Utilising strengths: Operators focus on business process outsourcing solutions

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With the largest population on the continent, half of which is below the age of 25, and English as the official language, Nigeria’s demographics are attractive for business process outsourcing (BPO) recruiters. Geographically, its time zone is closely aligned and well suited to servicing much of Europe, a major advantage over outsourcing destinations in Asia.

While the country exhibits some core attributes that could make it an attractive investment destination in this lucrative yet highly competitive field, such as a large and low-wage labour force with a good command of English, its infrastructure and security challenges are well documented. If the nation intends to fulfil its aspirations of becoming a regional, continental, and even global service offshoring centre, identifying the components of the BPO value chain where it is best positioned to compete and developing a targeted strategy to build up the required capacity to do so will be necessary. Until then, domestic outsourcing will likely remain the industry’s more enticing segment.

FINDING ITS PLACE: Estimated by US research firm HfS to be worth over $300bn and growing at a compound annual growth rate of 5%, Nigeria is seeking to boost domestic BPO and to eventually capture a greater share of the global BPO market. The World Bank recommends that as a first step towards building up an internationally competitive platform, Nigeria should focus on developing its domestic outsourcing industry. In this area, according to NITDA, it is crucial for the government to play a role. Outsourcing some non-essential functions will help to support the private sector in building up capacity and know-how and can also minimise government spending. In terms of skills development and human capital requirements, literacy rates of 75% for men and 60% for women is strong in comparison to competing service offshoring destinations.

“The public sector represents a good opportunity. Much of their record-keeping is still done on paper. Digitising these government records is just one example of where government – at either state or federal level – could benefit from BPO,” Abiodun Adeoye, managing director of Contact Solutions (ConSol), a leading Nigerian BPO operator, told OBG. Yusuf agrees that government contracts offer potential, but points out that work from the government remains scarce. “Government has its own (Galaxy Backbone) platform that offers all ministries and agencies shared data centre facilities. From our understanding, government departments are actively encouraged and, in certain instances, mandated to use Galaxy Backbone, thereby precluding them from directly patronising private sector BPO centres. This might be due to data privacy and security issues, but it should not be a barrier as governments all over the world outsource BPO.”

In terms of outsourcing prospects, the country’s large human resource pool and spoken English positions it well to compete for voice-based BPO services, particularly given the country’s closer ties with the US and Europe. These markets account for around 60% of outsourcing demand and present potential in the call centre arena, a segment of the BPO value chain where the Philippines has carved out a dominant position in recent years. Other components of the BPO value chain that Nigeria should focus on, according to the World Bank, include back office, low-value outsourcing functions such as accounting and data management.

CURRENT CHALLENGES: While the major motivating factor behind the demand for service outsourcing is cost reduction, the enabling factor that has facilitated its growth over the past few decades has been the advent of IT, as advances in communications technology allows for operational functions to be performed remotely and securely by outside parties.

However, to effectively leverage IT infrastructure for BPO – an activity that often operates around the clock – a reliable source of electricity is needed, which is a major challenge in Nigeria. Although the government is working to expand generating capacity, expensive short-term stop-gap measures, such as diesel generators, are regularly used by telecoms and IT firms.

Niyi Yusuf, country manager at Accenture Nigeria, a technology and outsourcing consultancy group, told OBG that most of his company’s outsourcing work to date has taken the form of serving global clients with operations in Nigeria, whereby some of their processes, such as accounts payable and procurement applications, are being handled through their BPO centres in other places, such as Spain and the Philippines, as part of an integrated global BPO arrangement and for global quality and standards assurance.

Apart from concerns over physical infrastructure, Nigeria must also grasp high-risk perceptions of the market. Cyber security in the West African country, for example, has a poor reputation. “Nigeria has competitive advantages in call centre operations such as English-language fluency and relatively low wages, but we suffer a perception problem due to the infamous online scams making international headlines,” Emeka Emenike, vice-president of private equity firm ARM Capital, told OBG. “Those who are more familiar with Nigeria understand that this is not an insurmountable barrier but others may not be as comfortable.” Adeoye of ConSol also expressed confidence that this challenged could be overcome. “However, the perception of data insecurity is greater than actual risk. There is enough technology to protect data at multiple levels in Nigeria,” he said.

Still, according to the World Bank, Nigeria has relatively few specialised technology, IT and management colleges in comparison to places like India and Egypt, and non-tertiary schooling is hindered by financing and human capacity issues. “We do not have a shortage of graduates, as there are plenty. But the shortage and cost of quality graduates is an issue. Those with strong spoken English and a sense of strong customer service are likely to have been better educated in the first place, and are not going to work in a call centre environment,” Yusuf told OBG.

ECONOMIC RATIONALE: In the World Bank’s 2010 report “Developing an African Offshoring Industry: The Case of Nigeria”, an assessment was given that Nigeria was underutilising its potential and lagging behind South Africa, Egypt and Ghana – which are currently considered the leading destinations for offshore BPO on the continent and whose governments, along with emerging player Kenya, have each launched strategies to enable and promote their BPO offering.

“I am not aware of any multinational using Nigeria to service the region, with most choosing either Kenya or Ghana instead. This is due to the ease of doing business, these governments’ better packaging and promoting their countries, and better perceived physical and intellectual security,” Yusuf told OBG.

In an effort to foster collaboration between government and industry, in June 2012 the Nigeria Association of Information Enabled Outsourcing Companies (NAITEOC) was formed as an industry association under the auspices of the National Information Technology Development Agency (NITDA); and tasked with exploring the development of policies that could support the sector. With official estimates of unemployment at 24% and youth unemployment exceeding 40%, BPO offers a means of encouraging job creation in key areas, given that the process is labour intensive and suitable for graduate-level entry positions. Chris Uwaje, president of the Institute of Software Practitioners, recently told the press that he estimates the industry, if properly harnessed, could generate $20bn in annual revenue while creating 10m jobs, while Ashiru Daura, director for outsourcing at NITDA, drove home the industry’s potential by pointing out the fact that India, which accounts for 6% of the global BPO industry and 63% of all offshore outsourcing, earns more from this activity than Nigeria currently earns from oil.

A key driver towards outsourcing offshore is a need for firms to seek cost arbitrage opportunities in the face of global competition. Thus a country’s wage structure and labour pool is a key determinant. Nigeria, which in addition to having a large and competitively priced workforce, is considered to have flexible and uncomplicated labour regulation, and fares well in this regard.

ENABLING ACTIONS: The government’s role is to leverage and expand on the country’s positive attributes while mitigating the constraints. “Strengthened regulation will go a long way in building confidence among potential offshore clients who may be wary of outsourcing to a newer BPO market like Nigeria,” Adeoye told OBG. Given BPO’s contributions towards job creation, Nigeria could also offer incentives to multinationals that establish operations, perhaps by following the lead of South Africa, for example, which offers a grant for every BPO job created over a certain amount that is held for three years. According to Tobi Oke, director for sub-Saharan African at Intel Capital, incentives, while beneficial, are not essential for investors and do not ensure the primary issue of decent infrastructure. “The Ministry of Communication Technology is making great strides in recognising that IT is a future employment driver. And that through investing in tech hubs that provide the electricity and internet connectivity investors require, they will get a huge return on investment in terms of job creation and GDP growth,” he said.

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The Report: Nigeria 2013

IT & Telecoms chapter from The Report: Nigeria 2013

Cover of The Report: Nigeria 2013

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