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Business outsourcing: Hype versus reality

By Macharia Kamau | December 20th 2016
A Harvard Business Review paper titled ‘KenCall – Can Nick Nesbitt’s Venture Succeed in Kenya?’ notes that these were just a few of the challenges – Mr Nesbitt had experienced dozens more obstacles in setting up his business process outsourcing (BPO) centre.PHOTO: COURTESY

By the time KenCall launched in Kenya in 2004, Nick Nesbitt could be said to have seen it all.

He had been ripped off by consultants that were supposed to help set up the call centre, had dealt with a government that vaguely understood his business, spent a hefty amount of cash that left him broke, and all this took a toll on relations with his family.

A Harvard Business Review paper titled ‘KenCall – Can Nick Nesbitt’s Venture Succeed in Kenya?’ notes that these were just a few of the challenges – Mr Nesbitt had experienced dozens more obstacles in setting up his business process outsourcing (BPO) centre.

But a couple of years into the business, the Stanford MBA graduate who had worked with major American firms, saw the tortuous journey he had undertaken for close to a decade start paying off.

His venture was now a poster child of success in offshoring and outsourcing in Kenya and Africa. The Harvard Business Review report lists KenCall’s clients as of 2008, and included dozens of companies from the US, UK and Asia.

Customer service

In 2010, probably when the Kenyan BPO industry was at its peak, a CNN feature referred to KenCall as a “trailblazing Kenyan call centre” that was “taking on India and the Philippines, trying to persuade international businesses to outsource their customer service to Nairobi”.

According to CNN, as of 2010, KenCall was worth $6 million (Sh600 million at current exchange rates).

This was quite a substantial amount considering the industry was still new in Kenya and the country was yet to build its profile as an offshoring destination. It was also on the background of poor Internet connectivity, a near non-existent legal framework and a Government-led marketing strategy to sell the sector abroad that was not working.

These challenges, however, persisted and the call centre’s success was short-lived; what followed were challenging years. A clear signal that all was not well came in 2013 when Nesbitt quit as KenCall’s CEO and took up employment.

Bitange Ndemo, a former permanent secretary in the Ministry of ICT who extolled the industry as a creator of jobs and wealth, noted that Kenya had failed Nesbitt – and the industry in general – because “we did not incentivise him to stay”.

KenCall’s story mirrors that of the BPO industry in Kenya.

The sector was initially full of promise but has since fizzled out. Despite the promise it would create tens of thousands of jobs, it is at best employing a few thousand people, with only a handful of companies still in play.

The industry was expected to have created more than 15,000 jobs by 2015, but BPO operators estimate the industry currently employs about 2,500 people.

Expectations were that by now, the industry would have grown and would be rivalling the leading destinations of India and Philippines. The two are global leaders and have shifted their operations from basic call centres and back office support to offering multinationals more technical services.

Dr Ndemo notes that this ought to have been the case for the local industry. He said the industry should be tending to maturity as opposed to the current situation where many operators are still in their fledgling stages and offering basic call centre operations.

“The industry is supposed to have transitioned from a basic industry to knowledge process outsourcing. To an extent, this is happening. There are people that are getting good jobs and making some good money but are not visible. But this is the exception,” he said in an interview.

The few operators that have survived mostly get their jobs from local institutions that have outsourced some back-end functions.

In markets where the BPO industry has thrived, most of the contracts are from international companies that are offshoring their functions in a bid to cut costs.

Procurement procedures

Ndemo noted that Kenya’s procurement laws and litigiousness have been major impediments to growing the sector.

When he was the PS at the Ministry of ICT, he said he ran into trouble a number of times over procurement procedures.

One such instance was a plan to use Sameer Business Park along Nairobi’s Mombasa Road for the BPO industry.

The Government was to rent space to incubate BPOs. However, this fell through and the owners of the property had to re-evaluate their options and open the park up to other tenants.

“Sameer, and later Konza Techno City, would have been critical at the early stages of the industry, as it needed to be incubated. We did not incubate and nurture the industry as should be the case, not just for BPO but any industry that is new to a market,” said Ndemo.

“We have not exploited the international market because we are not flexible in terms of procurement. We lost many companies that were willing to set up centres that would have had thousands of seats. Some of these companies had no reason to move, but they were ready to set up in Kenya and all they were asking for were concessions from our side, like giving them space and connectivity.”

Did he want to circumvent the law? No, he said, but added that there is need to review procurement laws, especially to take advantage of new and emerging opportunities.

“Every time we would make a move, we had somebody challenging us, asking what procurement procedures were followed. We ended up with many court cases, which had the impact of driving away a potential investor or a company that was ready to outsource some work to a Kenyan BPO.”

Still, there have been a few spots of success in the industry that has largely disappointed.

A number of BPOs are excelling, doing jobs for local and international companies. They, however, have to undertake marketing on their own, including road shows in Western markets to woo clients.

Untapped potential

Vinay Subbaramaiah, the director of BPO/ITES at TechnoBrain, one of the companies that has managed to rope in major firms, notes that the industry in Kenya still has a lot of potential.

“TechnoBrain has had to do a lot of marketing and this has over time paid off. We also review our offering from time to time and are looking at increasing high-skill services,” he said.

“The industry has a lot of potential in Kenya. The country still has a comparative advantage compared to many other markets, and if anything, it is in a better position now considering how ICT is entrenched in the economy.”

Eric Githaiga, an ICT consultant, notes that other challenges that may have slowed the industry include payment methods, where local financial institutions had not integrated their systems to platforms like PayPal that were being used by some companies for payment.

He said the industry was not off to a good start, with some of the companies not paying for work delivered, while some Kenyan firms failed to deliver what they had been contracted to do.

Mr Githaiga added that the industry still has potential to create job opportunities for young Kenyans: “There are a lot of jobs and this growing by the day. Every professional can get a job online.”

The Government recently launched the Ajira Programme, as well as the Ajira Digital portal that will aggregate online jobs from different sites.

“Online jobs have the potential to create over a million jobs every year. There are people who are already bidding and getting jobs and have had success,” ICT Cabinet Secretary Joe Mucheru said.

The global BPO industry is estimated to be worth $160 billion (Sh16 trillion) and has been projected to grow to $250 billion (Sh25 trillion) by 2022.

India accounts for more than half of the revenue the global industry receives. In 2015, the industry brought in $146 billion (Sh14.6 trillion) and directly employed 2.3 million Indians.

The Philippines’ BPO industry is expected to earn $25 billion (Sh2.5 trillion) this year. The country is pursuing highly technical jobs, just as India is doing, moving away from basic call centre operations.

Contact Centre Association of the Philippines (CCAP) forecasts low-skilled BPO jobs will decline 28 per cent in the next six years, while mid-skilled and high-skilled tasks will grow 7 per cent and 48 per cent, respectively.

The industry employs one million people, or 1 per cent of the Philippine population, and expects to add another one million by 2022.

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