The global outsourcing and offshoring industry is estimated to have generated about $524.4 billion in 2015, according to Plunkett Research, a leading provider of industry sector analysis and research. The industry is expected to generate $548.5 billion in 2016, with significant emphasis on three broad areas: business process outsourcing (BPO), which includes areas such as call centres, financial transaction processing and human resources management; information technology services, including the creation of software and the management of computer centres; and logistics, sourcing and distribution services.
That the global outsourcing market has emerged in the last two decades is not the issue here. The issue is that Nigeria, the most populous country in Africa and the 7th most populous country in the world with remarkable growth in mobile and internet usage, has not benefited as it should from global companies who subcontract various aspects of their operations.
Businesses outsource their operations for various reasons, some of which include cost-saving, increased efficiency, access to skilled manpower, and ultimately to increase competitiveness. Other organisations simply take a strategic decision to focus on some core areas in order to become more nimble. For instance, late last month, Blackberry announced it will make a full transition out of the hardware business by the end of its fiscal year ending in February, 2017 as the Canadian company said it will outsource the development and design of its smartphones in order to focus on software and services. Blackberry signed a deal with a new Indonesian joint venture, BB Merah Putih, led by PT Tiphone, an affiliate of one of Indonesia’s biggest mobile carriers, Telkomsel.
Several multinationals outsource their services ranging from call centre services, payroll, email services, among others. HSBC Bank has outsourced its call centres and Electronic Data Processing to India and Sri Lanka. Aviva, a British multinational insurance company, outsourced its call centres to India and Sri Lanka. IBM also outsourced its customer support centres to India. In 2012, about 2.8 million people were employed in the outsourcing industry in India, generating revenue of about $11 billion.
So why has Nigeria not benefited from outsourcing? There is certainly a negative perception that dogs the country. But apart from this, there are other factors that are responsible for the lack of attraction to global outsourcing market. According to the 2016 Global Services Location Index (GSLI) by A.T. Kearny, an American management consulting firm, India, China and Malaysia are the top three offshore destinations for outsourcing. The annual GSLI evaluates offshore outsourcing based on metrics in three categories and 38 sub-indices. One of the categories, financial attractiveness, is weighted 40 per cent and it includes wages, infrastructure costs, taxes, corruption and exchange rate costs. The second category, skills and availability, is weighted 30 per cent and it includes availability of talent, level of educational achievement and language proficiency. The last of the three categories, business environment, is allocated 30 per cent weight and it includes economic risk, political risk, intellectual property protection, among others.
An analysis of the index shows why Nigeria did not feature in this ranking despite being the largest economy in Africa at the time the index was released in January. Although Nigeria boasts of a large youthful English-speaking population, there is a huge skills gap in the country. The business environment is also deemed to be challenging given the paucity of infrastructure. These findings should worry Nigerian policymakers and the administration of President Muhammadu Buhari, which has placed a premium on stamping out corruption, and improving the business environment in the country.
Outsourcing requires staff of the outsourced company to have access to sensitive materials. No business process outsourcer, for instance, will allow its services to be outsourced to a country where safety of its clients’ information would not be guaranteed. It also wouldn’t make business sense to outsource business process only to find out it is costlier and inefficient to operate in the host country. Among the major reasons for outsourcing are improved efficiency, and the ability of the outsourcer to concentrate on its core business.
In August 2011, the National Information Technology Development Agency (NITDA) held Nigeria’s first National Outsourcing Conference. The event marked a major pivot in the quest to carve out space for Nigeria in the BPO industry. While outsourcing in Africa is still in its infancy, countries including Morocco, Egypt and Ghana are working to gain a larger share of the global market. Experts say Africa could be the next frontier of the outsourcing industry. African countries, especially the English-speaking countries, must do well to position themselves for the emerging industry. Outsourcing can be a huge jobs creator for unemployed youths in these countries.
Ryan Nicholas, an outsourcing consultant suggests that “Nigeria is positioned competitively to be one of the most favourable location for business process outsourcing for multinationals especially for North America-based businesses that are conducting business process outsourcing.” Ryan cited Nigeria’s official language as well as its young workforce as factors that could make Nigeria an attractive destination. Ismail Radwan, World Bank’s Lead Public Sector Specialist for Europe and Central Asia – who previously led the Bank’s work in innovation, finance and private sector development in Nigeria back in 2012 – said Nigeria is a virgin territory for outsourcing. According to him many of the countries that are the industry’s powerhouses are now saturated.
There are various outsourcing segments in the global industry including contract manufacturing, business services, energy, healthcare and pharmaceuticals, retail, travel and transport, and telecom and media. A 2014 outsourcing survey of companies across 22 industry sectors and 30 countries conducted by Deloitte showed that 53 per cent of the respondents outsourced their IT functions. IT outsourcing alone generated $63.5 billion last year, according to Statista, the online statistics portal.
A recent report published by the Nigeria Association of Information Technology Enabled Outsourcing Companies (NAITEOC), an initiative that was conceived by NITDA in 2012 for the development of the outsourcing industry in Nigeria, indicates that Nigeria’s relatively low wage structure and large youthful English-speaking population position the country as a potential offshoring destination. In the report, “Nigeria: Africa’s New Destination for BPO Services,” NAITEOC says business environment has improved even as Nigeria is a stronger environment for contract enforcement, there are improved labour regulations and the country has an expanding e-commerce sector.
But as exemplified by the A.T. Kearny’s index, the government still needs to do more by providing the required infrastructure as well as the enabling environment for this industry to develop. The government must do a better job of promoting the country’s competitive advantages to global industry leaders to showcase Nigeria’s readiness for the outsourcing market. For instance, the government can lobby to host the Outsourcing World Summit (OWS) as a strategy to address the gap between the negative perception about the country and the reality. The establishment of the Abuja Technology Village Science and Technology Park (STP) is seen as a positive development. The STP and Special Economic Zone, one of the infrastructures being developed that will eventually support Nigeria’s outsourcing industry, can be one of the centres of attraction for an OWS in Nigeria.
Outsourcing benefits the host country in so many ways, including by providing a form of livelihood for the educated and technologically savvy youths and potentially pushing them into the ranks of the middle class. Host countries also benefit from the transfer of technology, massive job opportunities and contribution to GDP growth. Outsourcing also allows the home country to stay competitive globally. There have been some controversies about poor treatment of workers, among other concerns in the industry. However, Nigeria can learn from these by ensuring there is proper legislation and regulation of the industry as it positions itself to attract global firms to outsource their operation in the country. Tapping the global outsourcing industry, apart from making Nigeria an outsourcing powerhouse, can be a significant source of foreign exchange for the country.