, Managing Director of Global Research at EquaTerra

- Kevin S. Parikh, Esq., CEO at Avasant

- Amit Shankardass, Chief Global Marketing Officer at Sitel

HfSResearch.com 2

© 2010, HfS Research, Ltd.

Table of Contents

How easy is it to do business in Africa? .................................................................................................. 3

What are the keys to Africa gaining traction? ........................................................................................ 4

Europe’s nearshore option ..................................................................................................................... 7

What obstacles remain? ......................................................................................................................... 9

Which regions have the most potential? .............................................................................................. 11

Takeaways ............................................................................................................................................. 15

About Bruce McCracken, Senior Research Analyst ............................................................................... 16

About HfS Research .............................................................................................................................. 17

HfSResearch.com 3

© 2010, HfS Research, Ltd.

How easy is it to do business in Africa?

In its 2009 Global Services Location Index, which assessed the most attractive offshore destinations, management consulting firm A. T. Kearney gave many African nations high ratings:

- Egypt #6

- Ghana #15

- Tunisia #17

- Mauritius #25

- Senegal #26

- Morocco #30

- South Africa #39

In the World Bank Index of the ease of doing business, several African nations score highly as indicated in Figure 1.

Figure 1: Many African nations offer an attractive business climate

Source: World Bank

Numerous initiatives and free enterprise zones throughout Africa at all levels of government aim to attract industry, provide employment and drive investment.

HfSResearch.com 4

© 2010, HfS Research, Ltd.

Kevin Parikh notes the level of aid. “There is almost$7 billion of world aid coming into Africa,” he says. “Much of this is from organizations like USAID (United States Agency for International Development) and World Bank, targeted in many cases for the ICT (information and communications technologies) sector.”

“In many of our engagements in Africa we are helping them create business rationale for companies like Wipro, Infosys, IBM, Accenture, etc. to open up a new office in their region,” Parikh continues. “It is a very competitive environment to bring these companies to invest in those countries. These countries are giving away everything from office space at a discount or free, to access to high-speed connections, to tie-ups with local universities, tax breaks.”

“Whether you are looking at Kenya, Egypt, Ghana, or even Nigeria or South Africa, there is a governmental agency or department typically that is focused on this economic growth,” he continues. “There is usually also a private sector or a group of private sector, non-profit agencies which are also supporting the growth in this sector.”

“I think there is an incentive there to grow businesses and grow ones that are relatively innocuous,” Lepeak says. “It is certainly in the best interest of the government to fund this, there as is a large population that needs to get employed. It is not too threatening to have call center and IT people. Whereas, other types of businesses are just more complicated to grow. The real question longer term is how sustainable is it? If you are just one of another 50 countries that can do call center work, what is your differentiation?”

There is considerable interest in China and India for investing in Africa. A noteworthy example of foreign investment culminated in June with Indian mobile provider Bharti Airtel’s acquisition of Zain Group’s mobile operations in 15 African nations with 43 million customers. The acquisition represents the largest cross-border deal in emerging nations.

What are the keys to Africa gaining traction?

In its 2010 economic outlook the International Monetary Fund (IMF) notes the Africa/Middle East region emerging from the recession sooner than many economies and projects strong growth of the gross domestic product (GDP) into the future for the continent as a whole. As Figure 2 shows, the region was one of only two economic groups that sustained economic growth from 2008 to 2009.

“These countries are giving away everything from office space at a discount or free, to access to high speed connections, to tie-ups with local universities, tax breaks”

Kevin Parikh

HfSResearch.com 5

© 2010, HfS Research, Ltd.

Figure 2: Africa emerging from recession early with positive economic growth

Source: International Monetary Fund

The IMF includes twelve African nations among the world’s 28 fastest growing economies; it projects that 23 African nations will grow their economies at a rate of five percent or more in 2010 and 2011, as Figure 3 illustrates.

HfSResearch.com 6

© 2010, HfS Research, Ltd.

Figure 3: Twenty-three African nations projected to grow economies by five percent or more into 2011

Source: International Monetary Fund

The IMF projects the growth of the GDP for the Africa/Middle East region in 2015 to be 4.8 percent, with the growth of Sub-Saharan Africa GDP projected to be 5.4 percent. This compares favorably to the projected worldwide growth of 4.5 percent.

This growth will present opportunities for providers to expand their footprint into Africa with ancillary services to support clients within Africa. The September announcement by Bharti Airtel and IBM of a ten-year agreement for IBM to manage infrastructure and applications in Africa is an example. IBM and Bharti Airtel project that the deal will enable Bharti Airtel to scale its network and services to more than 100 million African customers by 2012.

Changes in communications in two areas for the continent, broadband and fiber optic cables are dramatic drivers in the potential and increasing attraction of Africa as a sourcing destination and markets for service providers. The crux of it is the very recent completion of laying and putting into

HfSResearch.com 7

© 2010, HfS Research, Ltd.

operation major undersea fiber optic cables (the most recent one went live in late July) that now surround the continent at 41 “landing points.” The undersea fiber optic cables additionally link to Saudi Arabia, Greece, Spain, Portugal and Italy. There also are cables crisscrossing the continent on land. More undersea and land cables are in progress.

The skyrocketing adoption of broadband and wireless is major force in the transformation of Africa. “In the last five years the cellular market and mobile market grew by 5,000 percent,” Parikh explains. “That is almost four hundred million new telecom subscribers. The Internet itself grew by 630 percent. That is 50 percent of growth year over year which is largely dominated by mobile telephony. In developing countries mobile telephony often leads the growth as it has in both India and China because of the cost associated with main physical fiber lines.”

The cabling of, and around, Africa with links to Europe is a significant factor, especially for a call center provider. The cost of bandwidth may be reduced by as much as ninety percent by next year according to the projections of one telco provider. “There are really three things that drive a location to make it a desirable location to provide customer care services,” Shankardass says. “The cost and quality of service of communications, data and voice communications is reason number one.”

“There are additional cables that are in the process of being completed and brought online, so there will be more than one source of telecommunication providers in the region,” Kitchen adds. “I think it will do a lot to reduce the cost of telecommunications and make Africa more competitive in terms of cost as well as infrastructure to be able to provide services to European based customers as well as others around the world.”

We see synergies in four areas that will make Africa a more attractive sourcing destination:

- Expanding telecommunications connectivity within the continent and to Europe

- Generous investment incentives

- Significant drops in the cost of bandwidth in the near future

- Economic growth exceeding the world as a whole

Europe’s nearshore option

North Africa represents a true nearshore option for Europe. Most North African destinations are within 1,000 miles of the UK or France. The ability to go to and return from a site visit from Europe on the same day greatly enhances the value proposition.

The closely aligned time zones to Europe also offer considerable advantages. Many of the destinations are in the same time zone as European nations and even the difference between the UK and Egypt is only two hours. This enables increased communications between project teams in different locales and reduces the need for attracting an after-hours workforce.

“I think time zone plus close to geographic proximity is a plus,” Lepeak says. “I think for the call center work, that is important in one respect. I think it is also important for any IT work. If you are working for the team, you are working on the same time zone. I

“The cost and quality of service of communications, data and voice communications is reason number one.”

Amit Shankardass

“Being in a similar time zone of the nearshore locations certainly is an advantage to doing business.”

Stan Lepeak

HfSResearch.com 8

© 2010, HfS Research, Ltd.

think with IT, the actual geographic proximity is a little bit more important because there is probably a greater tendency to fly people back and forth, at least periodically, if you are working on big IT project.”

“Being in a similar time zone of the nearshore locations certainly is an advantage to doing business,” Kitchen points out. “A lot of the types of higher level applications that West Africa is getting positioned to handle are better served in similar time zones. In a lot of the cases, African countries can be in a good position to serve the European market because of similar time zones.”

When the language of choice is not English, Europe becomes more of a challenge, particularly in customer care. For German-language applications, there are nearshore destinations to the east, although South African locations have been supporting it as well as Dutch.

Support of the French language presents a unique opportunity for many African nations.

“There has definitely been a growing need and growing interest in using certain Northern African locations, predominantly because of the language skill set availability,” Shankardass says. “Unlike the US, where there are many other English speaking alternatives across the world, in the case of Europe, you become a little more limited in terms of where you can provide language support. We have over 1,500 agents in Morocco supporting consumers calling in for a French service line. The language skill set obviously comes from the history of the relationship between Northern Africa and the other side of the Mediterranean.”

“English is widely spoken and used in business on a regular basis in Ghana which is an advantage,” Kitchen notes in reference to his center in Ghana. “They are familiar with the European cultures as there is interaction with Ghanaians and other European nations.”

As former colonies, African nations are very familiar with European institutions, especially the UK and France. The maturity of the relationships between those two nations and their former colonies eases adjustments in doing business. “There are other benefits of the remnants of colonialism in terms of common law, which is prevalent throughout Africa, English common law,” Parikh observes. “There is prevalence of French Law, as well, throughout the African region. That makes doing business in those regions more familiar to European customers. I think many have been surprised to note the level of familiarity.”

Cost savings in terms of wages are significant across the board across all function but vary by location. The savings that could be realized in labor costs had been significantly offset by the costs of communications and infrastructure. As previously discussed, the costs of communications and infrastructure have been falling and are projected to drop dramatically in the near future.

“Generally speaking, the labor cost in locations in North Africa are about 25-50 percent lower than that of countries in Europe, the higher end of the range supporting UK and the lower end of the range supporting France,” Shankardass submits. “However, it is important to note that infrastructure and supports costs are higher in these offshore locales, thereby eroding some of the direct labor arbitrage benefits.”

“It is cheaper, you know you are going to save money, the thing is it varies a lot,” Lepeak notes. “South Africa is probably the most stable in terms of the pricing, whereas in Egypt, we are seeing several hundred dollars a day for this skill or you can pay under a hundred dollars for that skill. I think the savings are there.”

“They are familiar with the European cultures.”

Rick Kitchen

“It is cheaper, you know you are going to save money, the thing is it varies a lot.”

Stan Lepeak

HfSResearch.com 9

© 2010, HfS Research, Ltd.

“Most will say that there is a tremendous cost advantage in Africa because median income falls below that of India and China but we’re not so sure that’s going to play out,” Parikh contends. “There is a cost in Africa that most people that haven’t actually visited Africa don’t understand. There is a cost of infrastructure for everything. We just don’t know what that cost impact is going to be until we see shops with more than 500 people on the ground.”

Another factor that plays into the labor cost equation involves employee attrition. High unemployment and a lack of competition for jobs have resulted in a lower churn for many providers. The International Labour Organization estimated the 2009 unemployment rate worldwide was 6.6 percent; unemployment rates for North Africa and Sub-Saharan Africa were 10.5 percent and 8.2 percent, respectively.

“I’d say our attrition in Ghana has been lower,” Kitchen explains concerning his center with 800 employees. “The workforce has been more stable in Ghana for a couple of reasons. One is the high unemployment rate and, two; there are just fewer opportunities. That shortage of other opportunities can be seen that as a positive for a company like ours as there is less competition for employees. I think, in general, that has caused the turnover rates to be lower in Ghana than in other places.”

“Turnover rates in African sites are among the lowest across all geographies,” Shankardass contends. “It runs at about 60-80 percent of the turnover rate within offshoring facilities in India and Philippines. However, it is on par with turnover in many other European countries where agent turnover is relatively low.”

We see additional benefits to Africa as a sourcing destination for Europe:

- North Africa represents a true nearshore region for Europe

- Shared or favorable time zones enhance communication with Europeans on joint projects and client service

- Language skills are favorable and especially attractive where French is required

- The colonial history results in familiarity with Europeans and ties in with greater ease in doing business

- Cost savings through labor arbitrage can be realized with lower attrition due to reduced competition for workers and high unemployment rates

What obstacles remain?

There are impediments for many nations. Some impediments will take years to remedy, others may not be alleviated in the foreseeable future, and some never will be removed. By far, the biggest obstacle currently for Africa as a sourcing destination, generally, is a relatively small labor pool of skilled workers and often limited number of university graduates. There is also a shortage of indigenous qualified managers and experienced professionals. Consequently, the ability to scale a center becomes a considerable challenge at most destination sites. If countries want to expand their value proposition in the way that India did, they need to be able to provide a skilled workforce with greater university education to produce trained graduates for higher-level work.

Excluding South Africa, the relative immaturity of virtually every nation in every sector compared other competing global destinations is a detriment. Travel from Europe beyond North Africa is also an obstacle

“Turnover rates in African sites are among the lowest across all geographies.”

Amit Shankardass

HfSResearch.com 10

© 2010, HfS Research, Ltd.

that cannot be expected to change in the foreseeable future. Other concerns include reliable utilities and political stability.

“I think there is potential there but the countries themselves are small,” Lepeak notes. “Even in the larger countries like South Africa, what is the viable population that you can bring to bear on this? The other thing is how do you continue to grow the capability so when you are confined to base level services? How do you start to grow the management layer that might allow you to provide more complex services? I think that there is the potential population, but that is sort of the wishful thinking that you hear about. I think that the reality is, how many of those people actually are suitable for IT work which is one set of skills, or call center work, which is a different set of skills? I think that is where there are some shortcomings there. So, in some respects, it is a little harder. On the other hand, it is little harder because your buyers are used to dealing with more mature offerings and more experienced people coming from India or some of the other markets.”

“We are hoping to see a lot of graduates out of Western and Eastern Africa and in countries like Egypt,” Parikh says. “That is really important. That is one of the major factors that companies have in making decisions on whether or not to establish operations in the location. It is really a disqualifying factor if there aren’t enough students coming out of the universities for them to recruit from. If you look at countries that do not have as strong a student population, they tend to be more attractive candidates for BPO and call centers, but not so much a strong candidate for IT support.”

“I think in order to remain competitive, or to become competitive in some of these other areas of work, they have to really stay focused on getting their workforce prepared,” Kitchen says regarding his center’s ten years of experience of being in Ghana.

“There is a lot of hope in these markets that they are going to create their own local market champion,” Lepeak adds. “But I think ultimately it’s going to be difficult for the local market players to really grow and be competitive because of the size they would need to get to and the investment required. When we look at the typical buyer, they probably are already dealing with one of the Indian firms or one of the multinational western firms. To get them to take a chance on a local provider is going to be difficult.”

Air travel to Africa is limited and nonstop flights from Europe are often rare. Only a few viable African locations on the Mediterranean are short flights from Europe. A flight from London to Ghana is an eight-hour trip. The distance from London to Cape Town is almost 6,000 miles. More often than not there is only one major international airport with intercontinental service in most countries. These represent obvious disadvantages for site visits.

“Nearshore is much easier to get to in terms of travel time when a client wants to go to a site or a facility,” Shankardass says. “It is less about managing the relationship, but more about ease of travel, proximity, and the ability to get to a site as they need.”

“I think close geographic proximity is a plus, South Africa is a hike from any place,” Lepeak notes. “I think with IT, the actual geographic proximity is a little bit more important because there is probably a greater tendency to fly people back and forth at least periodically if you are working on big IT project. As buyers get a little more experienced, they need to do onsite visits. As they gain experience, it may be less of a requirement, although it still is something you want to do periodically.”

“What is the viable population that you can bring to bear on this?”

Stan Lepeak

“Simple things like local, domestic or continental travel are challenges.”

Kevin Parikh

HfSResearch.com 11

© 2010, HfS Research, Ltd.

“There is a challenge for travel everywhere,” Parikh says. “Simple things like local, domestic or continental travel are challenges. Moving from one place to another is a challenge.”

“In these trying times, it’s difficult sometimes to tell which countries are enjoying political stability,” Shankardass submits. “You are looking for stability of infrastructure and that speaks to political stability, socio/economic stability, stability of the infrastructure buildings, and everything that goes around it.”

Africa as a whole, in general, needs to improve in its commitment to building its international business in a fashion similar to India and the Philippines. Until proactive approaches are implemented, weaknesses will continue to inhibit success in attracting business investments in most African destinations as they not only compete globally, but also with one another:

- A relatively small talent pool of skilled workers inhibits the capacity to scale

- Inadequate volume of university graduates

- Geographic distance is too great to easily enable site visits beyond North Africa

- Instability exists in many different significant ways in many areas

Which regions have the most potential?

There are similarities in African destinations as well as differences. The destinations can be viewed as regions, countries or cities. Almost all sites offer potential for low level BPO transactional work and call centers. Only three, South Africa, Egypt, and Kenya appear to be positioned to be significantly viable for the IT sector. There are five regions of Africa commonly cited:

- Eastern Africa

- Middle Africa

- Northern Africa

- Southern Africa

- Western Africa

“One thing I have noted in conversations with people is that it is best to view the continent as five different sections,” Lepeak says. “It is also similar to South America, very city specific.”

Parikh sees five sections as well. But he believes Middle Africa is not a viable sourcing location.

“We look at it more on a regional basis,” Parikh explains. “Within each regional grouping we have certain countries that are operating there that actually have a similar flavor. Each one of these four regions has got its challenges. All of those countries have a strong BPO potential because there is both English and French spoken in most of these regions. Some countries were colonized by both French and the UK at different points in the history of the country so they actually have both languages.”

“East Africa is comprised of Kenya, Tanzania, and Uganda,” he elaborates. “They have a lot of aid money and have a lot of investment with Kenya being probably the leader in ICT investment. Kenya is very, very aggressive in that region, with a very proactive government. Kenya already has some very interesting IT centers and business parks that they’ve been investing in.”

“Within each regional grouping we have certain countries that are operating there that actually have a similar flavor.”

Kevin Parikh

HfSResearch.com 12

© 2010, HfS Research, Ltd.

“North Africa comprises some very important economies: Egypt, Algeria, Libya, Morocco, etc.,” he submits. “North Africa is certainly more developed. This is where there is a tremendous opportunity for real labor arbitrage, as but they lack some of the institutions including educational institutions. The bigger question about Morocco and Tunisia is will they have enough graduates and enough critical mass to be able to sustain ongoing growth. Egypt is probably the most advanced economy in terms of ICT and certainly an entry point into the region.”

“West Africa has several emerging economies,” he continues. “Western Africa is where there is a tremendous opportunity for real labor arbitrage. Nigeria is a very wealthy country and one of the largest economies in Western Africa. They have Arabic language spoken in Nigeria as well as French and English. They also have a business partnership with Ghana which permits people to move back and forth and that has been great for Ghana because Nigerian money has come to the country.”

“Additionally, entry of larger multinational firms into the continent to access the growing market brings along support firms that will improve the skill base and overall delivery efficiency,” he says. “The case in point being the recent announcement by India’s largest telecom service provider Bharti Airtel, which acquired Zain Telecom’s African assets, to outsource its customer support services. None of the African service providers are likely to be preferred due to lack of scale. Bharti’s Indian service providers such as Aegis, Firstsource and Spanco are to follow Bharti’s African footprint. These providers will have to follow their customer and penetrate locations beyond South Africa such as Ghana in order to achieve balance of skills and costs. Such an initiative is likely to improve the overall customer experience in the continent where customer service has been non-existent. This will also improve the skill base and quality of service emanating from the continent.”

Africa offers many options for lower level call center and BPO work from four regions. IT work is much more limited to a few nations to a large extent. We view the destination locations to be much more city specific due to a smaller pool of skilled labor and limited access by air from Europe.

Spotlight on Egypt

Egypt and South Africa are the most prominent sourcing locations in Africa; they are also are highly differentiated from other African nations. Egypt is a rising star in IT and poised to see dramatic growth to exploit unique attributes relative to other countries in the region. The geographic proximity, cultural affinity and Arabic language skills provide tremendous opportunities in the Middle East. However, relative to other IT players on the world stage, Egypt is relatively immature and lacks senior level engineers and programmers. The high unemployment and significant number of university combine to provide considerable potential as a nearshore destination for call centers and BPO.

“The market shows some issues relative to the potential and capacity, probably with the exception of Egypt,” Lepeak says. “Close geographic proximity is a plus for Egypt. They have a service-oriented mindset and they have the language skills. There are good schools there and there is not a lot of work for people coming out of those schools.”

“Egypt has already started making its mark and is a country that is more developed,” Parikh notes. “They have a strong IT and business process opportunity. Relative to many other countries, excluding South Africa, Egypt is more mature in IT. I don’t believe if you look at any of these countries they are at the level of the delivery capability of India. But for the region, Egypt clearly is ahead and I don’t think they’re limited just to BPO.”

“When buyers look at these markets, it’s not just for the cost savings, it’s cost savings plus something else.”

Stan Lepeak

HfSResearch.com 13

© 2010, HfS Research, Ltd.

“I think the wild card for Egypt is as you see the economies in the Gulf grow, I think you could see a pretty big demand for services from local markets,” Lepeak notes. “Saudi Arabia, UAE and those markets don’t traditionally provide much, if any, of their own support services. As those markets grow as financial centers, for example, they are going to need call center work, they are going to need IT services, they are going to eventually need other types of BPO. I think Egypt is well positioned to provide that because of the language, the location, the cost, a fairly common culture, and the fact that the markets are growing. We have talked to some European banks that have banking operations in the Middle East. They are looking at Egypt to support those operations.”

“Egypt is on the table in part because, yes, it’s cheaper and it has got capabilities,” he adds. “Cost savings is important but it’s not the main driving factor. When buyers look at these markets, it’s not just for the cost savings, its cost savings plus something else, which are either language, geographic proximity, or support for local operations. If you are Egypt, you are targeting more Muslim countries, because there is the cultural affinity.”

Egypt is poised exploit some strong advantages over other nations in the region, including:

- Close geographic proximity, language and cultural affinity to the Middle East

- Large labor pool of university graduates

- IT capabilities

Spotlight on Ghana

“We refer to Ghana as the gateway to West Africa. Ghana has French and English,” Parikh says. “There is also quite a bit of aid money from World Bank and other locations coming in and they are finding oil there. Ghana has a very stable economy and they have a relatively strong university system for the region down the coast.”

“Ghana has been very serious about developing its ICT and BPO economy,” he adds. “Ghana sees itself as a hub for outsourcing in West Africa. To further these efforts the country has earmarked $88 million of World Bank funds for this initiative. The Ghana government has also recently announced that World Bank will allocate $100 million for skills training in the country.”

“Ghana formed Vocational Training Expert Group in May 2007 to oversee IT/ITES training, skills development and certification,” he notes. “They launched a training matching grant program with initial amount of US$3,000,000 to support eligible public and private training institutions to deliver the training. Institutes such as Ghana Telecom University has launched a program to develop BPO professionals in collaboration with a private BPO firm.”

“The stability of the power in Ghana is a disadvantage right now,” Kitchen points out. “Of course, that is the case in many other countries as well. You just have to have backup generators with part of them being utilized on regular basis.”

Ghana is more positioned to grow as a sourcing destination than many of its competitors on the continent, including:

- Considerable funding through the government and international organizations for education and training

- Commitment to training for BPO

- Stable economy

“Ghana sees itself as hub for outsourcing in West Africa.”

Kevin Parikh

HfSResearch.com 14

© 2010, HfS Research, Ltd.

Spotlight on South Africa

South Africa is by far the most mature and established locale on the continent as a sourcing destination. Considerable strides have been made in making it more attractive by opening up telco to competition from what had been a monopoly. South Africa has a skilled workforce with IT capabilities and a good university system. It has capabilities to support the Dutch language and is part of the large footprint of many major service providers. But higher labor costs put it a competitive disadvantage to other African nations for lower level work.

“South Africa is already well-established,” Parikh says. “South Africa is very strong in banking, have a very strong and vibrant IT sector, and a very developed work environment with a strong workforce population. Just about every major service provider in the world is located in South Africa. They have a very strong university system and that strong university system permits the ability to recruit and have a very strong ICT infrastructure, which the other regions don’t. South Africa is also an enigma because as much as there is great first world opportunity and infrastructure, they also are a very poor country in different parts of that country.”

In South Africa, there is a large population that needs to get employed,” Lepeak submits. “It is certainly in the best interest of the government to fund this and I think it is happening.”

“We’ve had conversations with IBM, Accenture, Infosys, Wipro, and other firms have an interest in diversifying some of their own location investments that they’ve got in South Africa,” Parikh adds. “Those same companies are looking to establish satellite offices or second offices in Western, Northern, and Eastern Africa at a lower cost point.”

“Tier one providers were in these markets already providing hardware and software,” Lepeak says. “So naturally, they can start to build up services. I think they are on a limited basis and in some cases; it’s really an expansion of existing operations that were already there. I don’t think the investment is extensive but I think it’s pretty consistent.”

We see South Africa as likely to serve as a hub on the continent supported by spokes in other parts of the continent. The maturity of its services in IT, BPO, call centers, and the banking vertical are definite strengths supported by solid universities. The major challenge is competing on price with other competitors on and off the continents.

South Africa has distinct advantages and disadvantages over other African destinations, including:

- Maturity across many sectors

- Heavy presence by multi-national providers and corporations

- Strong universities

- Higher labor costs

“Just about every major service provider in the world is located in South Africa.”

Kevin Parikh

HfSResearch.com 15

© 2010, HfS Research, Ltd.

Takeaways

We see a much brighter future for Africa, as a whole, to become worthy arrow in the quiver of sourcing destination options, especially for those in Europe or the Middle East. The increases in telephony and, especially, the connectivity through fiber optic cables within the continent and Europe with reduced bandwidth costs that will continue to drop are the big driver. Foreign investment and funding by organizations like the World Bank play a major role in emergence of Africa.

Attracting foreign investment will become a turf war for African destinations. To a large extent, African locales will largely be competing with one another for a piece of the sourcing pie. Much of the growth will come from multi-national corporations building captive centers and larger established global outsourcing providers.

Africa has unique advantages and inherent disadvantages as a sourcing destination.

Positives

- Shared time zones with Europe

- Low labor costs

- Language skills, notably French and Arabic

- Little competition for workforce

- Reduced attrition rates

- Generous investment incentives

Drawbacks

- Shortage of skilled workers

- Inability to scale for larger centers

- Only nations on the Mediterranean are truly nearshore

- Lacking sufficient universities

- Small management talent pool

- Unreliable utilities and other infrastructure issues

We see two significant areas where strategic planning can alleviate some of the drawbacks to the continent:

- In call center and BPO, organizations choosing to tap into Africa may want to consider one city as a hub with other cities as spokes so as to be able to scale their African operations by casting a wider net for a qualified workforce

- Organizations need to consider basing their own management personnel, or in the case of IT, senior engineers and programmers, on site to compensate for the lack seasoned talent in Africa

HfSResearch.com 16

© 2010, HfS Research, Ltd.

About Bruce McCracken, Senior Research Analyst

Bruce has extensive experience as an analyst and writer in the outsourcing industry over the last decade. He served as a senior research analyst for FAO Research where he helped design the research program and evaluated the marketplace, working extensively with buyers, advisors and service providers of BPO services.

Prior to his researching and writing career, Bruce had a career in event staging and planning, spanning a quarter of a century. He served as the Stage Manager for the Dallas Convention Center and has worked with the majority of the Global 2000 and over 400 major recording artists.

He received a Bachelor of Arts from North Texas State University in Speech and Communications as well as a Master of Arts from the University of North Texas in Speech and Communications.

Reach Bruce at bruce.mccracken@HfSResearch.com.

Mark Reed-Edwards, Vice President

Mark Reed-Edwards spearheads HfS' marketing and communications. Involved in both HfS’ research and media content, his role is to shape and define the HfS brand and the company’s editorial content. In addition, he leads practice that advises CMOs and other senior executives on their strategic communications and marketing strategies.

Mark has worked in communications and marketing for more than two decades, including six years at Yankee Group, where he built the company’s editorial, content, web, and creative groups from the ground up. He was responsible for the company’s rebranding in 2006.

Before Yankee Group, he ran web marketing for Intranets.com, an early cloud-based provider of intranets for small business that is now part of Cisco. He also worked at EMC Corporation, where he was an early believer in the power of the web and started building customer and partner web communities in 1997. In earlier roles, Mark worked in marketing for Stratus Computer, and as a marketing consultant for brands such as Gillette, Rhone Poulenc Rorer and Polaroid.

Reach Mark at mark.reed-edwards@HfSResearch.com.

HfSResearch.com 17

© 2010, HfS Research, Ltd.

About HfS Research

HfS Research is the foremost advisory analyst firm and networking community, focused on helping enterprises make complex decisions with their business process and IT outsourcing strategies. HfS is an acronym for “Horses for Sources,” the globally acclaimed blog for the global sourcing industry, based on the English phrase “Horses for Courses” which implies race horses will run better on certain race courses, not dissimilar to outsourcing and enterprises today.

With 36,000 subscribers to its research website and blog, HfS provides the most impactful and frequently visited global collaborative community platform in the global services industry, providing rapid and insightful commentary, analysis and debate of enterprise outsourcing dynamics. The organization is unique in the fact that it integrates personable social networking with market research and advisory services.

HfS’ mission is to provide a unique environment for collective research, opinion, experience and knowledge across the global outsourcing industry to help enterprises explore new performance thresholds. Led by industry expert Phil Fersht, the HfS team is a multi-disciplinary group of analysts across North America, Europe and Asia/Pacific regions, with deep domain knowledge in Business Process Outsourcing, Information Technology Services and Cloud Business Services.

Launched in 2007, the HfS blog has more than 120,000 monthly visitors across the global outsourcing industry, and is widely recognized as the leading destination for collective insight, research and open debate of industry issues and developments. The HfS LinkedIn community is thriving with over 10,800 industry professionals sharing views and information daily. View more information about HfS Research at HfSResearch.com. You can follow the company on Twitter at twitter.com/horses4sources and on LinkedIn by joining The BPO and Offshoring Best Practices Forum group.

For more information about Horses for Sources research, please email research@horsesforsources.com.