UK companies are outsourcing to South Africa to save money and widen their available talent pool.
The outsourcing industry is taking a turn. As always, businesses are looking to reduce their overheads, but negative perceptions of low-cost outsourcing are forcing them to rethink. South Africa has seized the opportunity and leapt into this market, offering companies a middle ground – a way to significantly reduce labour costs without alienating their entire customer base. In doing so, they are transforming the outsourcing market and creating opportunities for workers and businesses to broaden their horizons.
South Africa’s outsourcing market
Over the last ten years, South Africa’s outsourcing market has experienced double-digit growth, with more expected between now and 2030. Much of that growth has come at the expense of the traditional dominant players in the outsourcing market, India and the Philippines. Where they focus purely on the bottom line, South Africa’s similar time zone, ambitious workers, commitment to quality, and relatively low rates of pay represent a blended proposition that businesses are increasingly finding appealing.
A key strength is flexibility. Businesses are seeking workers at all levels and on various types of contracts, ranging from freelance to full-time. Some are looking to outsource whole departments, while others have been seeking out talented professionals to supplement and collaborate with their own domestic workforces. Outsourcing can be successful across all types of industries, from traditional favourites such as customer support to more senior positions such as software design, web development, marketing, legal and financial services.
Why South Africa
The country has based its offering on a promise of quality. South African workers have several key advantages, including:
Good language skills: English is spoken across the whole country in a clear and easy-to-understand accent. Customers are less likely to struggle to understand call centre agents, which reduces friction in the customer experience:
Matching time zone: South Africa is only a few hours different from key markets in the UK and Europe, which means outsourced workers are available during working hours.
Diverse skills: South Africa has invested in its workforce and, as such, has built a strong reputation in several sectors, particularly finance.
They are backed by a government that has identified the outsourcing industry as a key opportunity to bring in better and higher-paying jobs from overseas. Like many African countries, South Africa has struggled to retain its most talented workforce, with graduates
regularly being attracted by better career opportunities overseas. Rather than having domestic workers leave for foreign jobs, the outsourcing industry gives them a chance to bring those foreign jobs to South Africa.
To that end, they have created a favourable regulatory landscape backed by tax credits, grants and other incentives to encourage inwards investment inward. They’ve also invested heavily in digital infrastructure to ensure a world-class level of service for outsourcing clients. Key cities such as Cape Town and Johannesburg have set themselves up as critical financial hubs and have offered outsourced talent to some of the biggest corporations in the world. Other regional hubs are also offering additional incentives, over and above those available at the national level, to bring new jobs into the local economy.
The cost of outsourcing to South Africa
While South Africa has positioned itself based on quality, the main driving force for outsourcing companies remains money. Average wages in South Africa may be slightly higher than in places such as India, but they remain a sizeable discount on the UK and other Western economies.
How much of a discount depends on the industry and type of role being sought. For unskilled and front-line roles such as call centre services, wages can be a fraction of the equivalent in the UK. The gap closes as jobs become more skilled, but even then, you can expect to save about 50% on salaries.
On top of that, there may be other associated costs. For example, if you’re hiring people directly, you’ll need a legal entity within the country in the form of a foreign subsidiary. On top of that, you may have to pay for premises and HR teams to support the employment.
An alternative option would be to hire an intermediary such as an Employer of Record (EOR). They act as the legal employer for the outsourced workers, which means they pay salaries and handle details such as PAYE and all official reporting to the tax authorities.
It’s fast, affordable and simple and means you won’t have to set up a subsidiary or accept legal liability for any of the employees. The cost comes in the form of added fees for the EOR, which means that for every employee, you’ll be paying a premium, which might be between 10% or 20% of the salary. Against that, though, you should also consider the costs saved by being able to scale recruitment needs up or down as you need.
In addition to these costs, it’s worth factoring in any government support. Depending on how many people you’re employing and the type of contract, you may be entitled to tax credits or grants. These add to the overall bottom line and mean that in some cases, the up-front cost of outsourcing to South Africa might be every bit as low as the cut-price options to be found in a traditional outsourcing hub.
South Africa’s intervention in the outsourcing sector has undoubtedly changed the game. Businesses can get something different from outsourcing. True, the major incentive remains
lower labour costs. However, when outsourcing in South Africa, the days when you might expect to sacrifice a little quality appear to be over. The emphasis today is on the whole cost of the operation, which includes any added or lost revenue from choosing to outsource.
By focusing on quality, South Africa has opened up a new frontier in the outsourcing industry and demonstrated that putting outsourcing front and centre of business strategies can give businesses the tools to compete in an increasingly challenging marketplace.
