Bringing the Outsourced

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The South African department of trade and industry (DTI) is currently finalising the implementation of extensive legislative changes that will drastically improve the country's competitiveness in the race to attract process-outsourcing businesses. The new legislation is expected to add an estimated 100,000 jobs and attract $175m in cumulative foreign direct investment by 2009.

The comprehensive policy changes to industry regulations include calibrations of the Basic Conditions of Employment Act, the tax treatment of off-shoring services and elements of the Immigration Act, to make it easier and more alluring for foreign companies to choose the country as a base for outsourcing.

The department of trade and industry (DTI) indicated in their recommendations to parliament that the high cost of labour in the country is a leading factor in the perception that South Africa boasts an inflexible labour environment.

In an attempt to deal with some of these challenges, the DTI has suggested short-term legislative interventions, including assessing the impact of the Basic Conditions of Employment Act on the sector's growth strategy and requesting the South African Revenue Service (SARS) to clarify requirements for off-shoring services to be treated as valid exported services.

Most notably the DTI has addressed these issues head-on by proposing a robust "mega-project incentives" worth at least $131m to reduce the total cost of operations by as much as half for select companies.

South Africa has already shown great promise with its call centre industry. The sub-sector growth rate has stood at 8% per year over the past four years. The industry currently employs 54,000 call centre agents and contributes 0.92% to the GDP.

President Thabo Mbeki addressed outsourcing in his 2006 State of the Nation address, indicating the call centre industry as one of the high-potential sectors.

The government has created an experimental programme that will eventually train up to 30,000 South Africans to work in call centres as the government exerts efforts to make the country a more competitive destination for business process outsourcing for international companies.

Mandisi Mpahlwa, the trade and industry minister, informed the press that the government will initially train 1000 people for this programme and that a proposal for its funding has been prepared for the department of labour.

The department of communications has finalised an incentive package on information communications technology to produce 10 "developmental call centres" that the government intends locating in the more under developed rural areas.

Traditionally, countries such as India and the Philippines have led the way in servicing markets for the US and the UK. However, South Africa is quickly becoming a desired country for outsourcing due to many factors contributing its increasing competitive advantage.

High rates of fluency in English with neutral accents, time-zone compatibility with Europe, a favourable exchange rate and an advanced telecommunications industry all contribute to South Africa's growth as a destination for business process outsourcing; which includes the processing of accounts and claims, as well as front office activities such as call centres.

South Africa was ranked ahead of India and the Philippines in a 2005 report conducted by the Ion Group, which polled many of the UK's top 1000 companies for their ideal offshore location.

The country's efforts have not gone without recognition. In early 2006, UK telecommunications firm TalkTalk announced plans to spend $26m setting up two call centres in Cape Town and Johannesburg, in the biggest foreign investment yet in the country's call centre industry.

According to the investment agency Calling the Cape, which facilitated the TalkTalk deal, the body has worked on call centre deals in the Western Cape that have culminated in $122m in foreign direct investment (FDI) in 2005. Of this, 79% originated from the UK, with companies from Canada, Germany, the Netherlands and the US among others representing the remaining 21%.

Large companies already conducting process-outsourcing business in South Africa include Barclays, JP Morgan, Lufthansa, the Budget Group, Merchants/Asda, Dialogue and STA Travel.

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