Window of opportunity to corner LPO market

May 1st, 2012
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Law Society of South Africa AGM 2012

The Law Society of South Africa’s annual general meeting took place from 26 to 27 March at Emperors Palace in Johannesburg. On the agenda were the Legal Practice Bill, court-based mediation, business rescue, corruption and the attorneys’ profession and social media.

By Mapula Sedutla

Director of business process services at the Department of Trade and Industry (DTI), Ntokozo Mthabela, gave a presentation on the DTI’s business process outsourcing (BPO) initiative at the AGM. Mr Mthabela said that South African attorneys had a window of opportunity to corner the legal process outsourcing (LPO) market.

Mr Mthabela explained that BPO, also known as business process services, involves contracting non-core business operations and functions to third party service providers. BPO is categorised into back office (ie, internal business functions, such as human resources management, procurement, finance and accounting, data capturing, claims processing and transcription) and front office (ie, customer-related interactive activities, such as call centre and contact centre services); it can be onshore, near shore or offshore. Outsourcing of business process activities to lower cost offshore locations was a continuing global trend, said Mr Mthabela.

Mr Mthabela said that the global BPO industry was growing at a rate of approximately 40% per year and that by 2020 seven million offshore jobs were likely to be created in low-cost destinations. While India is currently the biggest offshoring player, with a 65% share of the total BPO industry, South Africa (SA) is emerging as a hub to serve the United Kingdom (UK) market and is also one of the few locations that can serve the Dutch market. Cost competitiveness and talent availability remain the two essential priorities in decision-making for an offshore location. SA’s offshore job opportunities include financial services, telecommunications and LPO; the country also has potential for non-voice BPO opportunities, Mr Mthabela said. He added that SA was ranked third in service providers’ plans for new locations and, although SA was not the cheapest destination, it offered significant cost savings for source markets.

Other benefits SA offers include:

  • Structural advantage of industry maturity in specific domains, such as financial services, telecommunications and LPO.
  • Quality of first world infrastructure.
  • Time zone similarities and cultural affinity with the UK.
  • A large experienced and skilled English speaking talent pool, whose English accent is preferred by the UK market.
  • Significant cost savings.
  • Political and socio-economic stability, with strong public sector support that has market-leading incentives that reduce costs by 20%.

Mr Mthabela said that the DTI was aiming to establish SA as a ‘competitive destination for offshored business processes as a means of creating jobs and attracting global investment’. Its success would be measured by the number of top offshoring companies that recognise ‘the South African value proposition and invest’, he said. He added that by 2015 the DTI hoped to –

  • create 30 000 direct offshore jobs;
  • have approximately R 600 million in investment incentives;
  • attract 30 to 60 global investors or expand current operations; and
  • train 6 000 learners per year on a work-readiness programme.

Mr Mthabela said the National Skills Fund had approved R 67 million for the training and placement of 3 000 entry level agents for year one under the Monyetla Work Readiness Programme, which aims to provide work for the unemployed youth in the BPO sector. The next two years will be subject to successful implementation in the first year. Government will provide R 20 000 per learner for NQF level 2 training. The Jobs Fund has approved –

  • R 217 million for the training of 9 000 middle managers for the next three years, with a focus on areas such as LPO; and
  • R 25 000 to R 30 000 per learner for middle management training for domain BPO work such as LPO.

A condition of grant funding is that 70% of those certified competent must be placed in employment for a minimum of 12 months.

To be eligible for the BPO incentive programme, an applicant must –

  • be a South African registered legal entity;
  • have a valid tax clearance;
  • perform BPO activities;
  • submit an application prior to commencement of operations;
  • apply for a new or expansion project;
  • have 50 offshore jobs by the end of the third year of operations; and
  • commence operations within six months after the date of approval.

According to the DTI’s Business Process Services Incentive Programme Guidelines, the base incentive grant is calculated based on the planned offshore jobs to be created and is awarded based on actual offshore jobs created as follows:

  • Offshore jobs created during the DTI’s financial year of 2011/12 will be eligible for a total grant of R 112 000 per offshore job created and sustained over a three year period. The grant will be payable as follows: R 40 000 in 2011/12, R 40 000 in 2012/13 and R 32 000 in 2013/14.
  • Offshore jobs created in the DTI’s financial year of 2012/13 will be eligible for a total grant of R 104 000 per offshore job created and sustained over a three year period. The grant will be payable as follows: R 40 000 in 2012/13, R 32 000 in 2013/14 and R 32 000 in 2014/15.
  • Offshore jobs created in the DTI’s financial year of 2013/14 will be eligible for a total grant of R 88 000 per offshore job created and sustained over a three year period. The grant will be payable as follows: R 32 000 in 2013/14, R 32 000 in 2014/15 and R 24 000 in 2015/16 (offshoringsouthafrica.com, accessed 8-4-2012).

Mr Mthabela said that BPO industry competitiveness could be enhanced through collaboration of initiatives that included government support. The changing circumstances of the economy would require ‘continuous and systematic review’ of the incentive programme, he said, adding that this would include considerations such as the exchange rate, relative cost of SA compared to peer locations, industry feedback and sector performance on approved targets.

  • For more information visit offshoringsouthafrica.com
  • See also 2011 (May) DR 24 and 2011 (Nov) DR 18.

Mapula Sedutla, mapula@derebus.org.za

This article was first published in De Rebus in 2012 (May) DR 20.