Po­si­tion­ing Nige­ria for the global out­sourc­ing in­dus­try

Financial Nigeria Magazine - - Contents -

Ex­perts say Africa could be the next fron­tier of the out­sourc­ing in­dus­try.

The global out­sourc­ing and off­shoring in­dus­try is es­ti­mated to have gen­er­ated about $524.4 bil­lion in 2015, ac­cord­ing to Plunkett Re­search, a lead­ing provider of in­dus­try sec­tor anal­y­sis and re­search. The in­dus­try is ex­pected to gen­er­ate $548.5 bil­lion in 2016, with sig­nif­i­cant em­pha­sis on three broad ar­eas: busi­ness process out­sourc­ing (BPO), which in­cludes ar­eas such as call cen­tres, fi­nan­cial trans­ac­tion pro­cess­ing and hu­man re­sources man­age­ment; in­for­ma­tion tech­nol­ogy ser­vices, in­clud­ing the cre­ation of soft­ware and the man­age­ment of com­puter cen­tres; and lo­gis­tics, sourc­ing and dis­tri­bu­tion ser­vices.

That the global out­sourc­ing mar­ket has emerged in the last two decades is not the is­sue here. The is­sue is that Nige­ria, the most pop­u­lous coun­try in Africa and the 7th most pop­u­lous coun­try in the world with re­mark­able growth in mo­bile and in­ter­net us­age, has not ben­e­fited as it should from global com­pa­nies who sub­con­tract var­i­ous as­pects of their op­er­a­tions.

Busi­nesses out­source their op­er­a­tions for var­i­ous rea­sons, some of which in­clude cost­sav­ing, in­creased ef­fi­ciency, ac­cess to skilled man­power, and ul­ti­mately to in­crease com­pet­i­tive­ness. Other or­gan­i­sa­tions sim­ply take a strate­gic de­ci­sion to fo­cus on some core ar­eas in or­der to be­come more nim­ble. For in­stance, late last month, Black­berry an­nounced it will make a full tran­si­tion out of the hard­ware busi­ness by the end of its fis­cal year end­ing in Fe­bru­ary, 2017 as the Cana­dian com­pany said it will out­source the devel­op­ment and de­sign of its smart­phones in or­der to fo­cus on soft­ware and ser­vices. Black­berry signed a deal with a new In­done­sian joint ven­ture, BB Merah Pu­tih, led by PT Ti­phone, an af­fil­i­ate of one of In­done­sia's big­gest mo­bile car­ri­ers, Telkom­sel.

Sev­eral multi­na­tion­als out­source their ser­vices rang­ing from call cen­tre ser­vices, pay­roll, email ser­vices, among oth­ers. HSBC Bank has out­sourced its call cen­tres and Elec­tronic Data Pro­cess­ing to In­dia and Sri Lanka. Aviva, a Bri­tish multi­na­tional in­sur­ance com­pany, out­sourced its call cen­tres to In­dia and Sri Lanka. IBM also out­sourced its cus­tomer sup­port cen­tres to In­dia. In 2012, about 2.8 mil­lion peo­ple were em­ployed in the out­sourc­ing in­dus­try in In­dia, gen­er­at­ing rev­enue of about $11 bil­lion.

So why has Nige­ria not ben­e­fited from out­sourc­ing? There is cer­tainly a neg­a­tive per­cep­tion that dogs the coun­try. But apart from this, there are other fac­tors that are re­spon­si­ble for the lack of at­trac­tion to global out­sourc­ing mar­ket. Ac­cord­ing to the 2016 Global Ser­vices Lo­ca­tion In­dex (GSLI) by A.T. Kearny, an Amer­i­can man­age­ment con­sult­ing firm, In­dia, China and Malaysia are the top three off­shore des­ti­na­tions for out­sourc­ing. The an­nual GSLI eval­u­ates off­shore out­sourc­ing based on met­rics in three cat­e­gories and 38 sub-in­dices. One of the cat­e­gories, fi­nan­cial at­trac­tive­ness, is weighted 40 per cent and it in­cludes wages, in­fra­struc­ture costs, taxes, cor­rup­tion and ex­change rate costs. The sec­ond cat­e­gory, skills and avail­abil­ity, is weighted 30 per cent and it in­cludes avail­abil­ity of tal­ent, level of ed­u­ca­tional achieve­ment and lan­guage pro­fi­ciency. The last of the three cat­e­gories, busi­ness en­vi­ron­ment, is al­lo­cated 30 per cent weight and it in­cludes eco­nomic risk, po­lit­i­cal risk, in­tel­lec­tual prop­erty pro­tec­tion, among oth­ers.

An anal­y­sis of the in­dex shows why Nige­ria did not fea­ture in this rank­ing de­spite be­ing the largest econ­omy in Africa at the time the in­dex was re­leased in Jan­uary. Although Nige­ria boasts of a large youth­ful English-speak­ing pop­u­la­tion, there is a huge skills gap in the coun­try. The busi­ness en­vi­ron­ment is also deemed to be chal­leng­ing given the paucity of in­fra­struc­ture. These find­ings should worry Nige­rian pol­i­cy­mak­ers and the ad­min­is­tra­tion of Pres­i­dent Muham­madu Buhari, which has placed a pre­mium on stamp­ing out cor­rup­tion, and im­prov­ing the busi­ness en­vi­ron­ment in the coun­try.

Out­sourc­ing re­quires staff of the out­sourced com­pany to have ac­cess to sen­si­tive ma­te­ri­als. No busi­ness process out­sourcer, for in­stance, will al­low its ser­vices to be out­sourced to a coun­try where safety of its clients' in­for­ma­tion would not be guar­an­teed. It also wouldn't make busi­ness sense to out­source busi­ness process only to find out it is costlier and in­ef­fi­cient to op­er­ate in the host coun­try. Among the ma­jor rea­sons for out­sourc­ing are im­proved ef­fi­ciency, and the abil­ity of the out­sourcer to con­cen­trate on its core busi­ness.

In Au­gust 2011, the Na­tional In­for­ma­tion Tech­nol­ogy Devel­op­ment Agency (NITDA) held Nige­ria's first Na­tional Out­sourc­ing Con­fer­ence. The event marked a ma­jor pivot in the quest to carve out space for Nige­ria in the BPO in­dus­try. While out­sourc­ing in Africa is still in its in­fancy, coun­tries in­clud­ing Morocco, Egypt and Ghana are work­ing to gain a larger share of the global mar­ket. Ex­perts say Africa could be the next fron­tier of the out­sourc­ing in­dus­try. African coun­tries, es­pe­cially the English­s­peak­ing coun­tries, must do well to po­si­tion them­selves for the emerg­ing in­dus­try. Out­sourc­ing can be a huge jobs cre­ator for un­em­ployed youths in these coun­tries.

Ryan Nicholas, an out­sourc­ing con­sul­tant sug­gests that “Nige­ria is po­si­tioned com­pet­i­tively to be one of the most favourable lo­ca­tion for busi­ness process out­sourc­ing for multi­na­tion­als es­pe­cially for North Amer­ica-based busi­nesses that are con­duct­ing busi­ness process out­sourc­ing.” Ryan cited Nige­ria's

of­fi­cial lan­guage as well as its young work­force as fac­tors that could make Nige­ria an at­trac­tive des­ti­na­tion. Is­mail Rad­wan, World Bank's Lead Pub­lic Sec­tor Spe­cial­ist for Europe and Cen­tral Asia – who pre­vi­ously led the Bank's work in in­no­va­tion, fi­nance and pri­vate sec­tor devel­op­ment in Nige­ria back in 2012 – said Nige­ria is a vir­gin ter­ri­tory for out­sourc­ing. Ac­cord­ing to him many of the coun­tries that are the in­dus­try's pow­er­houses are now sat­u­rated.

There are var­i­ous out­sourc­ing seg­ments in the global in­dus­try in­clud­ing con­tract man­u­fac­tur­ing, busi­ness ser­vices, en­ergy, health­care and phar­ma­ceu­ti­cals, re­tail, travel and trans­port, and tele­com and me­dia. A 2014 out­sourc­ing sur­vey of com­pa­nies across 22 in­dus­try sec­tors and 30 coun­tries con­ducted by Deloitte showed that 53 per cent of the re­spon­dents out­sourced their IT func­tions. IT out­sourc­ing alone gen­er­ated $63.5 bil­lion last year, ac­cord­ing to Statista, the on­line statis­tics por­tal.

A re­cent re­port pub­lished by the Nige­ria As­so­ci­a­tion of In­for­ma­tion Tech­nol­ogy En­abled Out­sourc­ing Com­pa­nies (NAITEOC), an ini­tia­tive that was con­ceived by NITDA in 2012 for the devel­op­ment of the out­sourc­ing in­dus­try in Nige­ria, in­di­cates that Nige­ria's rel­a­tively low wage struc­ture and large youth­ful English-speak­ing pop­u­la­tion po­si­tion the coun­try as a po­ten­tial off­shoring des­ti­na­tion. In the re­port, "Nige­ria: Africa's New Des­ti­na­tion for BPO Ser­vices," NAITEOC says busi­ness en­vi­ron­ment has im­proved even as Nige­ria is a stronger en­vi­ron­ment for con­tract en­force­ment, there are im­proved labour reg­u­la­tions and the coun­try has an ex­pand­ing e-com­merce sec­tor.

But as ex­em­pli­fied by the A.T. Kearny's in­dex, the gov­ern­ment still needs to do more by pro­vid­ing the re­quired in­fra­struc­ture as well as the en­abling en­vi­ron­ment for this in­dus­try to de­velop. The gov­ern­ment must do a bet­ter job of pro­mot­ing the coun­try's com­pet­i­tive ad­van­tages to global in­dus­try lead­ers to show­case Nige­ria's readi­ness for the out­sourc­ing mar­ket. For in­stance, the gov­ern­ment can lobby to host the Out­sourc­ing World Sum­mit (OWS) as a strat­egy to ad­dress the gap be­tween the neg­a­tive per­cep­tion about the coun­try and the re­al­ity. The es­tab­lish­ment of the Abuja Tech­nol­ogy Vil­lage Science and Tech­nol­ogy Park (STP) is seen as a pos­i­tive devel­op­ment. The STP and Spe­cial Eco­nomic Zone, one of the in­fra­struc­tures be­ing de­vel­oped that will even­tu­ally sup­port Nige­ria's out­sourc­ing in­dus­try, can be one of the cen­tres of at­trac­tion for an OWS in Nige­ria.

Out­sourc­ing ben­e­fits the host coun­try in so many ways, in­clud­ing by pro­vid­ing a form of liveli­hood for the ed­u­cated and tech­no­log­i­cally savvy youths and po­ten­tially push­ing them into the ranks of the mid­dle class. Host coun­tries also ben­e­fit from the trans­fer of tech­nol­ogy, mas­sive job op­por­tu­ni­ties and con­tri­bu­tion to GDP growth. Out­sourc­ing also al­lows the home coun­try to stay com­pet­i­tive glob­ally. There have been some con­tro­ver­sies about poor treat­ment of work­ers, among other con­cerns in the in­dus­try. How­ever, Nige­ria can learn from these by en­sur­ing there is proper leg­is­la­tion and reg­u­la­tion of the in­dus­try as it po­si­tions it­self to at­tract global firms to out­source their op­er­a­tion in the coun­try. Tap­ping the global out­sourc­ing in­dus­try, apart from mak­ing Nige­ria an out­sourc­ing pow­er­house, can be a sig­nif­i­cant source of for­eign ex­change for the coun­try.

An In­dian out­sourc­ing busi­ness cen­tre

Newspapers in English

Newspapers from Nigeria

© PressReader. All rights reserved.