South Africa is the fastest-growing outsourcing destination in the USA and the third biggest destination in the UK – here’s why.
As South Africa’s government attempts to supercharge growth, attention has grown to business process outsourcing. The market has grown by more than 40% in the past decade and the government has invested billions in terms of incentives. For businesses in the UK, Europe, US, and Australia the country is now becoming the go-to location for all outsourced operations. Businesses of all kinds are outsourcing all sorts of roles, and when you look at the options within the country, it’s not hard to see why. Here are six reasons why you might consider following their lead.
Low costs
The primary motivational force behind business process outsourcing remains cost. Businesses are constantly looking for ways to save costs. With margins being squeezed on all sides, companies are on the lookout for any way to save money without compromising on customer service.
Traditional powerhouses such as the Philippines and India are still hard to beat when looking at the cost of labor alone, but South Africa is still much cheaper than the UK, US, Australia, and Europe. If you’re looking to save money, but are worried about the impact on your customer satisfaction ratings South Africa could be a chance to have your cake and eat it.
Customer demand
While cost remains a driver, attitudes to outsourcing have changed over the last few years. Customers reacted negatively to seeing key processes – particularly customer service operations – outsourced to countries in which English was not the first language. Frustration at trying to make themselves understood by call center operatives led many to vote with their wallets. Multiple customer service surveys suggest consumers prefer to support businesses whose call center operations are domestically based – or failing that use fluent English speakers.
Businesses have responded to that demand with many such as BT choosing to relocate call centre operations back to the UK. The price of labor might be low in locations such as the Philippines, but once businesses began to count the cost of customer friction and lost revenue, the savings quickly lost their appeal. Indeed, for some, the fact that call centers had local staff became a core marketing message.
South Africa, offered a middle ground. It’s a chance to enjoy relatively affordable labor costs while maintaining a high level of customer service. Furthermore, once you consider government support, South Africa becomes much more appealing.
Government support
The great news for any company looking to outsource to South Africa is that the government is keen to have you. As authorities in South Africa look for any opportunity to promote growth and international investment, their attention has swung towards the business processing outsourcing sector. Billions have been invested over the last few years in the form of tax breaks and other incentives.
Any business employing more than a certain number of South Africans will be welcomed with open
arms. The Global Business Services (GBS) Incentive a range of grants in proportion to the number of South Africans employed. Once these costs have been factored in, the cost of labor in South Africa becomes comparable to that of India or the Philippines.
However, while the regulatory environment is extremely friendly, it is possible to be tripped up by the rules. The government has strict employment rules in place to ensure all companies classify their employees correctly. Practices of disguised employment such as when a company might try to employ defacto employees on a freelance basis are common and the government has shown a willingness to impose heavy fines on any company it feels is guilty of breaking the laws.
When outsourcing operations, therefore, it pays to ensure you do it in the right way. Solutions such as an Employer of Record can do the heavy lifting from a compliance perspective making sure you don’t unintentionally encounter any compliance issues. Structures such as an EoR can also offer a more cost-effective way to manage employment.
Skilled and qualified workforce
South Africa benefits from a highly educated, diverse, and qualified workforce which means businesses can access a huge array of talent and skills. The talent pool is every bit as rich as in domestic markets which means almost any professional role can be outsourced.
The depth of the talent pool changes attitudes to outsourcing. Not only is it a chance to save money but also to broaden the breadth of the available talent pool. Advanced online communication tools such as Zoom or Google Meet make it possible to collaborate across borders quickly and seamlessly. Teams no longer need to be in the same location to communicate effectively, they can be anywhere in the world. It’s not uncommon to have multidisciplinary teams in many different locations.
Faster communications open up a wider and richer talent pool than was previously possible. As a business you are no longer restricted to working with people in your location, you can access skilled professionals anywhere in the world.
Entities such as Agents of Record (AoR) also make it much easier to source and work with freelance contractors in South Africa. In much the same way as EOR, an agent of record can handle the practical, legal, and logistical requirements of hiring and paying freelancers.
These local entities provide much-needed local expertise that can avoid the need to set up a subsidiary and reduce compliance risks.
Matching culture
One of the biggest points of friction for customers with outsourcing is the problem of language and culture. Communicating with someone for whom English is a second or third language can be frustrating. Misunderstandings are common, and revenue opportunities can easily be lost. Call abandonment rates are higher in those locations that have language barriers.
Culture is another advantage. South Africa is a diverse country with cultural attitudes that will be familiar to callers from the West. English is commonly spoken with a neutral accent making it easy for staff to understand and be understood.
New market opportunities
As a business, local staff in South Africa can unlock a host of opportunities, especially when it comes to expanding your business operations. Entering a new and unfamiliar market can be fraught with challenges. Even the biggest and most successful corporations have struggled to take popular concepts from one territory and translate them to another.
The risks are multiplied if you do not have a full understanding of the market you’re entering. Although you can conduct market research and employ experts, there is no substitute for local knowledge.
South Africa represents an attractive market in itself but it can also be a gateway to a host of other, lucrative markets across Africa. Making the leap from European and US markets to Africa can be difficult without a full understanding of those markets.
South Africa’s rich and diverse talent pool means locally based individuals with the skills and expertise required to help you thrive are freely available.
Even so, the risks of expansion can be high. Setting up a subsidiary or overseas branch can be risky especially if you’re not certain of the market conditions. Using EORs and AORs can be a low-cost way of dipping your toe in the water without all the logistical and infrastructure costs of setting up an entirely new company. Their local knowledge enables them to help you source the right talent with the right skills to help you succeed.
Building for success
The BPO market is changing. The reasons for doing it are diverse, and the opportunities are much more nuanced than simply trying to save money. South Africa has carved out a niche for itself providing access to highly skilled staff at an affordable price. It’s a best-of-all-world situation in which you can save on labor costs while also improving the quality of your operations and the breadth of the talent pool available to you.
As the market evolves, the opportunities for outsourcing in South Africa will grow even more. All the economic indicators within South Africa are promising. Growth is recovering post-COVID-19, education is improving and so too is technological infrastructure. It is a growing thriving economy with all the ingredients for success. With a highly skilled, proficient, and affordable workforce, it can serve as the perfect outsourcing partner for a more globally connected world.
