More and more businesses are choosing South Africa for business processing outsourcing, but how much can hiring employees cost?
The dominant reason for adopting business process outsourcing solutions is to drive down costs. In a globalized marketplace, the ability to offer better value markets can be a great way to reduce operating costs and maintain margins. With business costs rising across the board, finding savings where possible can be invaluable. From that perspective, South Africa offers an attractive proposition. Labor costs are below average, and although there are cheaper options elsewhere, South Africa’s value proposition is about much more than single-sum issues. Here you have an almost unique mix of low costs, high skills, and a diverse multicultural workforce capable of providing high-quality, cost-effective services.
The cost of labor
First the basic costs. While South Africa’s growing economy means labor costs are not as low as in some of the traditional outsourcing hubs of India or the Philippines it is still much lower than in the West.
Exact labor costs can vary from sector to sector. However, according to an article in Investec South Africa offers between 60 and 70% cost savings compared to Australia, the UK, and the US and can also boat operational costs that come close to matching the likes of India and the Philippines.
South Africa benefits from a diverse, well-educated workforce capable of offering expertise in a wide range of industries. The culture is a good match for the West with a high work ethic with access to a wide range of professionals. As such the quality of work is likely to be much better in South Africa across even more skilled professions.
Where outsourcing has come unstuck in the past companies have focused on cost at the expense of quality. In areas such as IT, software development, or content writing, mistakes are caused by miscommunication or poor-quality work and expensive reworking. For example, imagine you’re outsourcing content to a country where English is not a first language. The cost of that content might be extremely low, but if the quality is poor, you’ll have to hire domestic copywriters to correct the errors.
A higher skilled workforce offers a better chance of getting services tasks right at the first time of asking. South Africa offers a highly skilled multidisciplinary team capable of providing highly professional services in a wide range of different industries. The South African BPO sector is expanding in areas such as telecoms, finance, healthcare, and marketing. It’s a versatile market capable of providing high-quality individuals and services across the board.
The fact that English is widely spoken in South Africa, reduces communication
barriers. For example, when relocating a call center to South Africa, there is less likelihood of customers abandoning calls due to communication challenges. Written content will be less likely to require reworking and complex collaboration such as on a large-scale software development and will be easier to manage with clear communication between all parties.
Better communication and a wider range of skills translate into an overall improvement in outcomes. According to the 2024 South Africa ITO Value Proposition, the BPO industry has an 18% higher customer experience satisfaction rating than its peers leading to superior lifetime value.
Other related costs
In addition to direct labor and operational costs, it’s also worth considering the cost of compliance. South Africa has a relatively strict employment regulatory landscape. Companies will have to adhere to strict guidelines about how employees and contractors are classified and how they are treated during their employment.
Failure to comply with these regulations can lead to stiff penalties. For a first offense under EEA rules an employer could be liable to a fine of R1,5million or 2% of turnover. Further offenses will lead to higher fines with a second offense incurring 1,8million or 4% of turnover. In some cases, there have been fines of up to 105 of turnover for repeat offenses.
Failure to comply with regulations can, therefore, be expensive. However, these can be mitigated through preparation and research. A thorough understanding of the regulatory landscape is essential before venturing into any new market, to avoid unintentional compliance issues.
Working with a third party can help to improve compliance. Employer of record companies (EOR0, for example, can handle the legal and administrative challenges of managing employees. Their local knowledge can ensure you comply with all rules, guide operating in South Africa, and keep you up to date with all evolving regulations.
South Africa’s Value Proposition
When determining how much it costs to outsource in South Africa, therefore, it is essential to look at the overall value proposition and return on investment. The ROI of South Africa is calculated not just by the price of labor, but the value for money that labor returns.
The country’s diverse multicultural talent pool and close cultural match for Western business make it a perfect fit and offer a cost-effective way of getting high-quality results. Furthermore, the government has openly worked to encourage further foreign investment into the sector through the growth of its outsourcing sector.
To the government, this is a valuable tool to attract foreign capital. A range of incentives are focused on encouraging the training and recruitment of domestic talent in the country. Businesses and investors who create at least 50 BPO jobs per year can qualify for a range of incentives. Once these are taken into account, one study suggested the cost of operations can be reduced by between 15 and 20% bringing it into line with established BPO hubs such as India or the Philippines.
Companies in the UK and the US are increasingly willing to pay the small risk premium to outsource to South Africa over the cheapest destinations because they see the gap as not being worth risking their customer base back in their domestic markets. The quality of first-world experience and superior skills mean South Africa can offer a perfect mix of value and quality to empower performance.
