Tuesday, June 19, 2007
Opportunites in outsourcing in Kenya
Tapping into multibillion outsourcing company.
By Guchu Ndung’u
In 2004, when then President George Bush’s chief economic adviser Greg Mankiw said that outsourcing would be ‘a plus for the economy’ in the long run, very few Americans had kind words for him.
The US President distanced himself from the comments while then Senate Minority Leader Tom Daschle called Mankiw’s assessment ‘Alice in Wonderland economics’. For it is predicted that by 2015, over 3 million American jobs will be lost due to outsourcing.
If he was in Kenya, Mankiw would receive a standing ovation. For Kenyan entrepreneurs, unlike American politicians, are not complaining and instead, placing not only their present but their future bets on the Business Process Outsourcing (BPO).
For the uninitiated in the term, BPO is the contracting of a specific business task to a third-party service provider.
It is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain their position in the marketplace.
A business process that is contracted outside a company’s own country is commonly known as offshore outsourcing.
And that, by recent events, is the next icing on the cake of entrepreneurship in the country.
Last four alone, for instance, have seen more than 15 new BPO/Contact Centres set up services, ranging from back office which includes internal business functions such as billing or purchasing, to front office outsourcing, which includes customer-related services such as marketing or technical support.
Most of these, however, operate informally.
For among the reasons for their informal operations include the high cost of licensing. To be registered, a call centre for instance has to pay a ksh 100,000 license fee to the Communication Commission of Kenya.
“This is driving them underground. CCK should consider lowering the fees to encourage the growth of this sector,” says Gilda Odero of Skyweb Evans, an outsourcing company.
However, during an ICT exhibition last month, CCK Director General Michael Waweru hinted at the probability of lowering the costs to a minimum of Ksh 10,000.
The cost of setting an outsourcing enterprise, says Peres Were an outsourcing consultant is dependant on the facilities needed.
A 20 seater BPO for data processing is approximately Ksh 1.8 Million.
“A call centre that can handle customer interaction via voice calls, web chat, email and text isapproximately Ksh 21 Million shillings,” offers Were.
Banks have not embraced the out sourcing bandwagon and financing if the entrepreneur’s experiences are anything to go by, is still hard to come by.
CFC Managing Director Madabhushi Soundarajan, whose native Indian , puts it to the viability of the business.
“Like any other business, we are willing to look at any viable outsourcing venture for financing. Kenya has a lot of potential and with time, the industry will blossom,” notes the MD, whose Indian homeland is leading in outsourcing.
This has however not hindered the development of the outsourcing and most players start with a few computers, internet and rays of optimism- and still making it.
From a 25 seater in 2004, Kencall has grown to a 250 seater employing over 300 people and planning to go to 600 seats for others like Oriak, a jump from being a four seater in 2005 to over 20 seats employing 40 people and planning to double by the year only hints at the potential of the growth.
Payments and rate of return though vary depending on the complexity of the work and terms negotiated between the companies and their clients.
There is transcription which involves typing of audio to data, captioning of movies, data PROCESSING AND CALLING CENTRES WHICH HANDLE SERVICES LIKE CUSTOMER CARE and sales and marketing- overseas companies’ route calls to their customer care to the outsourced centre in Kenya whose agent assists the American caller with any enquiry.
On average, outsourcing companies USD 35 (Ksh 2,555) per audio hour of material transcribed from while a customer service centre can generate revenue at a rate of USD 12 (Ksh 876) per agent per hour.
The figures however vary per contract.
Outsourcing has further received a boost following reports that the government, through a credit extension of US$ 114.4 million (Kenya Shs 7.8 billion) from the World Bank, will subsidize the calling costs of call centers operating in the country.
The monies will also be used to support E-Government initiatives and facilitate high-speed connectivity.
“About 80 to 90 percent of our telephone cost will be subsidized by the World bank. To put 25 agents on the phone, it costs us close to US$17,000(Ksh 11.3 million) a month. Elsewhere, it will only cost US$600-900(Ksh 40,200-Ksh 60,300) a month. We need the subsidy to compete,” Nick Nesbitt of Kencall justifies the subsidy.
Subsidies not withstanding, Kenya’s BPO industry also faces a myriad of challenges that needs to be curtailed if the industry is to leapfrog the country to the information age.
First, start ups have to bear the cost of training personnel on outsourcing operations; a cost they opine is heavily eating into their margins. This is because while there is an army of trained graduates in the country, few are trained in specialized services like transcribing or working in a call centre.
When Skyweb- Evans set up operations in 2004, they had to take some of their personnel in Canada for training. Out of the Ksh 12 million they used to set up, 60 percent went to training costs while Kigara of Preciss offers that poaching and defections have skyrocketed labour costs.
However, there is light at the end of the tunnel as several training institutions like the University of Nairobi (UoN), Strathmore University and Kenya College of Communications and Technology (KCCT), Mbagathi are rising to the occasion.KCCT is being transformed to a fully fledged training centre for call centre agents.
“By the end of the year, we will have something on the ground for the short term needs of the companies. However, we want to consult more before we come up with comprehensive high level courses,” says Dr. Katherine Getao, the head of UoN’s School of Computer and Informatics.
While training in BPO operations may appear like one of Kenya’s handicaps, the country’s over 30,000 per year English speaking graduants are also touted as its main advantage over India and other non- English speaking countries.
While Kenya has a quality and an accent advantage over India, India still beats the country on low prices.
Kenya’s biggest competitor in Africa is South Africa, which though well known and with high levels of infrastructure, has high costs of operation than Kenya.
Some however are urging for caution.
“We should not try to be an overly cheap destination. We should try to beat India on quality and South Africa on costs. Then we can work from there,” advises Kigara.
According to Were, many entrepreneurs are keen on investing in the BPO industry, but are held back by the cost of Bandwidth and cost of marketing their firms abroad.
The companies are looking up to the upcoming fibre optic cables that are expected to not only bring down the cost of Internet, but also make incoming and outgoing calls to call centres clearer and echoless.
Currently, two parallel cables are in the offing.
The African Union (AU) spear headed East African Submarine System (Eassy), which involves 23 African countries and the Kenyan government led USD 110 million (Ksh 7.9 billion) East African Marine Systems (Teams), to connect Kenya to the Middle East international fibre-optic cable.
Though uneasy with the Eassy project due to what it refers as ‘South African dominance’, the Kenyan government insists it has not pulled out of Eassy.
Ironically, Kenya’s minister of information and communication Mutahi Kagwe, during the opening of the BPO conference last year reiterated that the government had invested USD seven million (Ksh 504 million) in Eassy and would not backtrack on it.
The cable, whichever comes first will reduce their operations by half.
Add in an economic growth of 5.8 per cent in 2005, political stability and an increasingly liberalized telecommunications sector and Kenyans outsourcing industry like the others, will weather political statements.
Globally, outsourcing has drawn the wrath of politicians from America and the US who have often criticized companies doing it on the pretence that they are shipping jobs abroad.
However, subsequent legislation to block American companies from taking the job overseas was defeated, as it would have also prevented the transfer of jobs from one state to another.
To demonstrate how much the outsourcings buzz has spread, even young children in the US are alleged to be outsourcing their homework to companies in Asia at a fee, creating A grades in homework but failures in real time examinations.
Local enterprises are not hoping for failures. They want to do their homework right- and some have.
Ends…
By Guchu Ndung’u
In 2004, when then President George Bush’s chief economic adviser Greg Mankiw said that outsourcing would be ‘a plus for the economy’ in the long run, very few Americans had kind words for him.
The US President distanced himself from the comments while then Senate Minority Leader Tom Daschle called Mankiw’s assessment ‘Alice in Wonderland economics’. For it is predicted that by 2015, over 3 million American jobs will be lost due to outsourcing.
If he was in Kenya, Mankiw would receive a standing ovation. For Kenyan entrepreneurs, unlike American politicians, are not complaining and instead, placing not only their present but their future bets on the Business Process Outsourcing (BPO).
For the uninitiated in the term, BPO is the contracting of a specific business task to a third-party service provider.
It is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain their position in the marketplace.
A business process that is contracted outside a company’s own country is commonly known as offshore outsourcing.
And that, by recent events, is the next icing on the cake of entrepreneurship in the country.
Last four alone, for instance, have seen more than 15 new BPO/Contact Centres set up services, ranging from back office which includes internal business functions such as billing or purchasing, to front office outsourcing, which includes customer-related services such as marketing or technical support.
Most of these, however, operate informally.
For among the reasons for their informal operations include the high cost of licensing. To be registered, a call centre for instance has to pay a ksh 100,000 license fee to the Communication Commission of Kenya.
“This is driving them underground. CCK should consider lowering the fees to encourage the growth of this sector,” says Gilda Odero of Skyweb Evans, an outsourcing company.
However, during an ICT exhibition last month, CCK Director General Michael Waweru hinted at the probability of lowering the costs to a minimum of Ksh 10,000.
The cost of setting an outsourcing enterprise, says Peres Were an outsourcing consultant is dependant on the facilities needed.
A 20 seater BPO for data processing is approximately Ksh 1.8 Million.
“A call centre that can handle customer interaction via voice calls, web chat, email and text isapproximately Ksh 21 Million shillings,” offers Were.
Banks have not embraced the out sourcing bandwagon and financing if the entrepreneur’s experiences are anything to go by, is still hard to come by.
CFC Managing Director Madabhushi Soundarajan, whose native Indian , puts it to the viability of the business.
“Like any other business, we are willing to look at any viable outsourcing venture for financing. Kenya has a lot of potential and with time, the industry will blossom,” notes the MD, whose Indian homeland is leading in outsourcing.
This has however not hindered the development of the outsourcing and most players start with a few computers, internet and rays of optimism- and still making it.
From a 25 seater in 2004, Kencall has grown to a 250 seater employing over 300 people and planning to go to 600 seats for others like Oriak, a jump from being a four seater in 2005 to over 20 seats employing 40 people and planning to double by the year only hints at the potential of the growth.
Payments and rate of return though vary depending on the complexity of the work and terms negotiated between the companies and their clients.
There is transcription which involves typing of audio to data, captioning of movies, data PROCESSING AND CALLING CENTRES WHICH HANDLE SERVICES LIKE CUSTOMER CARE and sales and marketing- overseas companies’ route calls to their customer care to the outsourced centre in Kenya whose agent assists the American caller with any enquiry.
On average, outsourcing companies USD 35 (Ksh 2,555) per audio hour of material transcribed from while a customer service centre can generate revenue at a rate of USD 12 (Ksh 876) per agent per hour.
The figures however vary per contract.
Outsourcing has further received a boost following reports that the government, through a credit extension of US$ 114.4 million (Kenya Shs 7.8 billion) from the World Bank, will subsidize the calling costs of call centers operating in the country.
The monies will also be used to support E-Government initiatives and facilitate high-speed connectivity.
“About 80 to 90 percent of our telephone cost will be subsidized by the World bank. To put 25 agents on the phone, it costs us close to US$17,000(Ksh 11.3 million) a month. Elsewhere, it will only cost US$600-900(Ksh 40,200-Ksh 60,300) a month. We need the subsidy to compete,” Nick Nesbitt of Kencall justifies the subsidy.
Subsidies not withstanding, Kenya’s BPO industry also faces a myriad of challenges that needs to be curtailed if the industry is to leapfrog the country to the information age.
First, start ups have to bear the cost of training personnel on outsourcing operations; a cost they opine is heavily eating into their margins. This is because while there is an army of trained graduates in the country, few are trained in specialized services like transcribing or working in a call centre.
When Skyweb- Evans set up operations in 2004, they had to take some of their personnel in Canada for training. Out of the Ksh 12 million they used to set up, 60 percent went to training costs while Kigara of Preciss offers that poaching and defections have skyrocketed labour costs.
However, there is light at the end of the tunnel as several training institutions like the University of Nairobi (UoN), Strathmore University and Kenya College of Communications and Technology (KCCT), Mbagathi are rising to the occasion.KCCT is being transformed to a fully fledged training centre for call centre agents.
“By the end of the year, we will have something on the ground for the short term needs of the companies. However, we want to consult more before we come up with comprehensive high level courses,” says Dr. Katherine Getao, the head of UoN’s School of Computer and Informatics.
While training in BPO operations may appear like one of Kenya’s handicaps, the country’s over 30,000 per year English speaking graduants are also touted as its main advantage over India and other non- English speaking countries.
While Kenya has a quality and an accent advantage over India, India still beats the country on low prices.
Kenya’s biggest competitor in Africa is South Africa, which though well known and with high levels of infrastructure, has high costs of operation than Kenya.
Some however are urging for caution.
“We should not try to be an overly cheap destination. We should try to beat India on quality and South Africa on costs. Then we can work from there,” advises Kigara.
According to Were, many entrepreneurs are keen on investing in the BPO industry, but are held back by the cost of Bandwidth and cost of marketing their firms abroad.
The companies are looking up to the upcoming fibre optic cables that are expected to not only bring down the cost of Internet, but also make incoming and outgoing calls to call centres clearer and echoless.
Currently, two parallel cables are in the offing.
The African Union (AU) spear headed East African Submarine System (Eassy), which involves 23 African countries and the Kenyan government led USD 110 million (Ksh 7.9 billion) East African Marine Systems (Teams), to connect Kenya to the Middle East international fibre-optic cable.
Though uneasy with the Eassy project due to what it refers as ‘South African dominance’, the Kenyan government insists it has not pulled out of Eassy.
Ironically, Kenya’s minister of information and communication Mutahi Kagwe, during the opening of the BPO conference last year reiterated that the government had invested USD seven million (Ksh 504 million) in Eassy and would not backtrack on it.
The cable, whichever comes first will reduce their operations by half.
Add in an economic growth of 5.8 per cent in 2005, political stability and an increasingly liberalized telecommunications sector and Kenyans outsourcing industry like the others, will weather political statements.
Globally, outsourcing has drawn the wrath of politicians from America and the US who have often criticized companies doing it on the pretence that they are shipping jobs abroad.
However, subsequent legislation to block American companies from taking the job overseas was defeated, as it would have also prevented the transfer of jobs from one state to another.
To demonstrate how much the outsourcings buzz has spread, even young children in the US are alleged to be outsourcing their homework to companies in Asia at a fee, creating A grades in homework but failures in real time examinations.
Local enterprises are not hoping for failures. They want to do their homework right- and some have.
Ends…
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