With the rising cost of local production and labour in developed countries like the United States, many companies, especially in the IT arena are looking to the developed world for answers--and finding them. Countries like India have successfully positioned themselves as niche providers of outsourced labour in IT and are reaping the benefits. And, as analysts continue to predict a growth in this type of outsourcing, the opportunity is ripe for other developing countries to tap into this lucrative market. The question is: Can Africa capture a share of the offshore IT market?
US research firm Gartner Inc is predicting that the outsourcing segment will continue to outperform the western European IT services market overall, growing by 3.1% in 2004, then rising steadily during the next three years to an annual increase of 8% in 2007. Moreover, as a result of global outsourcing trends, Gartner predicts that up to 25% of traditional IT jobs in many developed countries today will be situated in emerging markets by 2010.
The move to offshore outsourcing is spurred on by increasing pressure on companies in the developed world to generate profits and reduce costs. Anton Groom of MBS Outsourcing says there is also a drive to follow the sun, to allow them to offer services 24/7 (24 hours, seven days a week). "It therefore makes sense to have offices located in the three primary time zones," says Groom.
He adds that with a client base expanding globally, it also makes sense to provide clients with a global delivery model. As the developing world gains momentum in creating pools of qualified, skilled talent, outsourcing to these regions becomes more attractive.
FOLLOWING INDIA'S LEAD :
India has managed to create a niche for itself in this area, but it has not happened overnight. Amar Vakil, CEO of Lintas, a US-based management-consulting firm, and founder of the Foreign Investment Promotion Council, explains that there are specific factors that have enabled India to position itself in such a manner. These factors are predominantly a skilled workforce and appropriate infrastructure.
"Twenty to 25 years ago, India was an underdeveloped country. There was a brain drain of skilled labour to developed countries, where, for example there was a need for engineers," says Vakil. "Ten to 15 years ago, people like me, with similar backgrounds, decided to move back to India and there was a huge impetus from government to build world class communications networks. Government started dabbling with public-private partnerships, which now, after 10 or so years are proving very effective."
While this may not be easy to replicate, Vakil believes there are lessons to be learned from India and other countries like the Philippines which have attracted a strong outsource base. "The playing field is level. It is not India's game at all," he says. Although India was one of the first to position itself in this way, "there is an opportunity for other countries to tap into this potential".
Where India focused on information technology and software development, African countries wanting to tap into this opportunity will need to look at IP-enabled services.
Everdream founder and vice-president, Lyndon Rive, agrees that Africa can move into this arena. "Third world countries are getting educated enough to offer IT support, making them an untapped resource," he says. Everdream provides hosted IT software applications and services that protect, manage and support personal computers at medium and large organisations.
In fact, Rive says, many companies are moving away from India as the place to outsource, because of the labour churn that is taking place in India. And African countries have a whole lot going for them.
AFRICA'S STRENGTHS
Chief among the strengths of the African continent, says Rive, is the fact that English is really strong. "It is a different accent, but it is well understood. Sometimes Chinese or Indian speakers of English are not so easy to understand," he says. Everdream has had experience working with companies in Costa Rica and Rive stresses that in cross-border transactions the "language barrier is an issue".
Certain African countries are also making progress in positioning themselves as hubs for IT and thus attracting IT business to their shores. Mauritius, for example, is building on a concept similar to Dubai Internet City, with its own Mauritius CyberCity. In South Africa, Cape Town has worked hard to position itself as an IT hub on the continent.
According to Vakil, Ghana has the potential to tap into this market from the perspective that it has had a very stable government for the last 20 years and the workforce is fairly motivated. "For example, New York's parking ticket system is managed from Ghana. The challenge here is that government is not geared to capture this opportunity," says Vakil.
Nigeria, on the other hand, has an entire ministry for ICT, but, says Vakil, there is a major disconnection between government and the private sector.
"I think Africa is a phenomenal resource," says Rive. "It has extremely smart people."
AFRICA'S WEAKNESSES
Of course, there are challenges to positioning African countries as ripe for offshore outsourcing. There are questions about the stability of certain African governments, which may deter investors from moving to the region. Political instability is currently impacting India's offshore outsourcing niche.
Groom says that there is also much bureaucracy in dealing with governments in African countries, though some have made strides in making it easier for companies to build offshore.
Vakil uses the example of Ghana where it takes six months to form a company because of the initial processes, which have been in place for such a long time. "It could be perceived as an opportunity to change the regulations for business so that businesses are welcome to come in and operate."
In addition, says Groom, many African countries do not have the needed communications infrastructure to take advantage of the opportunities. The legislative environment can also hinder foreign involvement. "It's about protection. If we build an office in that country, will we have good judicial system to back us up?" Groom asks.
The language issue also plays a role, though Groom, like Rive, points out that countries like South Africa have a strong English-speaking workforce, and Francophone Africa with its French-speaking population is attractive to many European countries.
While Africa is wrongly perceived as an unattractive region for investment, Groom points out that Africa supplies the highest rate of return on investments, though it only gets a small proportion of the total investments. "Of course, the risks are higher," he says.
If Africa is to tap into this potential gold-mine, government and industry need to work together to create an environment that fosters an interest from companies in the US and Europe.
"Government's involvement is very important, but it needs to be more of a partnership," says Vakil. "The private sector needs to partner with government to create an enabling environment. Together they can adapt to the changing needs of the sector. In India, for example, there is a need to move out of the urban hub into rural areas, because it is not cost-effective to remain in the urban areas." Vakil is "reasonably certain" that government in India is looking at ways and means of bringing rural areas into the economic growth.
The private sector needs to create interest in government to get involved in such public-private partnerships.
It is also vital that African countries nurture tertiary education, customising tertiary education courses to capture the market and produce the needed skills to be attractive to investors. "India focused on creating engineers. There are 250,000 to 300,000 engineers coming out of universities in India at the moment," says Vakil.
COMMUNAL APPROACH
To be successful, it is necessary to build the community as a whole. But understandably developing countries have limited capital to put this in place. Vakil points out that there are agencies out there that can really assist them.
He adds that government needs to let go of some control. "In India, about eight years ago we were involved with a water project. It took us seven years to build the partnership with government. A second project near that same region took about nine months," says Vakil. "There are definitely ways to help put effective partnerships in place sooner, but they cannot be replicated as is, because every country is different."
There are many areas in which African countries, eager to move into this space, can carve out a niche for themselves. The lucrative call centre sector is one such area. Creating an environment that makes offshore outsourcing in Africa attractive can have many positive spin-offs for the continent as a whole, not just in terms of increased employment, additional revenue and new skills, but also in terms of changing the perception the developed world has about Africa.
