In the last few years, for a number of reasons, there’s been a major uptick in global services delivery from Africa. The most significant driver of growth is Africa’s emergence as the next frontier for small-scale delivery centers. Another is strong government support that enables global services delivery. But there are a variety of other key forces that are making Africa a destination of choice for companies of all sizes, including some of the world’s biggest brands, such as Accenture, Daimler, Google, Microsoft, Standard Chartered, and Teleperformance.
There is less competition for talent in most locations in Africa compared to key offshore/nearshore talent hubs across leading geographies. Expansion into African cities helps organizations diversify their delivery location risk, as most locations have the ability to serve as Business Continuity Planning (BCP) locations to nearshore/offshore centers. Moving services to Africa also helps organizations differentiate themselves by capitalizing on early-mover advantage.
Other factors, such as an attractive talent-cost proposition, strong domestic demand across East and West African countries, and improving infrastructure capabilities (including rapid adoption of Work From Home (WFH) / remote working models), have improved the business case for new center set ups. For example, there’s been an increase in services maturity for delivery of key services across the region, including voice- and non-voice-based BPS services, IT services, and engineering/R&D delivery. And while most locations have low operating costs, ongoing currency depreciation and lower attrition costs across leading countries like Egypt and South Africa have helped bolster overall growth.
Trade-offs and risks
As market players prepare consider options for service delivery from Africa, they need to be cognizant of the key tradeoffs and associated risks for operating in the region, including:
Most leveraged African countries for IT-BP delivery
Here’s a quick look at the top four global services delivery locations in Africa, by market size – largest to smallest.
Companies leverage Egypt as a hub location for multi-lingual delivery to the EMEA region, as well as delivery to the US, UK, and Australia markets. It offers an attractive cost and talent proposition to support to a wide range of functions – including voice- and non-voice business processes, IT application development and maintenance, and digital services – and high availability of talent to support English and some European languages. While it offers a favorable business environment, it has some geopolitical stability challenges.
Companies largely leverage Morocco as a spoke location for multi-lingual contact center and IT services delivery. It provides extensive support to the North Africa markets. While organizations extensively leverage Morocco to support IT services delivery, it also increasingly supports business process delivery as well, including sales, client support, HR, and F&A. French and Spanish language services continue to be in high demand, and are the most widely used for services delivery. The country offers a favorable business environment but has some geopolitical stability challenges.
#3 South Africa
Organizations continue to leverage South Africa as a global hub to support the UK, US, and Australia markets, and – in many cases – South Africa serves as a regional hub for Africa and Middle East countries. It offers an attractive talent proposition to support both transactional and judgement-intensive processes, including customer analytics, actuarial modelling, fund administration, HR, and procurement. IT services delivery has gained traction over the years, and the country boats a large talent pool to support English and multiple European languages. It has a favorable business and operating environment with no significant challenges.
Organizations primarily use Mauritius as a spoke location to support French language delivery and a suite of services including IT services (application development, maintenance, infrastructure services), voice and non-voice transactional business processes (e.g., F&A, HR, and procurement), and analytics. French language talent availability continues to drive overall demand. The country is highly favorable from a business and operating environment standpoint and has no significant challenges.
While the global services market in Africa is relatively less mature than leading offshore geographies such as India and the Philippines, there is significant potential to tap into the domestic market across the top locations. Industry verticals including BFSI, telecommunications, and IT services continue to drive overall domestic demand. Further, with the strong government support, offshore advantage, growing talent pools, and infrastructure capabilities, several African countries offer a multi-pronged value proposition to enterprises seeking an IT-BP services delivery destination.
To learn more about the dynamics in the region, please read our recently published report Africa: Emerging IT-BP Delivery Force, which highlights the relative attractiveness and talent-cost proposition of key African locations to support global services delivery, based on our holistic and multi-faceted assessment across 10 key parameters parameters.
Regulatory uncertainty, technological disruption, talent challenges, and a host of other issues have all played significant roles in enterprises’ and service providers’ location strategies for global services delivery over the past couple of years.
The deep-dive analysis we conducted on enormous volumes of 2018 data to develop our Global Locations Annual Report 2019 made it clear that five key trends came into play in 2019, and will continue into 2020:
Here’s a quick look at each of these trends.
Enterprise demand for digital services and the associated R&D/engineering services compelled most global service providers to set up innovation centers and COEs to keep up with the changes in the digital landscape. And there was a significant rise in the number of R&D/engineering and digital service delivery centers – especially in APAC and nearshore Europe – as providers vie to develop data-driven, intelligent, and robust systems using automation, cloud, and AI-based capabilities.
In a move to rebalance and optimize their existing locations portfolio and comply with data protection mandates, both enterprises and service providers are marginally shifting from offshore to nearshore locations. Nearshore Europe experienced the greatest increase in headcount and new center setups in 2018 due to the availability of complex skills, proximity to customers in Western Europe, increased regulatory oversight, and demand for multi-lingual support.
Poland, Ireland, and Scotland will continue to dominate the global services landscape in nearshore Europe, followed by Ukraine, the Czech Republic, and Romania.
Increasing use of automation for low complexity, high volume services is having a considerable impact on the talent landscape. While growth in digital services will lead to newer job and skill profiles, the headcount required for newer digital jobs will be significantly lower than that required for low complexity jobs, and the growth will be slower due to technological advances and the shortage of talent for new-age technologies.
Leading service providers have been continuously growing their presence in onshore geographies. This is in large part due to increasingly stringent data protection laws and mounting pressure from clients to have local delivery centers. The United States and continental Europe continue to remain the destination of choice for setup activity across onshore locations. The lion’s share of the work delivered from these onshore centers is in IT services.
We expect the United States to continue to grow in the wake of uncertainty around visa regulations and increased pressure from clients to have local delivery centers for ease of coordination, better alignment/training, and promoting customer intimacy. And, we also expect growth in digital services to push providers to continue to expand in other onshore locations – such as Belgium and Switzerland – due to availability of skilled talent and the ability for extensive collaboration with Europe-based clients.
While use of the traditional delivery locations continues to grow, other locations are picking up steam, including:
To learn more about the dynamics shaping the global services locations landscape, please read our recently published report, “Global Locations Annual Report 2019: Demand for Next-Gen Services Defining Locations Strategies.” We developed the report based on deep-dive discussions with the regional investment promotion bodies, leading shared services centers, service providers, recruitment agencies, and other market participants.
Global Services Locations Predictions
5 Global Services Locations Strategy Predictions & Implications
Long gone are the days when consumers were welcomed with toasters when they opened a checking or savings accounts at their local bank. Today’s consumers don’t want toast-making capabilities from their financial institution: they want cheaper, easy-to-use Internet- or smartphone-based financial products and services, including payment applications, lending platforms, financial management tools, and digital currencies, all with hyper-personalization. Most customers are quick to make a move if their current financial institution doesn’t deliver.
So, what do banks need to do to retain their customers? Two things. First, they need to deliver the banking experience their customers are increasingly demanding. Second, they need to reconsider much of their service delivery location strategy.
Let’s first look at banking customers’ requirements for a SUPER banking experience.
Few, if any, banks have the ability to deliver on these requirements. So, they’re increasingly partnering with financial technology start-ups – popularly known as FinTechs – to meet customers’ expectations.
This brings us to the second thing that banks need to do to retain and grow their customer base: reconsider much of their service delivery location strategy.
With innovation and personalization topping customers’ list of banking requirements, banks can no longer rely on the same location strategy they’ve used to deliver traditional functions such as applications, infrastructure management, and business processes. Why? Because FinTech requires a higher proportion of onshore/nearshore delivery compared to traditional functions and co-locating all FinTech segments such as payments, lending, and capital markets in the same region may be difficult given varying maturity of locations across segments.
To help banks find locations for successful FinTech delivery, Everest Group developed a framework – presented in our recently published research report, “FinTech Services Delivery – Traditional Locations Strategies Are Not Fit For Purpose!” – to measure the innovation potential of a location.
With the framework, banks can evaluate all aspects of innovation potential, including the availability of talent with emerging skills (such as artificial intelligence, machine learning, and analytics), adequate cost of delivery, and providers’ financial services industry domain knowledge.
Framework to Measure a Location’s Innovation Potential
To develop our FinTech Services Delivery/Locations report, we started with a list of 40+ global cities with leading FinTech investment and market activity. Subsequently, we shortlisted 22 locations based on multiple criteria including overall investment, technology and infrastructure, and talent. Finally, we used our innovation potential framework, coupled with other factors such as maturity of the FinTech ecosystem and cost of operations, to determine the top locations banks should consider for specific FinTech use-cases such as payments, lending, and capital markets solutions.
Here are some key findings from our location strategy research:
For more details, please see our report, “FinTech Services Delivery – Traditional Locations Strategies Are Not Fit For Purpose! Plus Profiles of Emerging Offshore/Nearshore FinTech Hubs” or contact Anurag Srivastava or Anish Agarwal directly.
What Will 2018 Have in Store for Locations Strategies?
Multiple forces are driving unprecedented disruption in service delivery ecosystems, most notably market pressure, cost and margin tensions, and environment constraints. In the face of this upheaval, enterprises are increasingly leveraging their locations strategies to drive transformation and create differentiation. Everest Group digs deep into the research to offer five predictions on what all this means for locations strategy over the next few years.