African Emerging Countries Outsourcing Strategies


Published on

What should African Ermerging countries do to position themselves as attractive global outsourcing destinations for Information Technology (IT) revenue-generating and GDP-growing work? Read this document for points of view...

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

African Emerging Countries Outsourcing Strategies

  1. 1. What should emerging African countries do to position themselves as attractive Global Outsourcing Destinations? Evans Munyuki Chief Information Officer (CIO) - Business & Technology Strategist September 2008 company focus on their core Overview competencies, (c) shift risks to the outsourced supplier, (d) gain This whitepaper examines the access to a wider range of skills, environmental success factor's (e) gain access to IT good which are necessary to ensure practice, and (f) enable the 1 C OUNTRY G OVERNANCE success in any African country's company to focus on their core 2 E ASE OF DOING BUSINESS ambition to position itself as an business. 3 E CONOMIC STABILITY information technology (IT) 4 S OCIAL STABILITY Global Outsourcing destination. Why is Africa looking at global 5 G OVERNMENT INVESTMENT outsourcing? INCENTIVES This whitepaper discusses the In Africa, the ICT sector's 6 C OLLABORATION BETWEEN key considerations both at a contribution to Gross Domestic G OVERNMENT , B USINESS , AND macro and a micro level, and it Product (GDP) is far less than A CADEMIA highlights an African country contribution by the same in other which has gone far down this developing nations1 . road in positioning itself as an 7 C OST PER CALL attractive global outsourcing The global outsourcing industry 8 I NFRASTRUCTURE destination. now exceeds $700B2 (seven 9 L ABOUR POOL hundred billion dollars). Africa is 10 G ROWTH - ENABLING The contents of this whitepaper not getting a representative IMMIGRATION POLICY were originally presented by the share of this industry and would 11 F OCUS ON Q UALITY IN SERVICE author to the President of Kenya, like to play. DELIVERY President Mwai Kibaki, at the 12 C ORPORATE G OVERNANCE 2006 Kenya ICT Strategy Africa has notable unemployment 13 IT G OVERNANCE Conference in Nairobi, on Feb 28th, challenges. Job creation is a top 14 E ASE OF ENTRY AND EXIT OF 2006. In attendance were hundreds agenda item for many African INVESTMENT DOLLARS of representatives of government, governments. 15 L ANGUAGE business, and academia. 16 T IMEZONE AFFINITY Africa realizes that specialization 17 S PECIALIZATION • Why do companies outsource? is taking place in many 18 A TTRITION MANAGEMENT Companies outsource to (a) reduce countries. 19 A TIGHT HANDLE ON COSTS operational cost, (b) improve In This Whitepaper: PAGE ONE: Overview Why do companies outsource? Why is Africa looking at global outsourcing? PAGE TWO: Why are global clients are considering Africa? Africa’s critical success factors. PAGE FIVE: The marketplace in South Africa. PAGE SIX: What should an emerging African country do to position itself as an attractive global outsourcing destination?
  2. 2. This makes it easier for African IT employees to interact with and serve UK and USA clients. These markets are attractive prospects for Africa. Some countries in Africa have invested in a highly stable banking industry. Clients are considering Africa in order to increase choice, and get an alternative to the eastern global outsourcing solutions. Africa's critical success factors What key factors create the right environment for global outsourcing She understands that she is not Africa has a widespread usage of business success? going to be the lowest cost, high English. It also has pockets of other volume manufacturer of the world. language capabilities such as In order to establish themselves as Afrikaans (easily cross-skilled to attractive global outsourcing Africa realizes that she has a lot Dutch), Spanish, French, and destinations, African countries must of the raw materials necessary to Portuguese. consider a wide range of factors credibly participate in the Global which are necessary for the free flow Outsourcing industry. These include The geographic location of many large populations of people, easy to African countries along with their of Foreign Direct Investment (FDI). understand English accents, and an time zones is an advantage, both for aptitude to educate the populations. European clients who may prefer Macro Issues: close time zone alignment, and for 1. Good Country Governance Demand for service out of India American clients who may seek the is very important. Governance and China is so high to the point benefits of a "follow-the-sun" consists of the traditions and where partners to these outsourcing productivity strategy. giants can provide value - especially institutions by which authority in a in those areas where India and Some African countries (such as country is exercised3 . China have not chosen to focus. South Africa) have the necessary good quality infrastructure. Governance indicators as measured Global outsourcing can be a huge and reported by the Worldwide booster for economic development From a human resource Governance Indicators (WGI) project in Africa. perspective, Africa has large labor are: (1) Voice and Accountability (the pools. While many of them are Why are global clients unskilled in ICT, with focused- extent to which a country's considering Africa? government-resolve to skill these citizens are able to participate in Increasingly, governments in labor pools, Africa can see herself selecting their government; African countries are embracing stand credibly in certain niche areas freedom of speech; freedom of democracy. where it can compete convincingly association; and a free media), (b) on the global outsourcing job market. Political Stability and Absence of This is playing a positive role in investor interest, and growth of The cultural ties between many Violence (the perceptions of the investor confidence in the continent. African countries and the west are likelihood that the government closer than they appear. will be destabilized or overthrown
  3. 3. by unconstitutional or violent African countries must take action Government should issue grants to strengthen their rating on the which encourage channeling of in- means, including domestic ease of doing business report. The vestment dollars into the creation and violence and terrorism), (c) expansion of global outsourcing com- Doing Business Project provides Government Effectiveness (quality panies. Companies focusing on Busi- objective measures of business of public services, civil service, regulations and their enforcement ness Process Outsourcing are an quality of policy formulation and across 181 economies and selected example. Boundaries for such grants implementation, and the cities at the subnational and can be structured as follows: If an regional level6. investor sets up a company which credibility of the government's creates a defined number of jobs, commitment to its policies), (d) while driving a defined amount of in- This project also measures and Regulatory Quality (ability of the vestment, they can claim back a de- ranks on the following: ease of government to formulate and fined amount per seat through the starting a business, dealing with implement sound policies and government grant. The clip levels for construction permits, employing the grant can be defined which al- regulations that permit and workers, registering a company, lows smaller investors to launch com- promote private sector getting credit, protecting investors, panies which will benefit from the development), (e) Rule of Law (the paying taxes, trading across grant. extent to which agents have boarders, and enforcing contracts. confidence in and abide by the 6. Collaboration between 3. Economic stability is a key government, academia, and busi- rules of society, in particular the success factor at a macro level. A ness is critical in order to fast-path quality of contract enforcement, focus on controlling inflation is key the journey which an African country the police, and the courts, as well for economic stability. must go through in establishing itself as the likelihood of crime and as an attractive global outsourcing violence), and (f) Control of 4. Social stability is an important destination. Each one of these three macro success factor. groups has a role to play, and each Corruption (the extent to which Unfortunately, African countries must focus on what it does best. public power is exercised for make up seven of the 10 most private gain, including petty and unstable countries which are Government must focus on and drive grand forms of corruption, as well named in Jane's Country Risk its core mandates as well as create as "capture" of the state by elites Ratings7. However, this data point an environment which encourages and private interests)4. has to be put into context as Africa the establishment and growth of glo- is made up of 52 countries, many of bal outsourcing companies, and at- which have social stability. tracting of FDI. The WGI reports aggregate and individual governance indicators for 5. Government investment Areas where government can play 212 countries and territories over the incentives - The following are key key roles include the following: (a) period 1996 to 2007 for these six inhibitors of IT global outsourcing taxation, (b) socio-economic, (c) in- dimensions of governance. To view a which can be addressed using vestment incentives, (d) homeland incentives, grants, and subsidies: security, and (e) financing for small country's report, please go to: businesses. (a) telecommunications costs, (b) affordability and access to wgi/index.asp broadband technologies (including Government Policy Makers must be VOIP), (c) import duties on much aligned with business and academia 2. Ease of doing business - in creating policies that make it easy needed infrastructure equipment, to start a global outsourcing business Global clients prefer to do business in (d) training and skilling up of an in the country (for both locals and countries where there is Ease of unskilled labor force at large- multinationals). The policies should doing business. Ease of doing enough scales which produce make it easy for business to grow sufficient supply to ensure labor business means that the regulatory and expand, and they should make it costs don't spiral-up fiercely thus easy for clients and investors to want environment is conducive to the making the country's labor rates to do business in the country. operation of business5 . unattractive.
  4. 4. Micro Issues: 7. Cost per call is an important issue which affects pricing structures and can make or break a country's ability to participate in global outsourcing. African emerging countries should seek measures which reduce the cost per call. Such measures include telecommunications deregulation for those countries where telecommunications monopolies exist. 8. Infrastructure is the backbone of global outsourcing. Under this category, we include all infrastructure elements such as: Business drives resource demand. as mathematics, science, computer telecommunications, clean power skills, money management, and the supply, network links within the This is based on the current beginnings of specialized information country, network links to the rest of market needs and future needs technology topics such as business the world with sufficient bandwidth which are mainly driven by business process outsourcing, call center and at competitive rates, and in its quest for profit-yielding- skills, phone etiquette, and deeper infrastructure security. differentiation strategies. specialized skills such as project management, business analysis, Such strategies sometimes result usage and support of applications, 9. A moderately skilled in innovative business models which etc. labour pool comprising of school in turn require different mixes of leavers can easily be skilled up to skills. Academic institutions historically enter the Business Process focused on teaching students to Outsourcing field8. Taking Africa's Academia must be closely aligned think. In today's environment, abundant labour pool and developing with the business as business academic institutions need to go a should provide insight on the types step further by teaching students to it into a skilled labour pool is a of skills academia should be be productive so they can easily pathway to development of skills. producing. enter the job market and be With high unemployment rates, Africa productive soon after graduation. must find new solutions to old Some universities in Africa are problems using technology. equipping students for a business Success will come in the environment that has long-since collaboration between Government, 10. A Growth-enabling evolved. Business and Academia. immigration policy is absolute Africa's university, college, and Collaboration should be a top necessity as most African countries technical curriculums need to be priority for countries seeking to will not have the needed experienced revitalized to better reflect the skill attract global outsourcing business. skills in-country. demands of today's business environment while anticipating the Countries should not only think of future businesses are going after. allowing skilled resources to enter the As such, middle schools and high country - they must put in place schools should teach subjects such programmes which attract skilled
  5. 5. resources to enter the country and Tax incentives may not be enough11 Foreign business analysts rate South - countries may find it necessary to Africa's Banking and Mineral sectors impart their knowledge and ensure that entry and exit costs are as among the best in the world12. experience while transferring skills to This, inspite of the local challenges sufficiently low. The same applies locals. An example of a country which seen with the energy crisis and politi- for ease of firing employees (firing is doing an exceptional job at this is costs). cal uncertainty. Canada. 15. Language alignment South Africa has a serious commit- between the client's country and ment to becoming a knowledge- 11. A focus on quality in based economy. The country spent service delivery is crucial and it can the supplier's country is important. more than $2 billion on research and If an African country has an be the single factor which determines development (R&D) over the 2006/7 abundance of French-speakers (for whether or not global outsourcing financial year13. The country has set example), it can target clients from clients choose to renew their the goal of spending 1% of Gross French-speaking states. Domestic Product (GDP) on research contracts. and development by the 2008/9 fi- 16. Timezone affinity allows a nancial year14. 12. Good Corporate country to play its time zone Governance is essential in attracting strength to its advantage by South Africa has a "Ten-Year Innova- targeting clients in similar zone tion Plan, which aims to help drive global clients. Most of these clients source countries. South Africa's transformation towards are bound by corporate governance a knowledge-based economy in policies such as Sarbanes Oxley, and 17. Specialization enables a which the production and dissemina- they will want to know that their country to pool its limited resource tion of knowledge leads to economic suppliers also have good corporate around a focused area of benefits15." A lot of the R&D work is governance policies in place. investment. This significantly performed in the sciences with engi- increases the country's ability to be neering sciences at 20.9%, natural Corporate governance is the set of known as great in a specific area of sciences at 20.3%, and medical and processes, customs, policies, laws specialization in global outsourcing. health sciences at 15.1%. and institutions affecting the way a This could be Business Process corporation is directed, administered, Outsourcing, or IT Outsourcing, or South Africa's historic human rights or controlled9 . A key objective of one of the specialized areas under issues were addressed and the coun- corporate governance is to ensure the these two broad outsourcings try has enjoyed economic and social categories. stability which enabled a host of in- accountability of individuals in an ternational companies to return to organization. South Africa. That has enabled and 18. Attrition management is important as attrition generally empowered South Africa in being 13. IT Governance entails erodes profits (due to separation viewed by international investors as leadership, process, and structure to and recruitment costs), which can Africa's main hub and a gateway for ensure the enterprise's IT enables and potentially result in higher prices for their investments and operations into the client - a scenario clients find the rest of Africa16. supports the enterprise's strategies unattractive. and objectives. It achieves this by A British defense ministry analyst, defining (a) what key decisions need 19. A tight handle on costs is Jane's Information Group published to be made, (b) who is responsible for key to success in the global Jane's Country Risk Ratings at the making them, (c) how they are made, end of March 2008. The report uses outsourcing environment. 3 major a reference point of 24 stability fac- and (d) the process and supporting drivers of cost are infrastructure, tors which include political, social, structures for making them, including labour, and location. economic, external, military, and se- monitoring adherence to the process curity. The report focuses on 235 and the effectiveness of decisions10 . countries, territories, and entities. In The marketplace in South Africa this report, South Africa was ranked 115th alongside strong economies 14. Ease of entry and exit of South Africa effectively meets the such as Ukraine and Vietnam17. investment dollars is a key critical success factors described consideration for investors. earlier in this paper.
  6. 6. In the same report, South Africa The cost per call in South Africa is position itself well on the Macro and was rated the second-most-stable more than Germany, Sweden, and Micro issues which have been highlighted in country in Sub-Saharan Africa be- the USA, however, the cost per call this white paper. hind Mauritius. in South Africa is less than the UK, France, Australia, and Finland. Government in South Africa has For those countries starting from a position of Compared to other African countries, made a conscious decision to seek telecoms rates in South Africa are weakness, this will be a journey. A good economic growth which is driven by still high - the government is working approach is for the country to map out its the Business Process Outsourcing on legislating substantially reduced strategic goals, to prioritize the areas where it Sector18. tariff packages20 to address. will focus its investment, and to apply massive action towards these goals. South Africa has built a well The official unemployment rate21 in developed telecommunications South Africa is 23%. However, infrastructure. The country should establish non-profit numbers as high as 40% are also quoted for South Africa's organizations whose sole mandate is to attract Through a consortium between unemployment rate22 depending on and encourage global outsourcing. These many countries and many whether the narrow definition or the non-profit organizations should be established companies, South Africa enjoys an broad definition is used in defining in the various provincial governments with a under-sea network links to the rest unemployment. The conclusion to be of the world through SAT 3 with focus on engaging in investor relations and drawn is that South Africa has a large back-up options. public relations campaigns. pool of people to tap into for skills development. South Africa Telecomms were They should invite investors to come and visit deregulated, creating an Though the country is a young the country and these sessions should be environment for competition which democracy, South Africa has hosted by senior officials (mayors, etc) to should yield an environment of continued to enjoy economic demonstrate commitment. competition which encourages stability, and social stability. reduced costs. They should engage in serious "show and The South African government Through a network of cellular prioritized its objective of global tell" with potential clients and with in-country service providers, South Africa has outsourcing (BPO) and has put in citizens to encourage them to take advantage established 3G Service in the major place investment incentives aimed at of this opportunity. metropolitan areas, and coverage is attracting foreign investors and continuing to expand. companies. About the author: Deregulation of Voice Over IP Evans Munyuki is the Group Chief South Africa is an attractive (VOIP). Up until 1 February 2005, Information Officer (CIO) at the Kelly Group. emerging country with a vibrant Telkom had a monopoly over the tourism industry. A total of 9.07 He previously worked for IBM for over 15 VOIP network in South Africa19. million foreigners visited South Africa years where he held many executive roles VOIP allows use of the internet for in 2007, an 8.3% increase over and key leadership roles. Evans is a Non- telephone calls without using a 200623. This is nearly three times the Exec Board Member on the IoD Board, a public switched telephone network. 3.9 million foreigners who visited member of the Institute of Directors (IoD), Once one has paid for the internet South Africa in 1994. connection, they don't have to pay and holds several business & management additional fees for the VOIP call, certifications including certification as an What should an emerging which makes the call virtually free. African country do to position IoD Certified Director. Evans holds degrees itself as an attractive global in Electronics Engineering, Project As is the case with most of Africa, outsourcing destination? Management, Business Administration, and South Africa enjoys close a minor in Computer Information Systems. synchronization with the time zones To position itself as an attractive in Europe. You can contact Evans at global outsourcing destination, an or +27 (0) 83 288 African emerging country should 4391.
  7. 7. References 1 SA Business Guidebook, Edition 9, published by the Department of Trade and Industry (DTI) South Africa 2 3 4 5 6 7 8 9 10 IT Governance Institute 11 12 13 14 15 16 17 18 19 20 22 22 23