The Inside Track to East Africa's Economies
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Kenya: A Strategic View on Outsourcing Print E-mail
Monday, 01 February 2010
Connectivity is a key element for outsourcing relationships, but not the only one: What remains the most important yet for the continent’s emerging service providers is their ability - or current lack of it - to compete with firms from over 25 other emerging nations. Bobby Varanasi discusses how Kenya can position itself in the global outsourcing industry.

What difference do the new fibreoptic cables make in Kenya's bid for outsourcing?

One key element of technical infrastructure that made globalisation of services possible was the availability of significant bandwidth globally. East Africa’s first fibreoptic cables opened the gates for the continent to reach out to the world. While this is good news, it does not call for celebration just yet. Connectivity remains a key element to fuel outsourcing relationships, but not the only one: What remains the most important yet for the continent’s emerging service providers is their ability - or current lack of it - to compete with firms from over 25 other emerging nations at it relates to service capability. The argument “there’s always a first time” holds true with Africa, but not for the buyer community scouting for proven service providers. The fibre in itself does give buyers the ability to view Africa as a potential continent that they could deal with. I would imagine the most this would translate into at the current point in time is a heightened interest in exploring the continent for its potential.

While outsourcing as an industry seems very attractive for some emerging markets in Africa, the government and local industry shall have to invest significantly in garnering “mindshare” amongst the global influencers – buyers, analysts, advisors, other service providers. Price points may be compelling, unemployment statistics may be attractive - they provide visibility to an available workforce in the absence of other alternatives -, but unaccompanied by a strategic thrust on talent creation, I am not sure if buyers will get ecstatic right away. The one difference that companies from the continent will have to make is to learn from other successful provider nations, and invest in creating the right policy framework, infrastructure (beyond the fibreoptic cable), and capability development initiatives to remain relevant. Because relevance creates mindshare, leads to potential and then to a viable industry.

Does Kenya have a competitive advantage in outsourcing, as the government implies? Do other African countries?
Competitive advantage as it relates to costs is an excellent argument that most developing and emerging nations have. They are newer democracies with lower cost structures, irrespective of government debt burdens or the lack of any other job-creating industries within. Is that sufficient? I would emphatically say no. A positive case for outsourcing is not just a difference between labour costs one can achieve and therefore reduce corporate overheads. It hinges upon a nation’s ability to provide, and sustain, a host of catalysts: appropriate infrastructure, capacity and capability of a trained labour pool, a macro-economic environment that is conducive to do business, tax structures, cost of living, immigration and employment laws and so on.

Governments will need to view the outsourcing industry as not just one that could be created quickly, but one that needs to be sustained in the context of a dynamic demand where choices are many, and moving in or out is fairly straight-forward. I always make the argument that while emerging nations view the technology-enabled services industry as a great one to enter into and create jobs - in comparison to other industries where gestation periods to creating jobs are fairly lengthy -, it is important to realise that sustenance will drive the industry’s viability. Otherwise its flight would be as quick as the entry was. Kenya currently has some advantages, yet those are not sufficient to create an industry that could potentially become a key contributor to GDP growth and employment as many catalysts remain nascent. This seems to be true of a few other nations like Nigeria, Ghana, Uganda and Tanzania. While South Africa has achieved some level of success, its industry today hinges upon a host of multinational corporations unsupported by home-grown companies. The most important aspect for wealth creation or GDP growth would be to localise revenues that are generated from exports. This translates into a crucial need to develop local capabilities – and companies – that can go global and compete. Only then will sustenance become an achievable goal, and consequently a competitive advantage!

What concrete steps can the Kenyan government take to make the country more competitive? What are the biggest challenges?
I am impressed by the commitment the Kenyan government has shown to grow the industry. Jobs will be created faster in this than any other industry. That’s a fact. However, what seems to be missing locally is an understanding of the nature of demand in the global services marketplace. An earnest will to leapfrog competition may sound very bold and forthcoming, especially when emerging nations take charge of their own destiny, but I am inclined to think that such confidence is misplaced. The government and the local industry have to first invest in knowledge. The former in understanding what catalysts will be necessary to be created to even make a comparative analysis possible, while the latter will have to learn to deliver services along globally accepted performance benchmarks. Starting companies offering highly commoditised services is the easiest thing in the world today, and also the most difficult to sustain for the simple reason that commodities chase costs, always!

This industry, more than any other one, has been witness to many flights of services from many developing nations in the past decade and such lessons should not be ignored. Having said that, I am surely not making a case for leapfrogging into the knowledge services space right away, something Kenya seems to be focusing on. Readiness of the labour pool, willingness to be globally benchmarked, capacity to learn and deliver to clients viewing emerging markets as a spoke in their hub-and-spoke model of global services supply chains are vital to even develop an industry. Does this exist in the country today? I don’t think it’s the case across board. Sustenance is a consequence and not a guarantee. I would urge the Kenyan government and industry to make a compelling impact on the demand side first by investing in its fundamentals locally. Success and competitiveness will follow. On the flip side, Kenya has all the ingredients to create a viable industry. The foremost focus that needs to be placed now is in catalysts: business and infrastructure. In the absence of such catalysts, Kenya will perhaps remain a fringe provider, something I am positive no one wants in the nation, most of all the forward-looking Kenya ICT Board and the BPO Society.
 
India has seen a changing approach to outsourcing, with more highly skilled outsourcing in recent years. Does this create an opportunity for Kenya and other African countries at the rudimentary end of the business?
India stumbled upon the opportunity during the Y2K era, and has not looked back since. It has also made significant progress – not on the back of growing demand, but on the proof of delivery of services. The proof lay in both quantity [read scale] and cost-for-increased-quality, from a nation with a young population. While the demographics of Kenya and other emerging nations may seem similar to India, it is crucial to understand that availability alone is insufficient. India’s mistakes are important to understand. The first host to offshored call centres did create a plethora of issues for buyers and consumers. Buyers subsequently grasped the concept of commoditisation, while the service providers realised the futility of offering services that could be replicated easily, increasing margin and pricing pressures. These two mature realities pushed India into the higher-value spectrum while shedding rudimentary services to a host of other nations like Philippines, Vietnam and Sri Lanka etc. The important factor to understand is that it is no longer feasible to sustain rudimentary services. They can be offered as a starting point to enter into the industry, but not for long.

While India went through its learning curve, demand also matured significantly enough to view emerging nations in a comparative perspective and not in a silo environment where cost advantages were sufficient. Clients consider commoditised services as contributing to their own organizations’ effectiveness: Their impact on higher-value services is today an important assessment clients make – effectively a portfolio approach. In such contexts, hoping to grow an industry on the rudimentary end of the business may not be an appropriate one. I would like to suggest that nations like Kenya and other emerging ones focus on the low-end of the business, but with a portfolio view. The discrete view is a killer.

Would you like to see new industrial parks dedicated to outsourcing?

Surely industrial parks are important to showcase national commitment to growing an industry. Are they compulsory? I don’t think so. Industrial parks have been created by most developing nations with one foremost thought in their minds – provide sufficient infrastructure and regulatory guarantees (never mind the social ones) that the general areas within cities could not cater for. Much like the old concept of export processing zones, industrial/tech parks have become the norm. It is interesting to note that clients today do not place much emphasis on the availability or lack of such parks. What is important for them is the availability and guarantee of infrastructure, i.e. technology, connectivity, access, roads, accommodation, uninterrupted utility services, banking services, and catalysts, i.e. investment-friendly policy, tax exemptions, simplicity with customs and excise, positive immigration laws, fair employment practices, relaxed foreign shareholding rules, safety to conduct business, geo-political stability etc. If some of these can be guaranteed within the confines of industrial parks, then they should be invested in. I would not advocate parks dedicated to outsourcing. Rather I would suggest the focus rest on creating “work-play-live” environments that focus on new-age industries – outsourcing, technology, biotechnology, R&D, - with emphasis on providing compelling structural stability that can foster growth and embed pride amongst the labour pool, while positively influencing the social strata within the nation.




Bobby Varanasi is the Chairman and CEO of Matryzel Consulting Inc, a strategy consulting, sourcing advisory and management firm headquartered in Malaysia. Matryzel advises governments and corporations worldwide adopt concerted strategies aimed at enhancing competitiveness while focusing on their core competencies in the global services space. He brings with him over 15 years of experience in consulting and management across IT, Business Process services and building global sourcing operations. Some noteworthy clients include Dyson, Govt. of Jamaica, Govt. of Jordan, Govt. of Brazil, ITAA, Govt. of Malaysia, Govt. of Sri Lanka, Starfield, Qooljets, Maxis, Maybank, Revionics, AgreeYa, Bleum and other client organisations.



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