Best Shore: Johannesburg

Aug 22, 11 Best Shore: Johannesburg

When last were you, when addressing a problem with your printer or shiny new Apple junk-Mac, patched through to a call-centre in Alexandra? Numerous of those dreaded service-related calls have resulted in me being patched through to scripted Indians, incomprehensible Filipinos, and angry Glaswegians, but never to a cheerful Durbanite or chatty Bloemfonteinian. While outsourcing services to remote, low-wage economies has become industry standard for many large companies, South Africa, despite appearing to be an ideal offshoring location, has lagged behind other developing nations in raking in foreign capital.

The Indian model has been held up as an offshore example for over a decade. Booming in the late 90s, the IT sector in India has risen, to date, from below 1% to over 5% of GDP, in a country where only 7% of the population have access to the internet. The industry, which has created thousands of new jobs and drawn millions in foreign investment, contributes substantially to the sustained growth of this emerging market. Of the $30+ billion dollars of revenue generated by the services industry, about 75% is comprised of service “exports” to western-based multi-nationals.

Both government and the private sector have made large investment in colleges, which take some of the brightest students from a mediocre schooling system and turn them into professionals who are able to communicate effectively in English, follow well-defined processes and convert designs into deliverables. Though not necessarily delivering a full spectrum of business services, these centres excel in delivering the core bulk of IT requirements, from maintenance to development. This allows large technology companies to pay below-the-market prices for human resources and provide cheaper IT solutions to newly budget-conscious foreign institutions. Part of the revenue generated from the vast amount of work offshored to India is ploughed back into the education system and used to strengthen infrastructure – investment which supports business and benefits the economy as a whole.

South Africa, largely, has missed the wagon and hardly heard the band. While South Africa has established itself as the African outsourcing leader, resultant growth is not nearly as impressive as in Asia and eastern Europe. Politics, social reorganisation and a list of principled “high-priority” agendas have prevented the country from exploiting opportunities open to stable emerging economies. Human rights are often bandied, incorrectly, as a reason for not exploiting “cheap labour”, or “selling out” to bigger economies. Pride – probably misplaced – is a better explanation for this sort of hesitation. There is hope yet, opportunities are opening again. A high growth in professional wages in India, coupled with high staff turnovers of ambitious youth, has resulted in increased recruiting costs, diminishing margins and reducing the desirability of the Indian offshore capabilities. Companies in India are finding themselves squeezed out of the “core” delivery market and, mostly to good end, into higher value markets which better utilise the expertise gleaned from experience and maturity of the IT service industry.

While large IT companies have a strong presence in South Africa, few have established outsourced delivery capabilities to any scale. With low costs of living, a relatively stable political and economic climate, and an abundance of enthusiastic people with strong English skills, South Africa has a number of advantages over places like Lithuania or the Philippines. These countries need to make a concerted effort to provide English education to citizens, and the results are often stilted and unnatural. One could additionally argue that cultural differences between these countries and the western economies they service are large. South Africa, for all its advantages, is held back by legislature making cross-border employment and business difficult and unnecessarily expensive, limited technology-friendly infrastructure, an education policy which favours broad access over a strategic bias towards certain industries, and a lack of focused tertiary courses. A little more long-term investment in entrepreneurship wouldn’t hurt, either.

The education goals of South Africa, at least, are noble – but not mutually exclusive of targeting potential growth markets. The revenue generated by the Indian technology industry more than paid for the expensive universities which were established specifically to provide a narrow but effective set of IT skills to thousands of young people. These people, saved from a life of unpredictable employment, low-end trading or manual work, have turned into some of the global technology leaders of today. If there are good moral arguments against this model, I have yet to hear them. South African politicians and businessmen should realise that, by exploiting some of the otherwise unattractive features of an emerging economy, they can boost growth and wages while also fuelling some of the more philanthropic of their policies.

  • Anonymous

    There is little real development associated with creating jobs which are dependent on other economies’ growth. Further, what you are essentially selling in a call centre model is labour rather than any productive assets, setting a cap on the level of growth which can be achieved in the industry (as the growth of a call-centre is only proportional to the productivity of the people that it employs given that there can be no leveraging off of diminishing marginal costs). So while setting up IT call centres en masse may reduce unemployment and may bring in wage inflows (and as you suggest, pay for a few specialised institutions needed to sustain the industry), it is not clear that these benefits will have a significant long-term impact on productivity and a country’s growth and hence lead to long-term sustainable employment. So it’s an India versus China debate (http://www.economist.com/node/8592889?story_id=8592889). For a country as resource rich as South Africa, there are a number of other avenues which currently present more attractive opportunities for sustained job creation than call centres.
    So, while one would be hard-pressed to think of any convincing “moral” factors against a call-centre model, it is just not attractive in a South African context. As you point out, it is especially unattractive in light of South African government’s political agenda which views the exploitation of cheap labour very sinisterly (think New Growth Path). While there certainly seems to be some misdirection on the government’s part at present with a very myopic focus on employment, a large part of what government’s current macroeconomic policy seeks to achieve is what is alluded to in the first paragraph – investment in infrastructure and other key economic sectors to create long term growth. Government policy is (at least) quite rightly not concerned with creating hollow employment.