India’s economic miracle over the past 3 decades is something South Africa is hoping to emulate. This miracle has been ascribed largely to the growth of the IT and BPO (Business Process Outsourcing) sectors, linked to the low cost of labour in India. The American TV sitcom, “Outsourced”, provides a humorous glimpse into the BPO world of call centres, online shopping, etc in Mumbai, India.
The Indian BPO industry has been growing rapidly, to the point where today a large number of security firms in the US and UK use people in India to monitor their CCTV systems and report when burglars are prowling around outside businesses and houses back in the UK or US. As the cost of employing someone in India is less than 1% of the cost of employing someone in the UK or USA, the Indians are doing the work profitably!
India is not so foreign to South Africans – we all have friends and colleagues who are Indian. In fact, outside of the Indian subcontinent, SA has the largest concentration of people of Indian descent – more than 1 million of SA’s total population of 50 million are of Indian descent.
Nevertheless, the two countries are so different that it is hard to compare them meaningfully. Firstly, India has a total population of 1,25 billion – which means that there are 25 Indians for every 1 South African.
Secondly, according to Wikipedia, in 2010 the GDP per capita for SA was $7158 while it was only $1389 for India. This means that for every R5 that the average South African earns, the average Indian earns a mere R1 – i.e. the poor in India are much poorer than the poor in SA. So, in comparison to Indians, South Africans are quite wealthy.
Broadly speaking, the SA government’s overtures to join the BRIC club, and more particularly its attempts to link up economically with India, have had a positive effect on the SA economy, as it has attracted a substantial amount of foreign direct investment. However, the problem with foreign investment is that it can be withdrawn at any moment, as usually happens with there is a crisis. This means that it creates a bubble in which everything looks good until someone suddenly wants to be paid back. So, although SA’s importance as the entry point for investment into the African market may have some value, who knows what that value is? With regard to the BPO sector, the fact that the cost of telecommunications in SA has been reduced substantially over the past decade, as broadband has become much cheaper, marks a major infrastructural improvement.
Over the past 2 years, as a South African online service provider, Tenderscan has been approached by four Indian companies, all proposing to work together in some kind of short term BPO contract. Although flattered by the requests, we soon realized that the costs of setting up the BPO system, and the costs of employing IT labour and technology in SA are comparatively high. The question is: How do we demonstrate value for money, given the comparatively low margins that Indian companies work with? Put differently, how can a subcontractor charge a higher rate than the principal contractor? How would such a deal work? The simple economic solution lies in working out the bare minimum of work that needs to be completed in SA, while the bulk of the work would be done in India.
Consider a typical BPO example: a South African bank needs its daily deposit slips scanned, captured and indexed on a daily basis. The Indian BPO company secures the contract but needs local agents in SA to handle the initial part of the work, so it sets up local agents in Johannesburg, Durban and Cape Town. The subcontracting local agents in South Africa scan the documents and send the scanned images to the principal contractor in India, who then captures, indexes and uploads the information for the SA bank in time for the next day. So the bulk of the work is done in India, and only a small fraction is done in SA. For South African subcontractors wishing to compete successfully in the BPO sector, it is necessary to negotiate the largest and most profitable deal from the Indian principal contractor. But this won’t be easy.
This does not mean that we need to call for support from the SA state. It is important to remember that the growth of the BPO sector in India did not come about through any state intervention, but has been driven almost completely by private sector arrangements and competition. Nandan Nilekani’s book “Imagining India” describes how Infosys and the Bangalore IT / BPO sector grew, despite continually coming into conflict with corruption within the Indian government. The Indian NPO Head Held High is also involved in initiating BPO projects as a strategy for the upliftment of poor villagers in India. South Africans could learn a lot from India’s do-it-yourself approach to solving its BPO sector problems. Rather than waiting for the SA Dept Trade & Industry to develop a policy to assist the BPO industry in SA, we need to negotiate smart, efficient deals with our Indian partners for mutual benefit.