Make outsourcing more than an Indian summer

South Africa has hit the international outsourcing map quite hard this year. While it remains a baby in the industry compared to India, offshore outsourcing has become a key strategy -particularly in the Western Cape province, which can offer a fairly well educated but currently under-employed workforce.

A number of things have happened over the past year to drive this trend. Firstly, the Western Cape government highlighted outsourcing, particularly call centres, as a strategic employment plan, especially with the opening of the Cape Gate e-government portal.

While the positioning of the Western Cape as an outsourcing hub seems a solid and practical idea, there are some difficulties that must be borne in mind.

Paul Vecchiatto, journalist, ITWeb

Then companies such as Computer Sciences Corporation (CSC) showed the way - CSC has won a number of major tenders and plans to employ around 1 000 people within five years.

A survey on business process outsourcing is due to be released in January by the Cape IT Initiative, a public-private partnership that aims to incubate ICT initiatives in the province.

Then there was the November announcement by insurance group Old Mutual that it will also be entering the outsourcing arena by creating an IT and administration division that will focus first on its own operations and services and then, if the opportunity occurs, through offering its services to other local and international companies.

More recently, international research firm Gartner held a workshop in the Cape and Gauteng, detailing how companies should go about outsourcing on the client and the service providers` sides. Gartner has been a long-time advocate of outsourcing. It has now coined the term 'strategic sourcing` as it believes that it is a critical business function which should be handled by an expert organisation.

While the positioning of the Western Cape as an outsourcing hub seems a solid and practical idea, there are some difficulties that must be borne in mind.

Firstly, the rand exchange rate can play havoc with companies` budgeting processes. The local currency has strengthened by about 30% against the dollar this year and looks set to go stronger as precious metal prices rise.

Then there is the fact that India has painstakingly built itself up as a leader in the ICT outsourcing industry. It produces around two million graduates a year and many speak English fluently way - giving it an edge in pure number terms.

Many Indian firms have grown out of British and US firms transferring some of their back office functions there in order to take advantage of lower operational costs. However, these firms have since expanded to other countries and have become multinationals in their own right.

Some Indian firms have begun exploratory talks with SA companies about the possibility of setting up their outsourcing operations here.

However, the biggest threat to the growth of the local outsourcing industry comes from domestic structural issues.

For instance, labour laws have almost become too rigid and the ICT industry requires flexibility. Just as outsourcing jobs can move into the country with ease, so they can move somewhere else.

Secondly, broadband is still way too expensive and until real competition emerges it will remain so, although Telkom has gone some way in trying to be flexible with large corporates on the issue.

Unless those aiming to set up such operations in the country are able to deal with these issues, they may find the current boom in outsourcing as short-lived as an Indian summer, rather than a sustainable strategy.