Outsourcing Guides
South Africa’s emergence in the business process outsourcing sector has been a game-changer for hiring companies around the world.
The last ten years have witnessed consistent growth in the business process outsourcing industry as businesses seek increased cost savings and flexibility. According to recent figures from Grand View Research, the market is expected to grow at almost 10% year on year between 2025 and 2030, reaching an estimated $525.23bn. Much of that growth will come from South Africa as companies seek a blended return of cost savings and value for money.
South Africa’s convenient location with just a two-hour time difference, low cost of labour and high levels of English proficiency appeal to businesses for several reasons. For many, it’s a chance to access new talent at a more affordable rate. For others, it’s a chance to outsource functions such as customer service without reducing levels of quality and customer satisfaction. Whatever the reason, South Africa’s growing appeal stems from a desire to optimise, rather than minimise spending. Rather than opting for the bottom price outsourcing destinations such as India and the Philippines, businesses are looking to spend a little more in return for an expected higher level of service.
South Africa’s accessibility, proximity, and excellent technological infrastructure mean businesses of all sizes are weighing up outsourcing options. If you’re one of them, this guide will help you determine if outsourcing in South Africa is right for you, and if so, how best to go about it.
The cost of outsourcing to South Africa
The main motivation for any company choosing outsourcing remains the same as it ever was – to save a little money. However, when calculating the costs of outsourcing, companies often fail to look at the big picture and instead look at the key bottom line.
Compared to the UK and other European markets, South Africa’s labour force is relatively affordable. In general, wages are around 50% the levels you might expect in the UK, although this can vary depending on the job role and region. That’s a big discount compared to domestic workers, but it is considerably higher than in countries such as India, where average wages are a tiny fraction of the UK.
Against that, though, you should consider associated costs, which come in several forms.
•Delays: South Africa is only a couple of hours ahead of the UK, which means the working days can match up. There will be no delay in getting responses from South African staff when asking questions or assigning work, leading to a faster turnaround and easier collaboration.
•Customer satisfaction levels: Poor levels of customer satisfaction have caused many of the UK’s biggest firms to relocate outsourced services from India to the UK. Customers complain about data protection concerns, long wait times, and difficulties understanding heavy accents. Lower levels of customer satisfaction translate to reduced customer retention, lower revenues and increased costs of business acquisition.
•Security risks: Variable levels of governance have impacted the reputation of some outsourcing destinations. A failure to safeguard customer data can lead to heavy fines and disrupt trust with customers.
South Africa has positioned itself as offering a blended approach based on quality, security and reliability. Strong governance procedures, excellent digital infrastructure and robust regulations aim to reduce the risk of fraud and cybercrime while ensuring customers experience higher levels of quality. South Africa has earned itself for superior levels of customer satisfaction, which in turn pays back by higher levels of customer retention.
The fact that English is widely spoken with a clear neutral accent shouldn’t be underestimated either. Improved communication helps resolve queries more quickly and also helps to establish deeper relationships with customers. This, in turn, opens up new revenue opportunities, increasing average revenue levels for each customer.
Government attitude
In addition to this, South Africa’s government has made a point of adopting a pro-business attitude, especially when it comes to foreign investment. The BPO sector is the biggest source of employment in South Africa and has done much to provide its workforce with the high–paying jobs it needs.
Unsurprisingly, therefore, the government has sought to incentivise foreign investment into the country through the BPO sector. Any company creating jobs within South Africa can benefit from generous tax credits and grants depending on the number of jobs created. Once the value of these grants has been taken into account, the overall cost of outsourcing to South Africa will often be much lower than the headline rate.
Employing people in South Africa
When calculating the true cost of outsourcing in South Africa, we also have to take into account the way in which outsourced employees are handled. When hiring in South Africa, you may adopt several options, each of which will have different cost implications.
•BPO companies: The first and simplest is to work with a BPO company offering outsourced services. The BPO company provides specific services such as call centre work, for example. This can be relatively cheap and simple, and fast to set up.
•Employers of Record: An EOR can be used to act as the legal employer of workers in South Africa. It will be responsible for managing employment admin and for paying the workers. You will pay a fee which covers their salaries, employer contributions and a fee for the EOR.
•Professional Employers Organisation: A PEO works in much the same way, but it does not act as the legal employer. This means you’ll need a legal entity within South Africa. The PEO effectively serves as an outsourced HR service, with you focusing on the day-to-day activities.
•Direct employment: The old-fashioned approach would be to employ them directly. However, this involves setting up a legal entity with all the costs that come with it. The direct option also lacks flexibility. Hiring new staff can take more time, as can reducing staff. If you need to cut back, you’ll have to make sure all legal procedures are followed.
Outsourcing to South Africa
Outsourcing to South Africa, therefore, can offer immense value for Western companies, but it is also a very different proposition to what many will be accustomed to. It offers more than just a way to save money on labour costs, but helps your business transform and combine those savings without sacrificing quality for your customers. As the world becomes more global, outsourcing to South Africa can be an excellent option for businesses of all sizes.
