Sign up with GoogleINTO AFRICA
Aug 25th 2005
Can South Africa ride the outsourcing and offshoring wave?
LAST month, Amazon, an online retailer, announced that it had opened a
software development centre in Cape Town. Chris Pinkham, a South
African who is returning home from Seattle to head the operation, says
that Amazon chose South Africa because of its pool of high-calibre IT
workers and good infrastructure. The new outfit will create programmes
for users around the world. Will other foreign firms also move such
operations--a strategy known as "offshoring"--to South Africa?
According to a recent study by McKinsey, a consultancy, South Africa is
well placed to benefit from the trend of firms shifting business
processes, such as customer care and payroll administration, to cheaper
places. This, says McKinsey, could create 100,000 jobs in South Africa
as well as attracting a modest but useful $90m-175m in foreign
investment by 2008.
Global demand for offshoring from American and British firms alone is
forecast to rise from $10 billion now to maybe $60 billion by 2008, 40%
of which is likely to be in banking and insurance. That is more than
countries such as India, China and the Philippines--which meet much of
the demand today--are likely to be able to handle. So newcomers such as
South Africa are after a piece of the offshoring pie.
As well as speaking English and being in a time zone close to
Britain's, South Africa offers sophisticated insurance and banking
sectors; a (modest) pool of qualified people; well-developed telecom
and IT infrastructure; and good business services. British and American
firms could cut the cost of some services by 30-40% by providing them
from South Africa. That is why IBM has decided to open a global
call-centre for international corporate clients in Johannesburg.
Merchants, a subsidiary of Dimension Data, a South African IT firm,
runs a call-centre for a big international media and communications
company.
Yet much needs to be done if South Africa is to win a lot more business
from abroad. There is no lack of competitors, from India to Malaysia
and Singapore. South Africa has yet to market itself well as an
offshoring centre. Other countries offer bigger investment incentives
and make setting up shop far easier. The body that represents
call-centres, the South African Contact Centre Community (SACCOM),
lacks the resources to drive the development of the sector--in sharp
contrast to, say, India's highly effective NASSCOM.
South Africa is also far pricier than the likes of India and the
Philippines. Labour regulations are too rigid, raising the cost of
doing business. The staggering price of telecoms is an even bigger
problem. According to Genesis Analytics, a consultancy, a firm in South
Africa will pay over nine times more than one in Singapore for ADSL
broadband internet service, almost twice as much as in Malaysia for a
domestic leased line, and 11 times more than in India for a local call.
An international phone call costs 70% more from South Africa than
India; leasing an international line to America costs ten times more.
Telkom, South Africa's biggest telecoms company, was privatised eight
years ago with a monopoly over fixed lines. International calls have
become cheaper, but the cost of a three-minute local call ballooned by
an average of over 25% every year in 1997-2003. That raised the cost of
all services--from mobile calls to internet access--via lines leased
from Telkom.
New laws have recently introduced some competition. A second fixed-line
operator is expected to start soon. Telkom has also been under pressure
from the government--which admits that pricey telecoms are hindering
investment and growth--to cut its hefty tariffs. Last month, the
independent regulator imposed a cap on Telkom price rises. But Telkom
retains its monopoly on undersea cables transporting data and voice to
the outside world.
More and faster competition is badly needed to cut the cost of
telecoms--which would give call-centres a chance to flourish. The
government now considers the offshoring sector a priority. A
public-private partnership to drive the development of offshoring is
being set up. South Africa must get its act together, or foreigners
will send their business to other shores.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Foreigners must be wondering what Government are thinking? It's as if they are building a barrier to dissuade any form of investment. The few billion they make from Telkom can be dwarfed by the benefit the economy can derive from an influx in investment and outsourcing, not to mention help improve the unemployment rate.
Sigh.
Aug 25th 2005
Can South Africa ride the outsourcing and offshoring wave?
LAST month, Amazon, an online retailer, announced that it had opened a
software development centre in Cape Town. Chris Pinkham, a South
African who is returning home from Seattle to head the operation, says
that Amazon chose South Africa because of its pool of high-calibre IT
workers and good infrastructure. The new outfit will create programmes
for users around the world. Will other foreign firms also move such
operations--a strategy known as "offshoring"--to South Africa?
According to a recent study by McKinsey, a consultancy, South Africa is
well placed to benefit from the trend of firms shifting business
processes, such as customer care and payroll administration, to cheaper
places. This, says McKinsey, could create 100,000 jobs in South Africa
as well as attracting a modest but useful $90m-175m in foreign
investment by 2008.
Global demand for offshoring from American and British firms alone is
forecast to rise from $10 billion now to maybe $60 billion by 2008, 40%
of which is likely to be in banking and insurance. That is more than
countries such as India, China and the Philippines--which meet much of
the demand today--are likely to be able to handle. So newcomers such as
South Africa are after a piece of the offshoring pie.
As well as speaking English and being in a time zone close to
Britain's, South Africa offers sophisticated insurance and banking
sectors; a (modest) pool of qualified people; well-developed telecom
and IT infrastructure; and good business services. British and American
firms could cut the cost of some services by 30-40% by providing them
from South Africa. That is why IBM has decided to open a global
call-centre for international corporate clients in Johannesburg.
Merchants, a subsidiary of Dimension Data, a South African IT firm,
runs a call-centre for a big international media and communications
company.
Yet much needs to be done if South Africa is to win a lot more business
from abroad. There is no lack of competitors, from India to Malaysia
and Singapore. South Africa has yet to market itself well as an
offshoring centre. Other countries offer bigger investment incentives
and make setting up shop far easier. The body that represents
call-centres, the South African Contact Centre Community (SACCOM),
lacks the resources to drive the development of the sector--in sharp
contrast to, say, India's highly effective NASSCOM.
South Africa is also far pricier than the likes of India and the
Philippines. Labour regulations are too rigid, raising the cost of
doing business. The staggering price of telecoms is an even bigger
problem. According to Genesis Analytics, a consultancy, a firm in South
Africa will pay over nine times more than one in Singapore for ADSL
broadband internet service, almost twice as much as in Malaysia for a
domestic leased line, and 11 times more than in India for a local call.
An international phone call costs 70% more from South Africa than
India; leasing an international line to America costs ten times more.
Telkom, South Africa's biggest telecoms company, was privatised eight
years ago with a monopoly over fixed lines. International calls have
become cheaper, but the cost of a three-minute local call ballooned by
an average of over 25% every year in 1997-2003. That raised the cost of
all services--from mobile calls to internet access--via lines leased
from Telkom.
New laws have recently introduced some competition. A second fixed-line
operator is expected to start soon. Telkom has also been under pressure
from the government--which admits that pricey telecoms are hindering
investment and growth--to cut its hefty tariffs. Last month, the
independent regulator imposed a cap on Telkom price rises. But Telkom
retains its monopoly on undersea cables transporting data and voice to
the outside world.
More and faster competition is badly needed to cut the cost of
telecoms--which would give call-centres a chance to flourish. The
government now considers the offshoring sector a priority. A
public-private partnership to drive the development of offshoring is
being set up. South Africa must get its act together, or foreigners
will send their business to other shores.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Foreigners must be wondering what Government are thinking? It's as if they are building a barrier to dissuade any form of investment. The few billion they make from Telkom can be dwarfed by the benefit the economy can derive from an influx in investment and outsourcing, not to mention help improve the unemployment rate.
Sigh.
