More businesses than ever before are choosing to outsource to South Africa. Here are the most common reasons why.
Outsourcing in South Africa has quickly become a common strategy for businesses in the UK and Europe. It is changing the nature of outsourcing, and in doing so, the reasons why businesses choose outsourcing are beginning to change. What was once a way to capitalise on lower labour costs elsewhere is now a way to expand your business, broaden your talent pool and grow your business. Digital technology is transforming the sector, making it easier than ever to work across borders. So here are some of the most common reasons why businesses are choosing to outsource to South Africa.
The cost of labour
Money isn’t everything, but when it comes to outsourcing in South Africa, it is still the overriding motivation. Wages in South Africa are significantly higher than in places such as India, China or the Philippines, which have long been low-cost outsourcing locations. However, they are still between 60 and 70% of the levels in the West, which means you can get people at a substantial discount on your home market.
The costs can further be minimised through the choice of location. Some cities have higher costs of living than others and, as such, have higher wages. In areas with higher unemployment, wages may be lower than the South African average, helping to unlock further savings.
Government incentives are also in place for foreign companies creating jobs in areas experiencing high unemployment or poverty rates. The pro-growth South African government has pinpointed the BPO sector as being a key tool to bringing jobs from overseas into the country and helping to keep talented graduates working in the economy.
The level of these incentives varies depending on the number of people you intend to employ, but once they are taken into consideration, the overall cost of hiring staff in South Africa might even be lower than in the low-cost outsourcing hubs.
A focus on quality
Businesses that outsource to South Africa have often faced a considerable backlash in the press and among their customers. Sending jobs to foreign countries doesn’t make for great PR at the best of times, but even worse is the direct impact on quality.
When customer-facing roles are outsourced to non-English-speaking countries, people report difficulties making themselves understood or comprehending what’s being given to them. Disjointed customer service experiences in which people do not have their queries resolved lead to frustration and can leave even your most loyal customers looking for alternatives.
South Africa set out to change that equation. A cultural affinity with the West, together with a good language match, makes the country a perfect outsourcing partner for customer service operations.
English is spoken fluently across South Africa in a clear, neutral accent. Customer service agents will be able to engage much more closely with people, leading to improved customer experience rates and higher revenue. The value of this is hard to estimate.
Competition is high. Customers are becoming more demanding. They want to feel valued by companies and to feel that they are being treated well. Bad customer service experiences send a clear message to people that a business would prefer to save some money than put customers front and centre.
Finding new talent
South Africa has a rich and growing talent pool. Education levels have grown considerably over the past ten years, with a steep rise in the number of people progressing to further education.
However, the economy can only grow so fast and has struggled to provide enough jobs for this young, diverse and upwardly mobile generation of professionals. Like many African countries, South Africa is continually battling a brain drain of its brightest and best overseas.
Attracting foreign investment through the BPO sector is viewed by the government as a great way to bring those high-quality jobs from overseas and into their own country. To that end, they have positioned themselves as a hub of enterprise offering professionals across all industries.
Marketing, technology, financial services and the law have all seen considerable growth as the sector branches beyond those areas traditionally associated with outsourcing. Technology has played a central role in opening up the market and empowering South African freelancers to engage with clients in the West.
Businesses are turning to more affordable professionals in South Africa to access talent that might be unavailable at home. For example, with digital transformation heightening the pressure on companies to scale up their digital capabilities, talent is at a premium. The number of people with the skills needed is limited, which means professionals can command a high price and will normally be snapped up by the biggest companies.
The ease of working with South African freelancers opens the door for small and medium-sized businesses to a much wider array of talent. Working with freelancers is quick and easy, with no need to handle tax requirements. All they have to do is make sure they can settle invoices on time. Today, it’s not uncommon to find businesses working with a wide pool of different professionals from which they can dip as and when they need.
Expanding into South Africa
Outsourcing to South Africa can also be a good first step on the path towards an international
expansion. South Africa boasts the second biggest economy in Africa, behind only Nigeria. Its cultural match with the West also makes it more conducive to Western products and services.
Although market differences do exist – as many large brands have discovered to their cost – the relative familiarity of the South African market gives many businesses a much higher chance of success than in other locations. And, if they make it here, South Africa can also serve as a gateway to the rest of the continent.
Technology is also making it easier for small companies to expand into the country. E-commerce sites and digital transformation mean any business can sell into South Africa with relative ease.
The use of Employers or records, or Professional Employers Organisations, can also reduce the burden and cost of expansion. An EOR serves as the legal employer of your locally based staff, which means they handle all the HR duties and also have legal liabilities. Crucially, there is no need to set up a legal entity such as a foreign subsidiary, which inevitably comes with a high degree of cost and financial risk.
Any expansion is uncertain, and even the biggest names have floundered. The need to set up a foreign entity front-loads all the costs and risks, with the returns only coming later. For most companies, the risks will be prohibitively high. With an EOR, you simply pay a fee to the EOR, which then pays your staff and manages all the employment administration.
A PEO is slightly different, as you will share employer status. However, they still reduce costs by handling all the HR duties, enabling you to focus on the day-to-day management of your team.
Whatever your motivations, then, South Africa represents a significant opportunity. Whether you’re looking to move some business functions overseas, find new people to grow your business or even start an overseas expansion, South Africa offers the perfect mix of location, costs, and quality that you’re looking for.
