US tax move sets new pace for outsourcing jobs growth

The US government’s plan to withdraw tax breaks for American companies that export jobs is forcing Kenya’s budding outsourcing industry into the unchartered waters of mergers and acquisitions that could change the shape of the business in the next decade.

Kenyan operators say they have had to open up to possible partnerships with US and British firms in readiness for the Obama administration’s action that is expected to drastically reduce the amount of business that US companies outsource and tilt the ground in favour of homegrown firms.

If effected, the US action could slow down jobs growth in the outsourcing or ICT sector that the Kenya government has identified as a key pillar of the Vision 2030 development blueprint.

Two Kenyan BPO operators say they have partnered with foreign firms in search of a foothold in foreign markets or opened up to takeover proposals that may give them easy landing in key US and UK markets.

Peres Were, the managing director of Cascade Global and Nick Nesbitt of KenCall Limited said it had become necessary to partner with foreign companies that outsource their non-core jobs to remain relevant in the highly competitive business.

Kenya’s business process outsourcing (BPO) industry is estimated to be worth $5 million (Sh400m) with the US market accounting for nearly 80 per cent of the business.

The Obama administration announced in May that it intends to remove tax breaks for US companies that shift jobs abroad and offer tax incentives to those that create jobs at home – a move that is also expected to help the world’s biggest economy to tackle currency fluctuation at home.

That announcement has opened the race for a presence in the US among the world’s leading outsourcing operators mainly based in India and the Philippines.

Many of these operators are setting up operations in the US hoping to gain competitive advantage for business from American firms that will be looking for new opportunities to escape the administration’s tax hurdle.

ICT experts say setting up bases in the US, should also help Indian outsourcing service providers to offer an optimal mix of onshore and offshore operations that will suit their clients’ needs and drive growth.

That is in turn moving the frontier of competition away from budding outsourcing operators such as Kenya’s who lack the financial muscle to acquire partners or set up operations in foreign markets.

“The BPO and call centre business has taken a new twist forcing local operators to change their game plans to remain relevant,” said Ms Were whose firm has partnered with a US company to acquire a Ghanaian outsourcing operator at a cost of $350 million.

KenCall is on the other hand opening up to partnership deals with foreign companies hoping to drive growth of the business.

Mr Nesbitt says having a physical presence in source markets is informed by the fact that events marketing has proved to be a very slow driver of growth for the business.

“We have just completed a very successful two week tour of the UK with some very large UK companies who expressed strong interest in working with us citing our new access to fiber connectivity,” said Mr Nesbitt. “They have always wanted to work with us but were shy about doing business on a purely satellite technology-based platform.”