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Outsourcing to South Africa

As companies worldwide respond to increasing cost and efficiency pressures, South Africa is becoming a favoured international location for business process outsourcing and offshoring.

Business process outsourcing (BPO) and offshoring is a major global trend and the industry, worth an estimated US$130-billion a year, has an expected annual growth rate of about 50% for the next five years.

BPO involves relocating business processes that a company usually performs in-house to a third-party service provider, such as a customer care or call centre, to carry out on behalf of the company. Outsourcing becomes offshoring when the third-party service provider is located overseas.

The BPO industry's focus sectors include financial services, insurance and telecommunications, with outsourced processes including after-sales services, data capture and conversion, accounting, benefits administration, human resource functions, and website design and development.

Identified as a key sector in the government's strategy to boost the country’s economy and create employment, business process outsourcing and offshoring is forecast to create 25 000 direct and 75 000 indirect jobs in South Africa and contribute up to R7.95-billion to the national economy by 2009.

Information technology (IT) outsourcing is also a growing business in South Africa, with the diversity of the local market, first world know-how and a developing country environment making it an ideal test lab for new innovations.

IT outsourcing makes up more than a third of the R30-billion IT services market, according to a study in 2008 by research and advisory firm IDC, taking up the largest share of all IT service categories.

Gartner, the international research group, rates South Africa as one of its top 30 software development outsourcing destinations, with 2007 research putting it on par with Israel in the Europe, Middle East and Africa region, and next to Australia and India globally.

Calling .ZA

According to Business Day, the local call-centre industry has grown by about 8% a year since 2003. It directly employs about 54 000 people and contributes 0.92% to South Africa's gross domestic product (GDP).

A government-backed BPO support programme, launched in 2007, aims to enhance South Africa's competitiveness and includes a budgeted R1.1-billion in investment incentives. The plan focuses on:

• A broad-based marketing strategy.
• A government support programme which includes an investment grant and training subsidies.
• A developmental pricing framework for telecommunications.

Competitive advantages

For international firms, South Africa slots in between near-shore locations such as Canada, Mexico or Eastern Europe, which offer close proximity as well as cultural affinity to domestic markets, and more traditional offshore locations, such as India and the Philippines, that offer cheap labour.

South Africa has many factors working in its favour, including:

• World-class service levels of call centre staff.
• A broad base of management and service provider expertise, coupled with extensive financial services expertise, particularly in insurance, mortgage and loan processing and collection.
• Time-zone compatibility with Europe.
• High rates of fluency in English, coupled with neutral English accents that are easily understood in Western markets.
• A favourable exchange rate.
• Strong government support.
• State-backed incentives, such as start-up and expansion grants and discounted telecommunications prices.
• An advanced and growing telecommunications industry.

The government is taking steps to ensure cheaper and more widely available bandwidth capacity, which will allow cheaper international phone calls. Major projects are also under way to lay submarine fibre-optic cables along both the east and west coasts of Africa to boost the continent's connection with the rest of the world.

World in one country

International companies that have already chosen South Africa as a BPO destination include IBM, Fujitsu Siemens, Lufthansa, Virgin, Sykes, Avis and the Car Phone Warehouse.

South Africa's commitment to the BPO industry was underscored in 2007 by the decision to build a R125-million, 1 500-seat call centre at the Coega Industrial Development Zone outside Port Elizabeth in the Eastern Cape.

The BPO Park covers five hectares in Coega's business service precinct and includes training facilities and recreational space. The managing company said the space was designed to cater for various scenarios and could accommodate numerous different investors.

Other recent investments include:

• In May 2008, oil multinational Royal Dutch Shell opened a call centre in Cape Town. The centre will service Shell's customers in Belgium, Luxembourg and the Netherlands, with native Afrikaans-speaking operators trained to converse in Dutch and Flemish.
• In November 2007, US-based business process outsourcing giant TeleTech started building a new facility outside Cape Town - its first base on the African continent.

Article last updated: September 2008

SAinfo reporter. Sources:

• South Africa Yearbook
• Business Process Enabling South Africa
• Department of Trade and Industry
• Coega Development Corportation
• Business Day