The Cape crusaders

Last week the Premier of the Western Cape of South Africa, Ebrahim Rasool, came to London. His mission is to promote Cape Town as a challenger to India's supremacy as an offshore location."There are things we can do that India can't. As a major financial hub and with a skills base we can service the high value end of the market," he argues. "We can offer renewal of insurance, off-script and handle complex problems.You will make savings and not compromise quality."Backing up Rasool's arguments is a report by Deloitte, commissioned by investment agency Calling the Cape. The report concludes that Cape Town presents a highly competitive offshoring option. It has a high quality, stable workforce, a robust skills base and a business culture that is closely aligned to the UK's.The outsourcing and call centre industries are not new in Cape Town, 105 operations are active, employing 11,000 employees, making it one of the city's top 10 employers. The government has set a target of 5,000 new jobs in the sector by 2008.Western Cape minister for economic development Lynne Brown says: "There is an existing skills base so there is no need for training. The industry is a priority for the government - we are offering tax breaks and training grants for training."

Financial expertiseOne of the city's strengths, according to Deloitte, is the depth of financial services expertise, particularly in insurance. Financial services accounts for 50% of staff in the outsourcing industry. There are also close parallels with the UK in terms of regulation, data protection legislation and the overall legal environment.Rasool says: "Cultural dissonance between the UK and South Africa is not a problem. Companies are beginning to trust Cape Town to protect and project their brand."He points to the quality of Cape Town's customer service. Deloitte's research found that first time call resolution stands at 89% in Cape Town's contact centres. This compares with 65.9% in India. Property costs are also lower in Cape Town than in India: the average yearly cost per square foot being £7 as opposed to £25 in Delhi.But there are aspects of the South African market that could detract from its potential as an offshoring location. The Deloitte report highlights the problem of scarce investment capital which has hampered the efforts of local companies becoming international operations.Making money
Calling the Cape executive director Luke Mills argues that the investment environment is changing. "It is turning around, developing slowly and organically. We are now getting interest from international and local investors. Good returns are being made and people are making money."A further detractor is the high cost per seat in South Africa compared to India. Deloitte estimates the average cost per seat per hour in Cape Town is 50% more than in India (£9 compared to £6). Higher salary levels in Cape Town play a significant part in this - they are more than double those in India (£4,355 compared to £1,902). But higher telecommunication costs are also a major factor. The standard tariff for international calls is 23p per minute - over ten times the average of other offshore locations.Rasool does not see this as a problem. "We have grown despite the cost differences - people are saying they need quality. Salaries are higher than in India but they are flat and attrition rates are lower than India," he says. According to Deloitte the salary inflation is at the same level as the UK - "significantly lower than India". Staff attrition is also stable in Cape Town at 10.7%, compared to 23.3% in India.Rasool also points to the fact that teleommunication costs are set to come down, following the forthcoming deregulation of the sector in February 2005. This will allow network service providers to carry voice traffic over the internet - at present they are restricted to carrying data. It is predicted that deregulation will reduce the cost per minute of an international call for mid-size call centres to 2p within 18 months. "We are already in discussion with providers," says Mills. "BT has said it is interested. So we could be getting to the estimates sooner rather than later."

Budget sets the pacePersonal lines broker Budget Group established a 200 seat call centre in Cape Town in July this year. The centre handles inbound sales and service calls from Budget's UK customers. Group director Franco Cotumaccio says that Cape Town was chosen above India because of better staff retention levels. A growth strategy had been set for three years and the skills levels and employment culture in Cape Town were better placed to achieve that, he says. "Absence is lower, retention is better. There is also a real affinity in culture and accent with the UK."Cotumaccio says that the higher cost of South Africa compared to India was not a primary concern. "We looked at it from a growth perspective," he says. Budget is "delighted" with the performance of the call centre. Its aim is to have it performing at the level of a UK centre by the end of the year. Contumaccio says that it has already reached 90% of UK productivity and is at 98% in terms of quality. "So far, so good," he says.