Why small businesses are outsourcing to South Africa

While our cricketing relationship may have soured with the South Africans, our business dealings seem to be rising with Australian companies increasingly looking for alternative cheap employment options other than the Philippines.

“For the past 18 months I have been using South Africans in Cape Town to help me with my business here in Australia,” Peter Wilson, founder of The Shopper Collective, says.

Outsourcing data analytics

“I outsource in the area of data analytics. I work with a data scientist for advanced analytics such as segmentation and a team of highly experienced market research professionals. I also have a team of creative people over there, who are highly experienced in retail and shopper marketing, and who have experience working with some of the world’s biggest brands.”

The Shopper Collective converts shopper research into insights and ultimately shopper action. Wilson’s turnover, which is about $300,000 a year, involves only employing contractors when needed. He employs up to eight  contractors in Australia and almost a dozen in South Africa.

“My business structure works well for me because I employ people on contracts when needed,” Wilson says. “Cost efficiencies are the main main reason we hire people in South Africa. The Australian dollar is still comparatively strong against the ZAR (11:1 ratio), which means I can work with a highly skilled and trusted team at less than what I would pay in Australia.

“The time zone works too. I often brief my associates in South Africa mid to late afternoon, and I have responses in my inbox by the time I wake up the next morning. That gives me the opportunity to be always on, even for my small business.

“Finally, culturally, I am dealing with people who largely have English as a first language, and who share similar lifestyle and sporting interests, as the average Australian. The culture of work is also very similar, which helps immensely when close collaboration is necessary.”

South Africa’s transformation

According to Austrade, South Africa has transformed into a sophisticated manufacturing and service-based economy. The services industry comprises about two-thirds of the country’s GDP, while the mining and agricultural sectors now contribute around 6 per cent to GDP.

“It’s my belief that a lot of the businesses that moved their activity to the Philippines for a significant cost saving are now concerned by their customer dissatisfaction,” Darren Lord, chief executive officer of The Smart Group, says.

“They are now looking for a better option but bringing the work back into Australia isn’t an option because it would double their budget for this operation, which a lot of businesses can’t fund.”

The Smart Group, which is based in Richmond, Melbourne, specialises in sales servicing inbound and outbound contact centre activity across residential and business sales. Its turnover is in ‘the millions of dollars’ and The Smart Group employs more than 100 staff in Australia and  more than 30 employees in South Africa.

“We have moved our sales manager and compliance manager to Durban to operate on the ground and mirror our Australian operation and we have established a purpose-built facility in partnership with Dimension Data in Durban,” Lord says.

“For clients who are currently using other offshore locations but their customers are frustrated with the experience, South Africa provides a more suitable experience to that of Australia but at 45 per cent of the Australian costs,” he says.

Setting up a business in South Africa

Establishing a business in South Africa is relatively easy after the introduction of a new company law, which eliminated the requirement to reserve a company name and simplified the incorporation documents. The new Companies Act 2008 of South Africa requires the Notice of Incorporation and the Memorandum of Incorporation must be lodged at the Companies and Intellectual Property Commission upon registration.

“We now have 34 Australian companies who have invested in South Africa according to the Foreign Direct Investments markets database,” says Dean Hoff, director of South Africa’s Department of Trade and industry.

“Australian companies gain market access to the South African population of approximately 60 million people; favourable labour costs, a gateway into the African continent in terms of corporate headquarters, logistics and experience of doing business on the continent, as well as access to a skilful talent pool.

“There are also common legal and financial frameworks to that of Australia coupled with a range of trade agreements.”

The South African government has established Invest South Africa, which is a division of the Department of Trade and Industry, created as a dedicated public-private sector partnership. It provides investment promotion, facilitation and aftercare to fast-track projects, while also reducing government red tape.

Services include assistance with location scouting, introductions to relevant stakeholders such as other government departments (by way of example the Department of Labour has a list of unemployed people seeking work), introduction to financial institutions, incentive facilitation, as well as visa facilitation.

“Outsourcing to South Africa has resulted in improvements in business performance for numerous Matchboard clients,” Sharon Melamed, founder of Matchboard says.

Matchboard is a business-matching website that specialises in outsourcing services. Through the platform, companies are matched with suitable suppliers, resulting in around $8 million in deals invoiced in 2017. Matchboard takes a success fee, amounting to just under $500,000 last year.

“Benefits include better customer experience because clients can afford to offer 24-hour service seven days a week; lower cost to acquire a new customer; and better service because customers aren’t kept waiting as long, as clients can afford to staff more generously in a lower cost destination such as South Africa,” Melamed says.

“Durban is a centre of excellence for sales and retention work, while Cape Town is traditionally better suited to multilingual – mainly European language – and customer service work.”

Published 2018 | The Sydney Morning Herald by Louis White

South Africa’s Outsourcing Hotspot Trio

In recent times, South Africa has gained prominence as a preferred outsourcing destination while competing with locations such as Ireland, Paraguay, Malaysia and Poland. In the 2015 Tholons Top 100 Outsourcing Destinations report, which ranks cities in terms of outsourcing attractiveness, three South African cities make the cut – Johannesburg (21), Cape Town (57) and Durban (100). The presence of large-service buyers such as ASDA, Amazon, Old Mutual, Carphone, Lufthansa, British Gas and Virgin Mobile, along with global service providers such as Accenture, WNS, Capital, Genpact, CSC and Teleperformance enable SA to establish a robust supply-demand equilibrium.

In fact, a combination of factors such as cost effectiveness, government support, time zone and cultural similarities and the like has helped South Africa project itself as an emerging outsourcing destination. The selection of an outsourcing destination is a crucial decision process in choosing an outsourcing partner. This decision impacts the long-term success of outsourcing partnerships, hence, non-price factors become very important as cost advantage is no longer the most important objective in outsourcing partnerships. Companies are now expecting more value, enhanced performance, better service and innovation from the potential outsourcing destination.

Cost: South Africa’s cost-competitiveness works in its favour. The country offers 40-45% lower cost compared to near-shore locations in the UK (Northern Ireland etc.) and 10-20% lower than locations in Central and Eastern Europe (Czech Republic, Hungary, Romania).

Cultural alignment and accent neutrality: Drawing on its colonial history, South Africa is culturally very similar to western countries, especially on business protocols, institutional design, legal and educational systems etc., talent in service delivery shows a strong cultural connect with clients in the UK and European countries, in terms of communication and comprehension. This capability is particularly relevant and critical when it comes to process improvements. Neutral accent also helps in better communication with the clients

Time zone: South Africa has a strategically favourable time zone. The time difference is two hours (winter) and one hour (summer) with the UK and one hour with continental Europe.

Quality of labour: South Africa has a steady supply of quality labour as a result of its high secondary education enrollment and availability of specialised training services.

Published 2016 | Deloitte

Traditional outsourcing is dead. Long live disruptive outsourcing.

The Deloitte Global Outsourcing Survey 2018

Disruptive outsourcing leaps to the front. Our 2018 survey of more than 500 executives from leading organizations indicates that disruptive outsourcing solutions—led by cloud and automation—are fundamentally transforming traditional outsourcing.

In the past, organizations typically used outsourcing to improve back-office operations through cost reduction and performance improvement. Today, disruptive outsourcing solutions are enabling competitive advantage by accelerating changes within those organizations that have the audacity and skill to leap over the technology chasm; for them, outsourcing can pioneer a northwest passage to top line growth, as well as to a more agile, effective back office. The focus has shifted from traditional work transfer to upfront transformation and automation. Organizations are recognizing that disruptive solutions can revolutionize the way they do business, and that “buying” capabilities in the marketplace is generally faster and more scalable than developing capabilities internally. Emerging solutions incorporating cloud and automation are empowering organizations to work smarter, scale faster, reach new markets, increase productivity and, ultimately, to gain competitive advantage.

As with many initiatives, organizations are finding that delivering competitive advantage through disruptive outsourcing solutions is anything but simple; effort and expertise are needed to address security and cyber risks, changing regulations, organizational resistance, skill gaps, and to help flatten fragmented processes. In this new world, place your bets on the brave and the good, and against the fearful and complacent.

This report emerges from the insights we gathered from our survey participants, who generously shared the lessons they have learned from their outsourcing experiences, coupled with our own insights garnered over many years of experience working with our clients on both outsourcing and emerging technologies. We look forward to discussing your perspective on our report with you.

Published 2018 | Deloitte

A pursuit to create 192,000 jobs by 2030

It is a common misconception that outsourcing leads to job losses and retrenchments. This is quite far-off given that the advantages far outweigh the advantages. The South African outsourcing industry has been identified as a catalyst for socio-economic growth and is set to grow our GDP significantly. With a rising English speaking population, favourable time-zone and weakened currency, South Africa provides a significant cost differential for multinationals seeking favourable offshoring destinations.

Furthermore, South Africa is home to three outsourcing hotspots; Johannesburg, Cape Town and Durban who were voted positions 21, 57 and 100 respectively by the Tholons Top 100 Outsourcing Destinations Report. The factors relating to the country’s competitiveness against Ireland, Paraguay, Malaysia and Poland, include cost-competitiveness, cultural alignment and accent neutrality, risk profile, infrastructure, time-zone and quality of labour.

A country that is able to import foreign jobs onto its shores creates new jobs, however, our opportunity for increasing foreign direct investment (FDI) is lessened when a country speaks ill of outsourcing locally through the #OutsourcingMustFall/ #EndOutsourcing campaign led by various university students.

To this end, Deloitte Business-Process-as-a-Service (BPaaS), Outsourcing for Growth, seeks to engage with government, business and the community at large around our collective contribution to growing the South African economy and increase the countries competitiveness in the global outsourcing landscape.

Published 2016 | Deloitte

Deloitte’s 2016 Global Outsourcing Survey

  • Survey completed January 2016
  • Composed of 70+ questions covering entirety of outsourcing lifecycle and market trends
Key findings:
  1. Invest additional time during the initial stages of the outsourcing relationship to ensure value is achieved throughout the process
  2. Value is being achieved through the impact of innovation, ease of relationship management, and improved strategic flexibility, not just cost savings
  3. Invest in transition, governance and vendor management capabilities to ensure realization of benefits within and beyond the terms of contract
  4. Outsourcing is expected to see growth across all functions surveyed, particularly IT, Finance, and HR
  5. Outsourcing is becoming more important in enabling M&A deals Background and key findings

Spotlight On: Outsourcing Software Development to Africa

When you think of Africa’s major exports, gemstones, gold, timber, oil and cocoa might come to mind. But lately, software engineering is rising to the top among many countries across the continent. Software development outsourcing is seen as an economic development tool for transition economies, and Africa has become a part of this phenomenon.

Africa is emerging as the next frontier in outsourcing, with a young population set to double by 2050, and economies that might skip the manufacturing stage of development. As China and India age and their IT service sectors mature, Western firms are rightly looking to Africa as their next source of outsourcing partners.

Africa has become a burgeoning software outsourcing market and is so large, it cannot really be treated as a single entity. Apart from South Africa, most African markets are early in the software development cycle. The potential is huge: Africa’s growing young population will drive a demand for high-quality service sector jobs. Nairobi and Lagos, both entrepreneurial hubs, are poised to breed software development outsourcing firms as their economies develop. French firms gravitate to Tunisia and Morocco, and Egypt provides a ready source of inexpensive Arabic-speaking programmers to the Mediterranean.

North Africa
India has long been the preferred destination ever since the offshore outsourcing sector grew in the early 2000s. But as competition has increased, companies have started to look for alternatives. North Africa, in particular, has quickly become a chief outsourcing destination thanks in part to cost competitiveness, time-zone compatibility with Europe and the fact that it is only five hours ahead of New York.

For instance, Egypt is now booming in the software development industry and has experienced much success working with North American companies. The country has proven itself to be an outstanding location for IT outsourcing. Its track record in this area is impressive with a number of the world’s leading companies such as Vodafone, Orange, Intel and SQS all selecting Egypt as a location for their global service delivery centers.

In addition, due to the common language, similar time zone and cultural compatibility, French organizations find Morocco and Tunisia to be attractive outsourcing destinations. Morocco has especially been a chief outsourcing destination choice for companies within France due to its proximity and its competitive costs. Morocco has one of the best economies in Africa and offers a strategic location for Europe. Its government has also invested a lot of money to ensure Morocco emerges as a top outsourcing destination.

Likewise, Tunisia is also popular, and the two countries offer abundant infrastructures that are very welcoming to new players for outsourcing. North African companies are particularly well-versed in technologies like Linux, Python, Ruby, MySQL, No SQL and PostgreSQL.

South Africa
Although it is still trying to grow and expand its skillset, South Africa remains a dominant player in the African software development industry. South Africa is not a newcomer to this industry—but it is continuing to grow as and expand upon its great track record. The region is recognized for its large pool of talented, innovative software developers with first world know-how. Information technology research and strategic advisory firm, Tholons, even ranked the country, specifically the city of Johannesburg, in the top 30 software development outsourcing destinations in the world.

South Africa is a good cultural fit for many European and North American companies, particularly those on the East Coast. The country is in the same time zone as many EU nations, and it is six hours ahead of New York, which also accounts for its popularity as an outsourcing destination. South African IT specialists have expertise in technologies like mobile application development, C++, PHP and SQL.

East Africa
Technology hubs are emerging as beacons for high-tech hopes and dreams in East Africa as well. Kenya’s capital, Nairobi, also known as “Silicon Savannah,” has a particularly high concentration of programmers. Nairobi is home to thousands of Kenyan businesses, and the city has a highly supportive infrastructure that fosters technical innovation among emerging businesses. With two official languages, English and Swahili, Kenya has established itself as one of the most prominent cities in Africa, both politically and financially, as well as a hub for business and culture. Kenya and other East African countries are especially skilled in Java development, SQL databases and software development for mobile solutions.

West Africa
West Africa has been working its way up to become a substantial player in the IT industry. Many of the governments in this region of Africa are realizing the potential benefits that outsourcing IT development bring to their economies. One of the most notable countries in the region is Nigeria. It is the most populated country in Africa and the seventh most in the world. Nigeria’s largest city, Lagos, has great potential to become an outsourcing hub.

The Nigerian government is adopting policies to encourage technological advancement, which is seen as an advantage to potential outsourcing partners. Creating more IT jobs will be beneficial to the economic growth of Nigeria and other West African countries, so they have placed a great emphasis on encouraging IT education.

In addition, many companies that have worked with Nigeria mention the friendly and sociable nature of the Nigerian citizens. Most countries in West Africa are also about five hours ahead of New York, and although there are several native African languages spoken in the region, official languages also include French and English. In Nigeria, English is the only official language. Nigerian and West African IT professionals have skills in Ruby on Rails, C++, Java and HTML.

Published 2016 | Steve Mezak

South Africa | Riding the Offshoring Wave

Published July 2016 | Deloitte

“Under increasing pressures to cut costs and achieve efficiencies in the current global macroeconomic situation, organizations fervently continue to look for destinations that are not only cost-effective, but can also provide quality services especially in terms of high-end processes. In this regard, South Africa has, to a large extent, been able to establish its offshoring mettle.

The emergence of South Africa’s offshoring capabilities is supported by a number of factors including improving the country’s risk profile in terms of infrastructure, foreign trade and the availability of a large talent pool which is not only proficient in English but also has linguistic capabilities in French, German and Spanish.”

A number of European, US and Australian companies have started offshoring complex processes to South Africa

While it has established itself as an emerging offshoring destination, it is further evolving to offer a lucrative customer-oriented workforce with capacity to deliver work of varying complexity. The emergence of South Africa has helped companies to provide quality services at lower costs in comparison to onshore delivery centers.

© 2016, Deloitte Touche Tohmatsu Limited

London School of Economics and Political Science Research

London School of Economics and Political Science Research:

Department of Management Outsourcing Unit Study
South Africa has become one of the world’s upcoming Business Process Outsourcing (BPO) Offshore Destinations. Major companies like Lufthansa, Amazon, ASDA and Shell have set up captive centers in South Africa.

Figure 1.7 represents a quantitative comparative analysis of nine competitive countries using responses from 30 senior global sourcing analysts with specific expert knowledge about South Africa and its competitors.

Copyright © November 2012 Leslie Willcocks, Andrew Craig and Mary Lacity. All Rights Reserved.