What should emerging African countries do toposition themselves as attractive GlobalOutsourcing Destinations?

1 COUNTRY GOVERNANCE

2 EASE OF DOING BUSINESS

3 ECONOMIC STABILITY

4 SOCIAL STABILITY

5 GOVERNMENT INVESTMENT

INCENTIVES

6 COLLABORATION BETWEEN

GOVERNMENT, BUSINESS, AND

ACADEMIA

7 COST PER CALL

8 INFRASTRUCTURE

9 LABOUR POOL

10 GROWTH-ENABLING

IMMIGRATION POLICY

11 FOCUS ON QUALITY IN SERVICE

DELIVERY

12 CORPORATE GOVERNANCE

13 IT GOVERNANCE

14 EASE OF ENTRY AND EXIT OF

INVESTMENT DOLLARS

15 LANGUAGE

16 TIMEZONE AFFINITY

17 SPECIALIZATION

18 ATTRITION MANAGEMENT

19 A TIGHT HANDLE ON COSTS

This whitepaper examines theenvironmental success factor'swhich are necessary to ensuresuccess in any African country'sambition to position itself as aninformation technology (IT)Global Outsourcing destination.

This whitepaper discusses thekey considerations both at amacro and a micro level, and ithighlights an African countrywhich has gone far down thisroad in positioning itself as anattractive global outsourcingdestination.

The contents of this whitepaperwere originally presented by theauthor to the President of Kenya,President Mwai Kibaki, at the2006 Kenya ICT StrategyConference in Nairobi, on Feb 28th,2006. In attendance were hundredsof representatives of government,business, and academia.

• Why do companies outsource?Companies outsource to (a) reduce

operational cost, (b) improve

PAGE ONE: Overview Why do companies outsource? Why is Africa looking at global outsourcing?PAGE TWO: Why are global clients are considering Africa? Africa’s critical success factors.PAGE FIVE: The marketplace in South Africa.PAGE SIX: What should an emerging African country do to position itself as an attractive global outsourcing destination?

company focus on their corecompetencies, (c) shift risks tothe outsourced supplier, (d) gainaccess to a wider range of skills,(e) gain access to IT goodpractice, and (f) enable thecompany to focus on their corebusiness.

Why is Africa looking at globaloutsourcing?

In Africa, the ICT sector'scontribution to Gross DomesticProduct (GDP) is far less thancontribution by the same in otherdeveloping nations1 .

The global outsourcing industrynow exceeds $700B2 (sevenhundred billion dollars). Africa isnot getting a representativeshare of this industry and wouldlike to play.

Africa has notable unemploymentchallenges. Job creation is a topagenda item for many Africangovernments.

Africa realizes that specializationis taking place in manycountries.

I n T h i s W h i t e p a p e r :

Overview

Evans MunyukiChief Information Officer (CIO) - Business & Technology Strategist

September 2008

This makes it easier for African ITemployees to interact with and serveUK and USA clients. These marketsare attractive prospects for Africa.

Some countries in Africa haveinvested in a highly stable bankingindustry.

Clients are considering Africa inorder to increase choice, and get analternative to the eastern globaloutsourcing solutions.

Africa's critical success factorsWhat key factors create the right

environment for global outsourcingbusiness success?

In order to establish themselves asattractive global outsourcingdestinations, African countries mustconsider a wide range of factorswhich are necessary for the free flowof Foreign Direct Investment (FDI).

Macro Issues:1. Good Country Governance

is very important. Governanceconsists of the traditions andinstitutions by which authority in acountry is exercised3 .

Governance indicators as measuredand reported by the WorldwideGovernance Indicators (WGI) projectare: (1) Voice and Accountability (theextent to which a country'scitizens are able to participate inselecting their government;freedom of speech; freedom ofassociation; and a free media), (b)Political Stability and Absence ofViolence (the perceptions of thelikelihood that the governmentwill be destabilized or overthrown

She understands that she is notgoing to be the lowest cost, highvolume manufacturer of the world.

Africa realizes that she has a lotof the raw materials necessary tocredibly participate in the GlobalOutsourcing industry. These includelarge populations of people, easy tounderstand English accents, and anaptitude to educate the populations.

Demand for service out of Indiaand China is so high to the pointwhere partners to these outsourcinggiants can provide value - especiallyin those areas where India andChina have not chosen to focus.

Global outsourcing can be a hugebooster for economic developmentin Africa.

Why are global clientsconsidering Africa?

Increasingly, governments inAfrican countries are embracingdemocracy.

This is playing a positive role ininvestor interest, and growth ofinvestor confidence in the continent.

Africa has a widespread usage ofEnglish. It also has pockets of otherlanguage capabilities such asAfrikaans (easily cross-skilled toDutch), Spanish, French, andPortuguese.

The geographic location of manyAfrican countries along with theirtime zones is an advantage, both forEuropean clients who may preferclose time zone alignment, and forAmerican clients who may seek thebenefits of a "follow-the-sun"productivity strategy.

Some African countries (such asSouth Africa) have the necessarygood quality infrastructure.

From a human resourceperspective, Africa has large laborpools. While many of them areunskilled in ICT, with focused-government-resolve to skill theselabor pools, Africa can see herselfstand credibly in certain niche areaswhere it can compete convincinglyon the global outsourcing job market.

The cultural ties between manyAfrican countries and the west arecloser than they appear.

by unconstitutional or violentmeans, including domesticviolence and terrorism), (c)Government Effectiveness (qualityof public services, civil service,quality of policy formulation andimplementation, and thecredibility of the government'scommitment to its policies), (d)Regulatory Quality (ability of thegovernment to formulate andimplement sound policies andregulations that permit andpromote private sectordevelopment), (e) Rule of Law (theextent to which agents haveconfidence in and abide by therules of society, in particular thequality of contract enforcement,the police, and the courts, as wellas the likelihood of crime andviolence), and (f) Control ofCorruption (the extent to whichpublic power is exercised forprivate gain, including petty andgrand forms of corruption, as wellas "capture" of the state by elitesand private interests)4.

The WGI reports aggregate andindividual governance indicators for212 countries and territories over theperiod 1996 to 2007 for these sixdimensions of governance. To view acountry's report, please go to:http://info.worldbank.org/governance/wgi/index.asp

2. Ease of doing business -Global clients prefer to do business incountries where there is Ease ofdoing business. Ease of doingbusiness means that the regulatoryenvironment is conducive to theoperation of business5 .

African countries must take actionto strengthen their rating on theease of doing business report. TheDoing Business Project providesobjective measures of businessregulations and their enforcementacross 181 economies and selectedcities at the subnational andregional level6.

This project also measures andranks on the following: ease ofstarting a business, dealing withconstruction permits, employingworkers, registering a company,getting credit, protecting investors,paying taxes, trading acrossboarders, and enforcing contracts.

3. Economic stability is a keysuccess factor at a macro level. Afocus on controlling inflation is keyfor economic stability.

4. Social stability is an importantmacro success factor.Unfortunately, African countriesmake up seven of the 10 mostunstable countries which arenamed in Jane's Country RiskRatings7. However, this data pointhas to be put into context as Africais made up of 52 countries, many ofwhich have social stability.

5. Government investmentincentives - The following are keyinhibitors of IT global outsourcingwhich can be addressed usingincentives, grants, and subsidies:(a) telecommunications costs, (b)affordability and access tobroadband technologies (includingVOIP), (c) import duties on muchneeded infrastructure equipment,(d) training and skilling up of anunskilled labor force at large-enough scales which producesufficient supply to ensure laborcosts don't spiral-up fiercely thusmaking the country's labor ratesunattractive.

Government should issue grantswhich encourage channeling of in-vestment dollars into the creation andexpansion of global outsourcing com-panies. Companies focusing on Busi-ness Process Outsourcing are anexample. Boundaries for such grantscan be structured as follows: If aninvestor sets up a company whichcreates a defined number of jobs,while driving a defined amount of in-vestment, they can claim back a de-fined amount per seat through thegovernment grant. The clip levels forthe grant can be defined which al-lows smaller investors to launch com-panies which will benefit from thegrant.

6. Collaboration betweengovernment, academia, and busi-ness is critical in order to fast-paththe journey which an African countrymust go through in establishing itselfas an attractive global outsourcingdestination. Each one of these threegroups has a role to play, and eachmust focus on what it does best.

Government must focus on and driveits core mandates as well as createan environment which encouragesthe establishment and growth of glo-bal outsourcing companies, and at-tracting of FDI.

Areas where government can playkey roles include the following: (a)taxation, (b) socio-economic, (c) in-vestment incentives, (d) homelandsecurity, and (e) financing for smallbusinesses.

Government Policy Makers must bealigned with business and academiain creating policies that make it easyto start a global outsourcing businessin the country (for both locals andmultinationals). The policies shouldmake it easy for business to growand expand, and they should make iteasy for clients and investors to wantto do business in the country.

Micro Issues:7. Cost per call is an important

issue which affects pricing structuresand can make or break a country'sability to participate in globaloutsourcing. African emergingcountries should seek measureswhich reduce the cost per call. Suchmeasures includetelecommunications deregulation forthose countries wheretelecommunications monopolies exist.

8. Infrastructure is thebackbone of global outsourcing.Under this category, we include allinfrastructure elements such as:telecommunications, clean powersupply, network links within thecountry, network links to the rest ofthe world with sufficient bandwidthand at competitive rates, andinfrastructure security.

9. A moderately skilledlabour pool comprising of schoolleavers can easily be skilled up toenter the Business ProcessOutsourcing field8. Taking Africa'sabundant labour pool and developingit into a skilled labour pool is apathway to development of skills.With high unemployment rates, Africamust find new solutions to oldproblems using technology.

10. A Growth-enablingimmigration policy is absolutenecessity as most African countrieswill not have the needed experiencedskills in-country.

Countries should not only think ofallowing skilled resources to enter thecountry - they must put in placeprogrammes which attract skilled

Business drives resource demand.

This is based on the currentmarket needs and future needswhich are mainly driven by businessin its quest for profit-yielding-differentiation strategies.

Such strategies sometimes resultin innovative business models whichin turn require different mixes ofskills.

Academia must be closely alignedwith the business as businessshould provide insight on the typesof skills academia should beproducing.

Some universities in Africa areequipping students for a businessenvironment that has long-sinceevolved.

Africa's university, college, andtechnical curriculums need to berevitalized to better reflect the skilldemands of today's businessenvironment while anticipating thefuture businesses are going after.

As such, middle schools and highschools should teach subjects such

as mathematics, science, computerskills, money management, and thebeginnings of specialized informationtechnology topics such as businessprocess outsourcing, call centerskills, phone etiquette, and deeperspecialized skills such as projectmanagement, business analysis,usage and support of applications,etc.

Academic institutions historicallyfocused on teaching students tothink. In today's environment,academic institutions need to go astep further by teaching students tobe productive so they can easilyenter the job market and beproductive soon after graduation.

Success will come in thecollaboration between Government,Business and Academia.

Collaboration should be a toppriority for countries seeking toattract global outsourcing business.

resources to enter the country andimpart their knowledge andexperience while transferring skills tolocals. An example of a country whichis doing an exceptional job at this isCanada.

11. A focus on quality inservice delivery is crucial and it canbe the single factor which determineswhether or not global outsourcingclients choose to renew theircontracts.

12. Good CorporateGovernance is essential in attractingglobal clients. Most of these clientsare bound by corporate governancepolicies such as Sarbanes Oxley, andthey will want to know that theirsuppliers also have good corporategovernance policies in place.Corporate governance is the set ofprocesses, customs, policies, lawsand institutions affecting the way acorporation is directed, administered,or controlled9 . A key objective ofcorporate governance is to ensure theaccountability of individuals in anorganization.

13. IT Governance entailsleadership, process, and structure toensure the enterprise's IT enables andsupports the enterprise's strategiesand objectives. It achieves this bydefining (a) what key decisions needto be made, (b) who is responsible formaking them, (c) how they are made,and (d) the process and supportingstructures for making them, includingmonitoring adherence to the processand the effectiveness of decisions10 .

14. Ease of entry and exit ofinvestment dollars is a keyconsideration for investors.

Tax incentives may not be enough11

- countries may find it necessary toensure that entry and exit costs aresufficiently low. The same appliesfor ease of firing employees (firingcosts).

15. Language alignmentbetween the client's country andthe supplier's country is important.If an African country has anabundance of French-speakers (forexample), it can target clients fromFrench-speaking states.

16. Timezone affinity allows acountry to play its time zonestrength to its advantage bytargeting clients in similar zonesource countries.

17. Specialization enables acountry to pool its limited resourcearound a focused area ofinvestment. This significantlyincreases the country's ability to beknown as great in a specific area ofspecialization in global outsourcing.This could be Business ProcessOutsourcing, or IT Outsourcing, orone of the specialized areas underthese two broad outsourcingscategories.

18. Attrition management isimportant as attrition generallyerodes profits (due to separationand recruitment costs), which canpotentially result in higher prices forthe client - a scenario clients findunattractive.

19. A tight handle on costs iskey to success in the globaloutsourcing environment. 3 majordrivers of cost are infrastructure,labour, and location.

The marketplace in South Africa

South Africa effectively meets thecritical success factors describedearlier in this paper.

Foreign business analysts rate SouthAfrica's Banking and Mineral sectorsas among the best in the world12.This, inspite of the local challengesseen with the energy crisis and politi-cal uncertainty.

South Africa has a serious commit-ment to becoming a knowledge-based economy. The country spentmore than $2 billion on research anddevelopment (R&D) over the 2006/7financial year13. The country has setthe goal of spending 1% of GrossDomestic Product (GDP) on researchand development by the 2008/9 fi-nancial year14.

South Africa has a "Ten-Year Innova-tion Plan, which aims to help driveSouth Africa's transformation towardsa knowledge-based economy inwhich the production and dissemina-tion of knowledge leads to economicbenefits15." A lot of the R&D work isperformed in the sciences with engi-neering sciences at 20.9%, naturalsciences at 20.3%, and medical andhealth sciences at 15.1%.

South Africa's historic human rightsissues were addressed and the coun-try has enjoyed economic and socialstability which enabled a host of in-ternational companies to return toSouth Africa. That has enabled andempowered South Africa in beingviewed by international investors asAfrica's main hub and a gateway fortheir investments and operations intothe rest of Africa16.

A British defense ministry analyst,Jane's Information Group publishedJane's Country Risk Ratings at theend of March 2008. The report usesa reference point of 24 stability fac-tors which include political, social,economic, external, military, and se-curity. The report focuses on 235countries, territories, and entities. Inthis report, South Africa was ranked115th alongside strong economiessuch as Ukraine and Vietnam17.

position itself well on the Macro andMicro issues which have been highlighted in

this white paper.

For those countries starting from a position ofweakness, this will be a journey. A goodapproach is for the country to map out itsstrategic goals, to prioritize the areas where itwill focus its investment, and to apply massiveaction towards these goals.

The country should establish non-profitorganizations whose sole mandate is to attractand encourage global outsourcing. Thesenon-profit organizations should be establishedin the various provincial governments with afocus on engaging in investor relations andpublic relations campaigns.

They should invite investors to come and visitthe country and these sessions should behosted by senior officials (mayors, etc) todemonstrate commitment.

They should engage in serious "show andtell" with potential clients and with in-countrycitizens to encourage them to take advantageof this opportunity.

About the author:Evans Munyuki is the Group Chief

Information Officer (CIO) at the Kelly Group.He previously worked for IBM for over 15years where he held many executive rolesand key leadership roles. Evans is a Non-Exec Board Member on the IoD Board, amember of the Institute of Directors (IoD),and holds several business & managementcertifications including certification as anIoD Certified Director. Evans holds degreesin Electronics Engineering, ProjectManagement, Business Administration, anda minor in Computer Information Systems.You can contact Evans atemunyuki@gmail.com or +27 (0) 83 2884391.

In the same report, South Africawas rated the second-most-stablecountry in Sub-Saharan Africa be-hind Mauritius.

Government in South Africa hasmade a conscious decision to seekeconomic growth which is driven bythe Business Process OutsourcingSector18.

South Africa has built a welldeveloped telecommunicationsinfrastructure.

Through a consortium betweenmany countries and manycompanies, South Africa enjoys anunder-sea network links to the restof the world through SAT 3 withback-up options.

South Africa Telecomms werederegulated, creating anenvironment for competition whichshould yield an environment ofcompetition which encouragesreduced costs.

Through a network of cellularservice providers, South Africa hasestablished 3G Service in the majormetropolitan areas, and coverage iscontinuing to expand.

Deregulation of Voice Over IP(VOIP). Up until 1 February 2005,Telkom had a monopoly over theVOIP network in South Africa19.VOIP allows use of the internet fortelephone calls without using apublic switched telephone network.Once one has paid for the internetconnection, they don't have to payadditional fees for the VOIP call,which makes the call virtually free.

As is the case with most of Africa,South Africa enjoys closesynchronization with the time zonesin Europe.

The cost per call in South Africa ismore than Germany, Sweden, andthe USA, however, the cost per callin South Africa is less than the UK,France, Australia, and Finland.Compared to other African countries,telecoms rates in South Africa arestill high - the government is workingon legislating substantially reducedtariff packages20 to address.

The official unemployment rate21 inSouth Africa is 23%. However,numbers as high as 40% are alsoquoted for South Africa'sunemployment rate22 depending onwhether the narrow definition or thebroad definition is used in definingunemployment. The conclusion to bedrawn is that South Africa has a largepool of people to tap into for skillsdevelopment.

Though the country is a youngdemocracy, South Africa hascontinued to enjoy economicstability, and social stability.

The South African governmentprioritized its objective of globaloutsourcing (BPO) and has put inplace investment incentives aimed atattracting foreign investors andcompanies.

South Africa is an attractiveemerging country with a vibranttourism industry. A total of 9.07million foreigners visited South Africain 2007, an 8.3% increase over200623. This is nearly three times the3.9 million foreigners who visitedSouth Africa in 1994.

What should an emergingAfrican country do to positionitself as an attractive globaloutsourcing destination?

To position itself as an attractiveglobal outsourcing destination, anAfrican emerging country should

References1 SA Business Guidebook, Edition 9, published by the Department of Trade and Industry (DTI) South Africa2 http://www.modernghana.com/news/182904/1/africa-the-global-green-field-outsource-location-.mgl3 http://info.worldbank.org/governance/wgi/index.asp4 http://info.worldbank.org/governance/wgi/faq.htm#25 http://www.doingbusiness.org/economyrankings/6 http://www.doingbusiness.org/economyrankings/?regionid=77 http://www.thetimes.co.za/PrintEdition/Article.aspx?id=7361628 http://www.callcentres.co.za/?TabID=109 http://en.wikipedia.org/wiki/Corporate_governance10 IT Governance Institute11 http://www.swan.ac.uk/economics/res2004/press/business/gorg.pdf12 http://www.southafrica.info/business/economy/policies/ratesa08.htm13 http://www.sagoodnews.co.za/economy/south_africa_increases_r_d_spend.html14 http://www.sagoodnews.co.za/economy/south_africa_increases_r_d_spend.html15 http://www.sagoodnews.co.za/economy/south_africa_increases_r_d_spend.html16 http://www.southafrica.info/business/economy/policies/ratesa08.htm17 http://www.southafrica.info/business/economy/policies/ratesa08.htm18 http://www.southafrica.info/business/investing/incentives/bpo-160307.htm19 http://www.southafrica.info/doing_business/trends/voip-deregulation.htm20 http://www.callcentres.co.za/?TabID=1022 http://www.southafrica.info/business/economy/development/lfs-280308.htm22 http://www.csae.ox.ac.uk/resprogs/usam/default.html23 http://www.southafrica.info/business/economy/sectors/tourism-overview.htm