Cost & Salary Insights
Want to know if outsourcing to South Africa is worth it? Here’s a complete rundown of the likely costs and opportunities.
South Africa is turning heads in the outsourcing world. Its commitment to quality, together with its highly skilled workforce, promises to address many of the challenges of conventional business process outsourcing. However, while wages in South Africa are much lower than in the UK, they are still considerably higher than in places such as India or the Philippines. With costs still being the primary motivation for businesses when considering outsourcing, how does the bottom-line calculation stack up?
South Africa’s outsourcing offering
South Africa has gained a reputation as a rising star of the outsourcing market thanks to a blended offering of low costs and high quality. South Africa’s outsourcing sector benefits from several advantages that give it the edge over places such as India:
- Language skills: Although English is widely spoken all over the world, customers often struggle to understand thick accents. In South Africa, English is spoken fluently with a clear accent that can easily be understood over the phone.
- Time zones: South Africa is only a couple of hours different from Europe, which makes for a good match with the European working day.
- Infrastructure: South Africa has invested heavily in its technological infrastructure. High-speed internet is common across all major cities, and BPO companies offer world-class infrastructure that will match any other location in the world.
- Workforce: South Africa’s workforce is young, diverse, highly educated, and ambitious. Whatever sector you work in, there’s a ready supply of talent just waiting to be tapped.
South Africa’s promise is tempting: a talented workforce, at an affordable price, offering a reliable, high-quality service. For most companies, the first and only metric they will look at will be price, so let’s run that down.
Cost of employment
Labour costs in South Africa are significantly higher than in the lowest-cost outsourcing hubs. Exact comparisons vary from one industry to another, but in general, wages in South Africa are around 50% comparable levels in the UK. Wages can also vary from one city to another, so it’s worth comparing the cost of living from one city to another before making your choice.
The overall cost of each employee can also depend on how you work with them. For example, if you have a foreign subsidiary, you can employ them directly, which means you’ll pay only their wages and the cost of PAYE responsibilities and employer-side taxes.
However, you’ll also have to shoulder the costs of supporting a foreign legal entity in South Africa and hiring all relevant support staff, such as an HR and accountancy department.
Working through a BPO company is relatively affordable. You’ll pay a fee to the BPO company, which provides access to certain services such as customer service agents. This is relatively cheap and simple to get started, but you will have little say on the people working for you. This can lead to problems with customer service outcomes that can be hard to control.
An employer of record (EOR) can offer a little more control. The EOR works as the legal employer of your South African workforce and handles details such as PAYE, administration of all employees, and meeting legal obligations. The EOR will pass all those costs onto you as a business, together with a fee of about 10 to 20%. For each employee you will be paying a small premium, therefore, but you do save on the costs of setting up a subsidiary and employing administrators to manage the employment.
In general, though, the overall cost of outsourcing to South Africa will be substantially lower than employing people in the West. However, on the pure basis of the wage, it will be a little higher.
Quality costs
However, that’s not the only cost you should be thinking about. South Africa has worked hard to bolster its reputation for quality. It does that not only by being able to supply workers who can make themselves understood, but by implementing robust technological infrastructure and governance to make the process as quick as possible.
South Africa has a strong regulatory and data protection framework with regulations that match those of other countries around the world. BPO companies maintain best-in-class security provisions and ensure all data is held securely and transparently in accordance with GDPR and other relevant data protection laws.
That commitment to quality has real value. Poor quality BPO operations lose money through lower customer retention, security risks, and penalties for non-compliance. The risks of those costs should be factored in when considering a BPO partner.
Government support
The BPO sector is one of the biggest employers in South Africa, something that has been recognized by the government in the form of a highly favourable regulatory environment. They see the BPO sector as being a great tool to attract foreign investment and have offered support to encourage more.
Companies that create jobs in South Africa can benefit from a range of support and grants based on the number and type of jobs they create. Other regional support measures are also in place elsewhere in the country, together with support designed to attract investment into areas with high levels of unemployment.
The precise level of support on offer will vary from one company to the next and will depend on the number of jobs you intend to create and how you’re working in the country. However, it’s perfectly possible that when the dust settles, the final cost of hiring in South Africa is every bit as low as in the traditional low-cost hubs of India.
A blended offering such as South Africa’s deserves a blended approach to calculating ROI. The cost of hiring in South Africa might be higher than other alternatives on a purely wage basis, but when you factor in a reputation for improved quality, customer experience, and data security, together with that government support, the true ROI begins to look very favourable indeed. That’s why more and more companies are choosing to outsource to South Africa.
