Outsourcing Guides
South Africa offers a combination of affordable labour, a highly qualified workforce and access to multi-talented individuals.
The global workplace offers businesses of all sizes access to new talent acquisition opportunities around the world. Innovations in digital transformation enable remote collaboration between teams based in multiple countries. Whether working freelance or hiring employees, outsourcing to South Africa can help you reduce your expenditure on labour while also giving you the chance to broaden the skillset within your team. In this article, we’ll offer insights into the best ways to outsource to South Africa safely, legally and effectively.
Set your goals
Before deciding to outsource, make sure you know what you hope to get out of the process. The most common reasons for outsourcing tend to include:
•Saving money: The primary motivation has always been to reduce labour costs by hiring from countries with lower averages. Countries such as India and the Philippines, which offer a diverse and educated workforce together with high levels of English proficiency, have been among the most popular destinations due to their extremely low cost of labour. However, complaints of poor customer service and questions about data security have encouraged some firms to look for alternatives.
•Accessing new talent: To thrive in the modern market, businesses need to become multi-talented and bring a much wider range of skills into the organisation. However, a shortage of workers and wage expectations can make life difficult for some firms. Expanding your talent search into a third country gives you a chance to source talent that might not be available in your local area.
•Expand into new markets: Businesses often seek to hire overseas teams to manage overseas expansion. They provide the benefit of better market knowledge and expertise that can help build a more successful strategy for that particular market. Using outsourcing firms or employers of record allows businesses to build that locally sourced team without the expense of setting up a foreign subsidiary.
Think about the full costs.
If saving money is your primary goal, think about the costs in three dimensions. While low wages work from a bottom line perspective, associated costs can come in many forms, such as lost customer loyalty, lower quality of customer service and potential data security risks. India, for example, has struggled to contain rising levels of cybercrime and fraud that have put business and customer data at risk. Countries that offer weak governance procedures or inconsistent regulations can make risky outsourcing locations.
Other governments will also sweeten the deal by offering a wide range of incentives and grants. South Africa, for example, offers a range of grants and tax credits for foreign businesses that create jobs in South Africa. The scale of this support varies depending on the number of jobs created and the level of the salaries offered. Taking government support into account can drastically alter the return on investment calculation of any outsourcing venture.
The full costs of the relationship can also depend on how you work with employees. Employing directly is the simplest but requires a legal entity in the country and, in most cases, hiring administrative and financial teams to manage the employment relationship.
Alternatively, if you’re working with a third-party company to manage outsourced employees in the country, you’ll likely be paying a fee on top of the basic employee. This will vary from one provider to another, but will generally be between 10 and 20% of the overall wage packet. This makes the cost per employee slightly higher, but it does save on admin costs.
Decide how you’ll work with employees.
There are many different ways to work with professionals, from one-off freelance contracts to ongoing full employment.
In the early days, you may choose the simplest route of working with contractors. They will handle their own tax affairs, with you simply arranging payment on a per-project basis.
As you start to work with them more regularly, though, the relationship may change to the point that it’s beneficial to employ them full-time. Some countries also have strict regulations regarding worker classification to prevent companies from presenting defector employees as if they were freelancers.
When employing employees, you’ll have to decide whether to do it directly through a foreign subsidiary or hire third parties such as agents, BPO providers or employers of record. Each of these options sees the third party taking on responsibility as the legal employer of the worker, while they provide services to you.
Careful consideration should be given to avoid any regulatory confusion over which entity is responsible for paying taxes. Some options, such as using a Professional Employers Organisation (PEO), use a shared employment model, which can muddy the waters. The PEO takes on responsibility for HR admin while you handle the day-to-day working operations. Ultimately, though, you will have legal liability for the employee and will have to set up a legal entity in the country.
Focus on quality
Last but not least, it pays to focus on quality. This sounds straightforward, but for all the company rhetoric, it often comes at the bottom of the list. I the past, firms have embarked on outsourcing ventures solely with the desire to cut costs. In most cases, the strategy floundered in the face of poor performance and customer complaints.
When setting up your outsourcing strategies, think about the location you’re targeting and the available workforce within it. You’ll need to source countries and economies that have a good supply of talent with experienced professionals with the skills and background you need.
Countries such as South Africa have come to the fore in recent years precisely because they offer value for all these points. Wages are around 50% the levels in the UK or Europe. The workforce is young, educated and highly qualified with particular skills in sought-after sectors such as technologies, finance and marketing.
Government support helps reduce the overall costs, while a strong reputation for governance provides reassurance over security and data protection. It’s a different model from the traditional approach to outsourcing – one which blends cost savings with quality, professionalism and value. It provides access to highly skilled individuals who can supplement your existing team and deepen your available talent pools. It helps manage costs, but more importantly, it can give your company access to people with the skills you need to drive your business forward.
